Canada Gazette, Part I, Volume 153, Number 5: Canada Deposit Insurance Corporation Resolution Planning By-law
February 2, 2019
Statutory authority
Canada Deposit Insurance Corporation Act
Sponsoring agency
Canada Deposit Insurance Corporation
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the By-law.)
Issues
The proposed Canada Deposit Insurance Corporation Resolution Planning By-law (the By-law) prescribes the requirements for Canada’s domestic systemically important banks (DSIBs) to develop, submit and maintain resolution plans.
Background
The federal government amended the Canada Deposit Insurance Corporation Act (CDIC Act) on June 22, 2017, providing the Board of Directors of the Canada Deposit Insurance Corporation (the Corporation) with the authority to make a by-law respecting the development, submission and maintenance of resolution plans by the DSIBs, including specifying the contents of those plans.
As Canada’s resolution authority for its member institutions, the Canada Deposit Insurance Corporation is working with the DSIBs to ensure their resolution plans demonstrate that they can fail safely, so that Canadians can have confidence in the stability of the financial system in Canada. The approach is aligned with international standards for bank resolution, as set by the Financial Stability Board, which requires the development of adequate resolution plans for systemically important banks.
The By-law will formalize the framework for the development, submission and maintenance of resolution plans by DSIBs and a process for highlighting and addressing deficiencies in those plans. The By-law will incorporate existing resolution planning criteria developed by the Canada Deposit Insurance Corporation and will be an important element in support of the work of the Corporation towards DSIB resolvability.
Objectives
The principal objective of the By-law is to establish a statutory framework pursuant to which DSIBs develop, submit and maintain resolution plans that are critical to support resolvability and financial sector stability. The statutory framework will also incent DSIBs to meet the Canada Deposit Insurance Corporation’s expectations with respect to resolution planning by setting out a process to advise the DSIBs of resolution plan deficiencies and of whether they are in compliance with the By-law, and will require DSIBs to develop work plans detailing the remedial actions necessary to address those deficiencies.
Description
| By-law Section | Explanation |
|---|---|
| 1 | Provides definitions for terms used throughout the By-law and clarifies that the By-law requirements apply to DSIBs only. |
| 2 | Provides how the resolution plan must be approved. |
| 3 | Provides that the DSIB must establish policies and procedures for the maintenance, testing and review of the resolution plan, and provide these and a summary of the maintenance and testing activities undertaken by the DSIB to the Corporation upon request. |
| 4, 5 and 6 | Provide that the DSIB must notify the Corporation of any material change, and that the Corporation may request a material change report, including the DSIB’s plan to address the material change and timelines for updating the resolution plan. The Corporation may request that this plan be included in the next submission of its resolution plan. |
| 7 and 8 | Set out the required contents of the resolution plan. |
| 9 and 10 | Provide that the Corporation will notify the DSIB whether the resolution plan complies with the By-law, will advise the DSIB of the particulars of any non-compliance, and will request a revised work plan. |
| 11 | Sets out the contents and processes associated with the delay and approval of the revised work plan, and provides that the Corporation must notify the DSIB in writing of the final compliance determination. |
“One-for-One” Rule
The “One-for-One” Rule does not apply to this proposal.
Small business lens
The proposed Canada Deposit Insurance Corporation Resolution Planning By-law applies to Canada’s DSIBs only. The small business lens does not apply to this proposal.
Consultation
In February 2018, the Corporation undertook a public consultation, including targeted consultations with the DSIBs on the elements of the proposed By-law. Further consultations with the DSIBs took place in June and December 2018. Feedback from industry has been considered throughout the development of the By-law.
Rationale
The principal objective of the By-law is to establish a statutory framework pursuant to which the DSIBs develop, submit and maintain resolution plans that are critical to support resolvability and financial sector stability.
Implementation, enforcement and service standards
This By-law would come into force on the day on which section 110 of the Budget Implementation Act, 2017, No. 1 comes into force or, if it is registered after that day, on the day on which it is registered.
Contact
Emiel van der Velden
Director
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613‑943‑2773
Email: evandervelden@cdic.ca
PROPOSED REGULATORY TEXT
Notice is given that the Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(e)footnote a of the Canada Deposit Insurance Corporation Actfootnote b, proposes to make the annexed Canada Deposit Insurance Corporation Resolution Planning By-law.
Interested persons may make representations concerning the proposed By-law within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Emiel van der Velden, Director, Insurance, Canada Deposit Insurance Corporation, 50 O’Connor Street, Ottawa, Ontario K1P 6L2 (email: evandervelden@cdic.ca).
Ottawa, January 24, 2019
Peter Routledge
President and Chief Executive Officer
Canada Deposit Insurance Corporation
Canada Deposit Insurance Corporation Resolution Planning By-law
Interpretation
Definitions
1 The following definitions apply in this By-law.
- Act means the Canada Deposit Insurance Corporation Act. (Loi)
- bank means a domestic systemically important bank. (banque)
- bank group means the bank and its affiliates, any entity in which the bank has a substantial investment, as defined in section 2 of the Bank Act, and any business enterprise that the bank operates with other persons, including a joint venture or a special purpose vehicle. (groupe bancaire)
- critical function means an activity performed by an entity within the bank group for persons not affiliated with the bank group and whose absence or failure would have an adverse effect on the stability of the financial system or on the functioning of the economy in Canada. (fonction essentielle)
- critical shared service means an activity that is performed by an entity within the bank group or an external provider for one or more business units or legal entities of the bank group and whose absence or failure would lead to the cessation of, or present a material risk to the continuity of, critical functions. (service partagé essentiel)
- material change means a change in the bank group’s legal structure, business, operations, critical functions, critical shared services, material legal entities or the laws and regulations applicable to it which would require one or more amendments to the bank’s resolution plan. (changement important)
- material legal entity means a legal entity or branch within the bank group that meets at least one of the following criteria:
- (a) it performs a critical function or a critical shared service;
- (b) the failure or disruption of its operations might prevent the implementation of the bank’s resolution strategy; or
- (c) it is a member institution. (entité juridique importante)
- resolution means the exercise by the Corporation of its powers under paragraph 7(d) of the Act, or the exercise of similar powers by an authority in another jurisdiction within or outside Canada. (règlement)
- resolution plan means the bank’s plan for the bank group’s resolution. (plan de règlement)
Submission and Maintenance of the Resolution Plan
Approval
2 (1) Any resolution plan submitted to the Corporation by the bank under section 39.01 of the Act must first be approved by the board of directors of the bank or by a delegated committee of the board of directors of the bank, unless otherwise specified by the Corporation.
Partial plan
(2) The Corporation may request that a bank submit only a partial resolution plan.
Policies for updating resolution plan
3 (1) The bank must establish policies and procedures that ensure that the resolution plan is maintained, tested, regularly reviewed against the current legal, financial, regulatory and operational characteristics of the bank group and is updated to reflect any material change.
Copy provided to Corporation
(2) The bank must provide, upon request by the Corporation, a copy of the policies and procedures set out under paragraph (1) and a summary of the maintenance and testing activities undertaken by the bank in respect of the resolution plan.
Notice of material change
4 The bank must notify the Corporation as soon as possible after the occurrence of a material change.
Material change report
5 (1) On receipt of the notification required under section 4, the Corporation may request that the bank provide a material change report which must include
- (a) a brief description of the material change;
- (b) a reference to the sections of the resolution plan that would be affected by the material change; and
- (c) the bank’s plan to address the material change and the schedule for updating the resolution plan.
Delay for providing report
(2) The bank must provide the material change report within 30 days of the Corporation’s request, unless the Corporation has specified a longer period.
Plan in next submission
6 The bank must include, upon request by the Corporation, the plan referred to in paragraph 5(1)(c) in its work plan for the next submission of its resolution plan.
Contents of the Resolution Plan
Contents
7 The resolution plan must contain
- (a) a description of each critical function;
- (b) a description of each critical shared service;
- (c) a description of each material legal entity;
- (d) a resolution strategy as set out in section 8;
- (e) the bank’s assessment of how the bank group’s legal structure, operations and financial arrangements will support the implementation of the resolution strategy;
- (f) the bank’s assessment of how the resolution strategy minimizes reliance on public sector financial assistance and ensures that material legal entities will have access to sufficient loss absorbing capacity, liquidity and funding during the resolution;
- (g) a summary of the bank group’s regulators and the regulatory requirements applicable to the resolution strategy and a description of how the applicable regulatory requirements are satisfied to support implementation of the resolution strategy;
- (h) a list of the bank group’s material contractual arrangements, including a demonstration of how the contractual requirements will be met in resolution to support the implementation of the resolution strategy;
- (i) the bank’s analysis of how the bank group’s governance practices, operational capabilities and information systems will support the implementation of the resolution strategy;
- (j) the bank’s assessment of impediments to the implementation of the resolution strategy, including a summary of the impact of those impediments on the Corporation’s ability to implement the resolution strategy and on the continuity of critical functions; and
- (k) a work plan that outlines the planned activities for the maintenance, validation and testing of the resolution plan, including activities to incorporate any material change and proposes remedial actions and time frames to address deficiencies.
Resolution strategy
8 The resolution strategy must set out
- (a) how the Corporation will carry out the resolution of each member institution in a manner that supports the continuity of critical functions;
- (b) how each material legal entity other than the member institution
- (i) will continue to operate in a manner that supports the continuity of critical functions,
- (ii) can be disposed of or wound down without impeding the continuity of critical functions, or
- (iii) can be placed in an orderly insolvency proceeding or resolved without impeding the continuity of critical functions; and
- (c) how the profile and operations of the bank group can be reduced through divestitures or wound down, with minimal adverse effect on the stability of the financial system in Canada.
Notice of Compliance and Request for Revised Work Plan
Notice of compliance
9 Following its assessment of the resolution plan, the Corporation notifies the bank in writing whether the resolution plan is compliant with this By-law.
Particulars of non-compliance
10 If the resolution plan does not comply with this By-law, the Corporation must advise the bank in writing of the deficiencies that resulted in the non-compliance and request that the bank submit a revised work plan.
Revised work plan
11 (1) The revised work plan must describe the remedial actions to be taken by the bank to address the relevant deficiencies and the schedule required to complete those actions.
Approval of revised work plan
(2) The revised work plan submitted to the Corporation must first be approved by the board of directors of the bank or by a delegated committee of the board of directors of the bank, unless otherwise specified by the Corporation.
Delay
(3) The revised work plan must be submitted in writing to the Corporation within 30 days of the Corporation’s request, unless the Corporation has specified a longer period.
Decision
(4) On receipt of the revised work plan, the Corporation must determine whether the resolution plan
- (a) complies with this By-law;
- (b) is partially non-compliant if it contains one or more deficiencies which would prevent the implementation of the bank’s resolution strategy but for which an acceptable work plan is being substantially complied with; or
- (c) is materially non-compliant if it contains one or more deficiencies for which an acceptable work plan is either not in place or is not being substantially complied with.
Notice
(5) The Corporation must notify the bank in writing of its decision.
Subsequent revision to work plan
(6) Any revision to the work plan must be agreed to by the Corporation and, unless otherwise specified by the Corporation, must first be approved by the board of directors of the bank or by a delegated committee of the board of directors of the bank.
Coming into Force
S.C. 2017, c. 20
12 This By-law comes into force on the day on which section 110 of the Budget Implementation Act, 2017, No. 1 comes into force, but if it is registered after that day, it comes into force on the day on which it is registered.