Vol. 151, No. 5 — March 8, 2017
Registration
SOR/2017-22 March 8, 2017
CANADA DEPOSIT INSURANCE CORPORATION ACT
By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law
The Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(g) (see footnote a) and subsection 21(2) (see footnote b) of the Canada Deposit Insurance Corporation Act (see footnote c), makes the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.
Ottawa, December 7, 2016
The Minister of Finance, pursuant to subsection 21(3) (see footnote d) of the Canada Deposit Insurance Corporation Act (see footnote e), approves the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law, made by the Board of Directors of the Canada Deposit Insurance Corporation.
Ottawa, February 15, 2017
William Francis Morneau
Minister of Finance
By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law
Amendments
1 (1) The portion of subsection 8.1(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) before paragraph (a) is replaced by the following:
8.1 (1) For any premium year that begins after 2013, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of the preceding premium year shall
(2) The portion of subsection 8.1(2) of the By-law before paragraph (a) is replaced by the following:
(2) For any premium year that begins after 2014, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the two preceding premium years shall
(3) Subsection 8.1(3) of the By-law is replaced by the following:
(3) For any premium year that begins after 2015, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the three preceding premium years shall be classified in premium category 4 and, until it is in compliance with that By-law, it shall also be classified in premium category 4 for each subsequent premium year during which it is not in compliance with that By-law.
2 Section 8.2 of the By-law is repealed.
3 The portion of subsection 12(1) of the By-law before paragraph (a) is replaced by the following:
12 (1) Despite sections 8, 8.1, 9 and 11, a member institution shall be classified in premium category 4 as set out in column 1 of Schedule 1 if it
4 Schedule 1 to the By-law is replaced by the Schedule 1 set out in the schedule to this By-law.
5 The portion of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law beginning with the heading “1.3.3 Minimum Required Tier 1 Capital Ratio” and ending before the heading “1.5 Capital Adequacy Score” is replaced by the following:
The amendment(s) to the portion of the item 1 |
|
|---|---|
| 1.3.3 Minimum Required Tier 1 Capital Ratio Indicate the minimum required Tier 1 capital ratio as set by the regulator for the member institution in accordance with the Capital Adequacy Requirements Guideline of the Guidelines, but if a different minimum required Tier 1 capital ratio has been set by the regulator by written notice sent to the member institution, indicate that ratio instead. | |
| 1.3.4 “All in” Target Tier 1 Capital Ratio Indicate the “all in” target Tier 1 capital ratio (including the capital conservation buffer and domestic systemically important bank surcharge as applicable) as set by the regulator for the member institution in accordance with the Capital Adequacy Requirements Guideline of the Guidelines, but if a different all-in target Tier 1 capital ratio has been set by the regulator by written notice sent to the member institution, indicate that ratio instead. | |
| 1.4 Tier 1 Capital Ratio Score | |
| Use the scoring grid below to determine the member institution’s Tier 1 capital ratio score. | |
| Range of Scores for Tier 1 Capital Ratio | Score |
| Tier 1 capital ratio (1.3) is > “all in” target Tier 1 capital ratio (1.3.4) | 10 |
| Tier 1 capital ratio (1.3) is ≤ “all in” target Tier 1 capital ratio (1.3.4) but > minimum required Tier 1 capital ratio (1.3.3) | 6 |
| Tier 1 capital ratio (1.3) is < minimum required Tier 1 capital ratio (1.3.3) | 0 |
| 1.4 Tier 1 Capital Ratio Score | |
6 The second paragraph after the heading “3 MEAN ADJUSTED NET INCOME VOLATILITY” in item 3 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:
If a member institution has been operating as a member institution for five or more fiscal years but less than 10 fiscal years consisting of at least 12 months each (with the last fiscal year of operation ending in the year preceding the filing year), it must complete the formula using the fiscal years during which it has been operating with the appropriate adjustment to the value of “n”.
7 The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law beginning with the heading “Elements” and ending before the heading “Score” is replaced by the following:
The amendment(s) to the portion of the item 7 |
||
|---|---|---|
| Elements Use the instructions below to arrive at the elements of the formula. Refer to the following documents:
| ||
Assets for Year 1 Assets for Year 1 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the third filing year before the filing year in which this Reporting Form is being submitted. Assets for Year 2 Assets for Year 2 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the second filing year before the filing year in which this Reporting Form is being submitted. Assets for Year 3 Assets for Year 3 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the filing year before the filing year in which this Reporting Form is being submitted. | ||
| Year 1: | the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the third filing year before the filing year in which this Reporting Form is being submitted | 7.1 _________ |
| Year 2: | the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the second filing year before the filing year in which this Reporting Form is being submitted | 7.2 _________ |
| Year 3: | the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the filing year before the filing year in which this Reporting Form is being submitted | 7.3 _________ |
| Assets for Year 4 Assets for Year 4 is the amount determined by using the following formula: 7.4.1 + 7.4.4 + 7.4.5 + 7.4.6 + 7.4.7 + 7.4.8 + 7.4.9 + 7.4.10 – 7.4.2 – 7.4.3 (7.4.11 – 7.4.12) – 7.4.13 – 7.4.14 + 7.4.15 + 7.4.16 + 7.4.17 + 7.4.18 + 7.4.19 + 7.4.20 + 7.4.21 + 7.4.22 – 7.4.23 – 7.4.24 – 7.4.25 – 7.4.26 Use the instructions below to arrive at the elements of the formula. | ||
| 7.4.1 On-balance sheet assets Indicate the amount set out in the column “Accounting balance sheet value” for On-balance sheet assets - for purposes of the Leverage Ratio, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.2 Off-balance sheet Eligible servicer cash advance facilities Indicate the amount set out in the column “Notional Amount” for Eligible servicer cash advance facilities – 10% CCF, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.3 Other Off-balance sheet Securitization exposures Indicate the amount set out in the column “Notional Amount” for Other off-balance sheet securitization exposures – 100% CCF, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.4 Off-balance sheet Direct credit substitutes Indicate the amount set out in the column “Notional Amount” for Direct credit substitutes – 100% CCF, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.5 Off-balance sheet Transaction-related contingent items Indicate the amount set out in the column “Notional Amount” for Transaction-related contingent items – 50% CCF, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.6 Off-balance sheet Short-term self-liquidating trade letters of credit Indicate the amount set out in the column “Notional Amount” for Short-term self-liquidating trade letters of credit – 20% CCF, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.7 Total derivative contract exposure (not covered) Indicate the amount set out in the column “Total Contracts” for (A) Single derivative exposure not covered by an eligible netting contract, (i) Replacement cost – Gross positive replacement cost", as set out in Section 2 – Derivative Exposure Calculation of the LRR. | ||
| 7.4.8 Total derivative contract exposure (covered) Indicate the amount set out in the column “Total Contracts” for “(B) Derivative exposure covered by an eligible netting contract, (i) Replacement cost – Net positive replacement cost”, as set out in Section 2 – Derivative Exposure Calculation of the LRR. | ||
| 7.4.9 On-balance sheet Derivatives Indicate the amount set out in the column “Accounting balance sheet value” for Derivatives, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.10 On-balance sheet Grandfathered securitization exposures Indicate the amount set out in the column “Accounting balance sheet value” for Grandfathered securitization exposures, as set out in Section 1 – Leverage Ratio Calculation of the LRR. | ||
| 7.4.11 Transitional Net Common Equity Tier 1 Capital Indicate the Net Common Equity Tier 1 Capital (CET1 after all deductions) on Transitional Basis, as set out in Schedule 1A – Ratios, Capital, and Risk-weighted Assets on Transitional Basis of the BCAR form. | ||
| 7.4.12 Transitional Gross Common Equity Tier 1 Capital Indicate the Gross Common Equity Tier 1 Capital on Transitional Basis, as set out in Schedule 1A – Ratios, Capital, and Risk-weighted Assets on Transitional Basis of the BCAR form. | ||
| 7.4.13 Transitional Deduction from Additional Tier 1 Indicate the Deduction from Additional Tier 1 during transition, as set out in Schedule 1A – Ratios, Capital, and Risk-weighted Assets onTransitional Basis of the BCAR form. | ||
| 7.4.14 Transitional Deduction from Tier 2 Indicate the Deduction from Tier 2 during transition, as set out in Schedule 1A – Ratios, Capital, and Risk-weighted Assets on Transitional Basis of the BCAR form. | ||
| 7.4.15 Eligible collective allowance Indicate the Eligible collective allowance (re standardized approach), as set out in Schedule 3 – Capital Elements of the BCAR form. | ||
| 7.4.16 Excess allowance Indicate the Excess allowance (re IRB approach), as set out in Schedule 3 – Capital Elements of the BCAR form. | ||
| 7.4.17 Direct credit substitutes – credit derivatives – Standardized Approach Indicate the amount set out in the column “Notional Principal Amount (a)” for Direct credit substitutes – credit derivatives, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.18 Direct credit substitutes – credit derivatives – Foundation IRB approach Indicate the amount set out in the column “Notional Principal Amount (d)” for Direct credit substitutes – credit derivatives, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.19 Direct credit substitutes – credit derivatives – Advanced IRB approach Indicate the amount set out in the column “Notional Principal Amount (g)” for Direct credit substitutes – credit derivatives, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.20 Sale and repurchase agreements – Standardized approach Indicate the amount set out in the column “Notional Principal Amount (a)” for Sale & repurchase agreements, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.21 Sale and repurchase agreements – Foundation IRB approach Indicate the amount set out in the column “Notional Principal Amount (d)” for Sale & repurchase agreements, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.22 Sale and repurchase agreements – Advanced IRB approach Indicate the amount set out in the column “Notional Principal Amount (g)” for Sale & repurchase agreements, as set out in Schedule 39 – Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures of the BCAR form. | ||
| 7.4.23 Collective allowance on balance sheet assets Indicate the Collective allowance on balance sheet assets for capital purposes, as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form. | ||
| 7.4.24 “On-balance sheet” securitization exposures Indicate the “On-balance sheet” securitization exposures recognized for capital ratio but not for consolidated balance sheet purposes, as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form. | ||
| 7.4.25 Adjustments – measurement bases Indicate the Adjustments to reflect differences in balance sheet exposure amounts resulting from – measurement bases used for accounting purposes (fair values,) as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form. | ||
| 7.4.26 Adjustments – recognition bases Indicate the Adjustments to reflect differences in balance sheet exposure amounts resulting from – recognition bases used for accounting purposes (settlement / trade date), as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form. | ||
| Year 4: | as of the end of the fiscal year ending in the year preceding the filing year | 7.4 _________ |
| Indicate the number of fiscal years consisting of at least 12 months that the member institution has been operating as a member institution (if less than six fiscal years). | ____________ | |
| A member institution must report assets for the last four fiscal years. | ||
8 (1) The instruction “Fill in Table 8 for each of the following types of mortgages.” before the heading “Residential Properties Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:
Fill in Table 8 for each of the following types of outstanding mortgages.
(2) The heading “Second or Subsequent Mortage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:
Second or Subsequent Mortgage Loans Outstanding
9 The Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by adding the following before the Certification set out at the end of the Reporting Form:
This Reporting Form was prepared by
Name and Title: _______________________________
Business mailing address: _______________________________
Business telephone number: _______________________________
Business email address: _______________________________
Note: The above information may be used by CDIC to contact the member institution to discuss this Reporting Form.
10 The portion of items 1 and 2 of Part 1 of Schedule 3 to the English version of the By-law in column 3 is replaced by the following:
| Item | Column 3 Tier 1 Capital Ratio |
|---|---|
| 1 | Tier 1 capital ratio is > the “all in” target Tier 1 capital ratio set by the regulator for the member institution |
| 2 | Tier 1 capital ratio is ≤ the “all in” target Tier 1 capital ratio set by the regulator for the member institution but > the minimum Tier 1 capital ratio required by the regulator |
Coming into Force
11 This By-law comes into force on the day on which it is registered.
SCHEDULE
(Section 4)
SCHEDULE 1
(Sections 3, 4, 7, 8 and 12)
PREMIUM CATEGORIES
| Item | Column 1 | Column 2 | Column 3 Percentage | |
|---|---|---|---|---|
| Premium Category | Total Score | Premium Year Beginning in 2017 | Premium Years Beginning in or After 2018 | |
| 1 | 1 | ≥ 80 | 19.5% | 22.5% |
| 2 | 2 | ≥ 65 and < 80 | 39% | 45% |
| 3 | 3 | ≥ 50 and < 65 | 78% | 90% |
| 4 | 4 | < 50 | 100% | 100% |
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the By-law.)
Issues
The Canada Deposit Insurance Corporation (CDIC) annually reviews the Canada Deposit Insurance Corporation Differential Premiums By-law (the By-law) to confirm it is technically up to date. As a result, technical amendments are included in the By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (the Amending By-law). The Amending By-law primarily targets the following two main issues.
1. Target Tier 1 capital ratio to be reported by CDIC member institutions
The amendments are primarily being made to clarify that where the Office of the Superintendent of Financial Institutions (OSFI) has set a different Tier 1 capital ratio (as compared to the one set out in OSFI’s Capital Adequacy Requirements Guideline) via written notice to the member institution, the member institution shall, for the purposes of the Reporting Form to the Canada Deposit Insurance Corporation Differential Premiums By-law, report the ratio set out in OSFI’s written notice.
2. Updates to the Three-Year Moving Average Asset Growth Ratio
The amendments add data points to the Three-Year Moving Average Asset Growth Ratio. In accordance with the Basel III framework, OSFI amended its Basel Capital Adequacy Reporting requirements by replacing the Assets to Capital Multiple (ACM) with a new leverage ratio. As a result of those changes, the CDIC can no longer rely on the ACM numerator to calculate the average asset growth under this measure. It is therefore necessary to amend the By-law to retain the integrity of the calculation of members’ Three-Year Moving Average Asset Growth Ratios.
Background
The Board of Directors of the CDIC made the By-law on March 3, 1999, pursuant to subsection 21(2) and paragraph 11(2)(g) of the Canada Deposit Insurance Corporation Act (CDIC Act). Subsection 21(2) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws establishing a system of classifying member institutions into different categories, setting out the criteria or factors the CDIC will consider in classifying members into categories, establishing the procedures the CDIC will follow in classifying members, and fixing the amount of, or providing a manner of determining the amount of, the annual premium applicable to each category. The CDIC Board of Directors amended the By-law on January 12 and December 6, 2000, July 26, 2001, March 7, 2002, March 3, 2004, February 9 and April 15, 2005, February 8 and December 6, 2006, December 3, 2008, December 2, 2009, December 8, 2010, December 7, 2011, December 5, 2012, December 4, 2013, April 22, 2015, and February 4, 2016.
Objectives
The main objectives of the Amending By-law are to amend the current By-law to address the two above-noted issues:
- Target Tier 1 capital ratio — Clarify that for the purposes of the Reporting Form, member institutions are to report the ratio set out in OSFI’s written notice.
- Three-Year Moving Average Asset Growth Ratio — Amend the formula to retain the integrity of the calculation of members’ Three-Year Moving Average Asset Growth Ratios.
Description
The changes are reflected in the Amending By-law. The following table provides more detail about the amendments, all of which are technical in nature.
| Amending By-law Section | By-law Section | Explanation |
|---|---|---|
| By-law | ||
| 1 | 8.1(1) | To reflect the repeal of section 8.2 and the consequential amendments to section 8.1. |
| 8.1(2) | To reflect the repeal of section 8.2 and the consequential amendments to section 8.1. | |
| 8.1(3) | To reflect that non-compliance can be cured and, if so, that subsection (1) would apply if there was a later non-compliance by the institution. | |
| 2 | 8.2(1) | To repeal subsection 8.2(1) on the basis that it applies only to the 2013 premium year. |
| 8.2(2) | To repeal subsection 8.2(2) on the basis that it applies only to the 2014 premium year. | |
| 8.2(3) | To repeal subsection 8.2(3) on the basis that it applies only to the 2015 premium year. | |
| 3 | 12(1) | Consequential amendments to subsection 12(1) are necessary to reflect the deletion of section 8.2. |
| Schedule 1, Premium Categories | ||
| 4 | Schedule 1 | To remove the percentage set out in column 3 for the premium years beginning in 2015 and 2016, as those premium years are complete. |
| Schedule 2, Part 2, Reporting Form | ||
| 5 | Item 1 | To clarify that a member institution must indicate the target Tier 1 capital ratio set by the regulator for the member institution, whether set by capital adequacy guidance or by a written notice from the regulator to the institution. To refer to the “all in” target Tier 1 capital ratio for consistency with OSFI terminology. |
| 6 | Item 3 | To clarify that the formula applies to member institutions operating for five fiscal years or more. |
| 7 | Item 7 | As a result of adopting the Basel Leverage Ratio for the 2016 filing year, the CDIC can no longer rely on the Assets to Capital Multiple numerator (ACM data point) to calculate the average asset growth under this measure. The amendments provide for the Three-Year Moving Average Asset Growth Ratio to include additional data points from OSFI’s Leverage Requirements Return and Basel III Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR) form that result in an equivalent to the ACM data point. |
| 8 | Item 8 | To add the word “outstanding” for consistency with OSFI terminology. |
| 9 | Certification | To add the business contact information for the individual who prepared the Reporting Form. |
| Schedule 3, Scoring Grid — Quantitative Assessment, Part 1, Capital Adequacy | ||
| 10 | Schedule 3 | For consistency with OSFI terminology. |
“One-for-One” Rule
The “One-for-One” Rule does not apply, as there is no change in administrative costs to business.
Small business lens
The small business lens does not apply, as there are no costs to small business.
Consultation
As the amendments are technical in nature, only consultation by way of prepublication is necessary. The Amending By-law appeared in the October 15, 2016, edition of Part I of the Canada Gazette. No comments were received.
Rationale
The Amending By-law ensures the By-law remains technically up to date, and addresses the identified issues. The Amending By-law will not impose any additional regulatory cost or administrative burden on industry.
Implementation, enforcement and service standards
The Amending By-law will come into effect for the 2017 premium year. There are no compliance or enforcement issues.
Contact
Joanne Lucas
Manager
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613-947-0270
Fax: 613-996-6095
Email: jlucas@cdic.ca
-
Footnote a
R.S., c. 18 (3rd Supp.), s. 51 -
Footnote b
S.C. 1996, c. 6, s. 27 -
Footnote c
R.S., c. C-3 -
Footnote d
S.C. 1996, c. 6, s. 27 -
Footnote e
R.S., c. C-3 -
Footnote 1
SOR/99-120