Banks and other financial institutions are impressed with public trust and public interest. For this reason, there is a need for it to be regulated stringently compared to other institutions in Canada. Financial institutions are also expected to follow applicable laws and regulations. If they don’t, public trust is lost. This could hurt the financial industry and affect the country’s economic stability.
Regulation of banking and financial institutions in Canada is shared between the federal government and the provincial or territorial governments.
Federal regulation of financial institutions
All banks are exclusively governed by the federal government, even though they are in different provinces and territories. The primary legislation for this is the Canadian Bank Act, which governs three categories of banks:
- Domestic banks incorporated in Canada (Schedule I)
- Foreign bank subsidiaries incorporated in Canada (Schedule II)
- Foreign banks branches authorized to operate in Canada (Schedule III)
At the federal level, the Minister of Finance (along with the Department of Finance) enforces banking and financial institutions acts. The Minister works with:
- the Office of the Superintendent of Financial Institutions (OSFI)
- the Financial Consumer Agency of Canada (FCAC)
- the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and
- Payments Canada (PC)
Provincial and Territorial regulation of financial institutions
Financial institutions that are not regulated by the Canadian federal government are governed by the provincial or territorial government. These include:
- mortgage brokers or mortgage dealers
- loan and trust companies
- securities dealers
- mutual fund companies and distributors
- credit unions and caisses populaires
Given the authority to regulate financial institutions acts in their own jurisdictions, the province of British Columbia (BC) has enacted the Financial Institutions Act (FIA). This act governs the different financial institutions operating within its jurisdiction or incorporated under other BC laws.
Financial Institutions Act
The Financial Institutions Act governs these types of financial institutions (section 1 (1), FIA):
- credit unions: institutions which are incorporated under BC’s Credit Union Incorporation Act (BCCUIA) or Credit Union Act, including central credit unions
- trust companies: institutions which are incorporated for the purpose of carrying on a trust business, under BC’s Business Corporations Act (BCBIA), including pre-existing trust companies
- insurance companies: institutions which are incorporated for the purpose of carrying on an insurance business under the BCBIA, including pre-existing insurance companies
Common law is also a factor in the regulation of financial institutions in BC, such as this case:
In a decision pronounced on April 19, 2022, the Supreme Court dismissed the claims that were made against the Trustees of the B.C. Credit Union Employee’s Pension Plan.— BC Financial Services Authority (@BCFSAOfficial) June 23, 2022
Learn more about this decision: https://t.co/ICqheA4EqO
To help understand this ruling better, you can contact a Lexpert top-ranked banking and financial institutions lawyer in British Columbia.
Although the incorporation of these companies is governed by either the BCCUIA or the BCBIA, the Financial Institutions Act includes additional regulations on the incorporation of these financial institutions, such as:
- names (section 12.1, FIA): prohibiting the use of false and misleading names which gives the wrong impression that a company or institution is a trust company or an insurance company when it is not;
- requisites for incorporation (section 13, FIA): compliance with the requirements for the incorporation of a trust company or an insurance company, such as acquiring the consent of the BC Financial Services Authority (BCFSA). This is pre-conditioned on the submission of company articles, payment of fees, business authorization, and proving that the applicant-company has the financial and managerial capacity to operate in BC
- "(not authorized)" (section 14, FIA): requiring a trust company or an insurance company to put in all their communications the words "(not authorized)" until it receives business authorization
It is also important that compliance with the appropriate financial institutions acts continues after the incorporation. Any violation against it may become a basis for the BCFSA to revoke a business authorization (section 249, FIA) of the financial institution.
Dissolution or Winding Up
The Financial Institutions Act also governs the dissolution, liquidation and winding up of trust companies or insurance companies. These may be done through either of the following:
- Voluntary Dissolution or Winding Up (section 24, FIA): through a prior a notice or resolution to be sent to the BCFSA
- Liquidation and Dissolution by a Court Order (section 25, FIA): when an insurance company has not undertaken any insurance business during the previous year, or when a trust company or an insurance company violates the FIA, its business authorization has been revoked, or when the court deems it just
- Liquidation and Dissolution on the Direction of the BCFSA (section 26, FIA): when a trust company or an insurance company that has been incorporated but does not have a business authorization has been ordered by the BCFSA to be liquidated or dissolved, or when it operates without a business authorization, or when it did not timely apply for a business authorization.
Offences and Penalties
Any violation of the provisions of the Financial Institutions Act will constitute as an offence, whether it is committed intentionally or recklessly, except when the offending person or financial institution enters into a voluntary compliance agreement with the BCFSA and fully complies with such agreement (section 252, FIA). Penalties for these offences may include fines, administrative penalties, restitution, and/or imprisonment.
The provincial agency tasked with implementing BC’s Financial Institutions Act (FIA) is the BC Financial Services Authority (BCFSA), which was established through the enactment of the Financial Services Authority Act.
Under this Act, the BCFSA is mandated to exercise the powers granted to it by several laws on banking and financial institutions in BC, which includes the FIA. It is also empowered by these different laws to create its respective Regulations for the purpose of its implementation.
Under the FIA, the BCFSA has the following powers:
- Denial of Incorporation (section 13 (3), FIA): to refuse the consent needed for the incorporation of a trust company or an insurance company, should the BCFSA believe that such incorporation is against public interest, and when it is based on some reasonable grounds
- Authorization for Extra-provincial Operations (sections 160 and 160.1, FIA): financial institutions that are not incorporated in British Columbia, but wish to operate in the province, should first apply for a business authorization with the BCFSA
- Order to Cease or Remedy (section 244, FIA): when a person or a financial institution has violated any of the provisions of the FIA, or any other act governed by the BCFSA, the BCFSA may order the institution to cease the continuation of an act or acts
- Order to Freeze Property (section 245, FIA): when a criminal action is or will be instituted against a person or a financial institution, in addition to contravening the FIA or any other laws on financial institutions, the BCFSA may order the properties of the subject institution be frozen until the resolution of such action.
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