Vol. 139, No. 19 — September 21, 2005

Registration
SOR/2005-267 August 31, 2005

OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS ACT

Administrative Monetary Penalties (OSFI) Regulations

P.C. 2005-1511 August 31, 2005

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsections 23.1(4) (see footnote a) and 25(1) (see footnote b) and section 38 (see footnote c) of the Office of the Superintendent of Financial Institutions Act (see footnote d), hereby makes the annexed Administrative Monetary Penalties (OSFI) Regulations.

ADMINISTRATIVE MONETARY PENALTIES (OSFI) REGULATIONS

INTERPRETATION

1. In these Regulations, "Act" means the Office of the Superintendent of Financial Institutions Act.

2. The short-form descriptions that are set out in column 1 of the schedule form no part of these Regulations and are inserted for convenience of reference only.

VIOLATIONS

3. (1) The contravention of a provision of a financial institutions Act that is set out in columns 2 to 5 of an item of the schedule is a violation that may be proceeded with under sections 26 to 37 of the Act.

(2) The non-compliance with any order or direction made, any terms and conditions imposed, any undertaking given or any prudential agreement entered into, under a provision of a financial institutions Act that is set out in columns 2 to 5 of an item of the schedule is a violation that may be proceeded with under sections 26 to 37 of the Act.

CLASSIFICATION

4. Each violation is classified as a minor, serious or very serious violation, as set out in column 6 of the schedule.

PENALTIES FOR LATE OR ERRONEOUS FILINGS

5. (1) Subject to subsection (2), the penalty in respect of a violation that is classified as minor under any of items 10, 19, 23, 24, 31, 32, 34 to 36, 60, 61, 63 and 69 to 71 of the schedule is

(a) if the violation is committed by a financial institution, bank holding company or insurance holding company that has total assets less than or equal to $250 million, $100;

(b) if the violation is committed by a financial institution, bank holding company or insurance holding company that has total assets greater than $250 million but less than or equal to $10 billion, $250; and

(c) if the violation is committed by a financial institution, bank holding company or insurance holding company that has total assets greater than $10 billion, $500.

(2) If a minor violation referred to in subsection (1) committed by a financial institution, bank holding company or insurance holding company is continued on more than one day, the penalty in respect of each of the separate violations that, because of section 35 of the Act, result from that continuation shall be the lesser of the penalty fixed under that subsection and the amount determined by dividing $25,000 by the total number of those separate violations.

REPEAL

6. The Filing Penalties (Office of the Superintendent of Financial Institutions) Regulations (see footnote 1) are repealed.

COMING INTO FORCE

7. These Regulations come into force on the day on which they are registered.

SCHEDULE

(Sections 2 to 5)

Item	Column 1 Short-form Description of Violation	Column 2 Provisions of the Bank Act	Column 3 Provisions of the Cooperative Credit Associations Act	Column 4 Provisions of the Insurance Companies Act
1.	Failure to obtain approval of Superintendent for carrying on business	48(1) and 534(2)	56(1)	52(1)
2.	Failure to obtain approval of Superintendent for the insuring in Canada of risks	N/A	N/A	573(1)
3.	Failure to comply with conditions or limitations on an order approving the commencement and carrying on of business	53, 54 and 534(5) and (6)	61 and 62	58(2), 59 and 657(3) and (4)
4.	Failure to comply with conditions or limitations on an order approving the insuring in Canada of risks	N/A	N/A	581(2) and 586(1)
5.	Failure to obtain approval of Superintendent for issuing shares paid for in property	65(1) and 709(1)	74(1)	69(1) and 748(1)
6.	Holding of own shares	70 and 714	78	74 and 753
7.	Failure to notify Superintendent of declaration of dividend on time	79(2) and 722(2)	86(2)	83(2) and 761(2)
8.	Failure to obtain approval of Superintendent for declaration and payment of dividend in excess of net income	79(5)	86(5)	83(5)
9.	Failure to obtain approval of Superintendent for issuing subordinated debt paid for in property	80(1) and 723(1)	87(1)	84(1) and 762(1)
10.	Failure to file with Superintendent proxy circular, notice of meeting, form of proxy or other documents on time	156.05(2)(a) (with modifications required, as the case may be, under section 746)	166.05(2)(a)	164.04(2)(a) and 789(2)(a)
11.	Failure to establish audit committee	157(2)(a) and 747(2)(a)	167(2)(a)	165(2)(a) and 794(2)(a)
12.	Failure to establish conduct review committee	157(2)(b)	167(2)(b)	165(2)(b) and 660(1)(c)
13.	Failure to establish procedures to resolve conflicts of interest	157(2)(c) and 747(2)(b)	167(2)(c)	165(2)(c) and 794(2)(b)
14.	Failure to designate committee to monitor procedures to resolve conflicts of interest	157(2)(d) and 747(2)(c)	167(2)(d)	165(2)(d) and 794(2)(c)
15.	Failure to establish investment or lending policies, standards or procedures	157(2)(g), 465, 581, 747(2)(d) and 927	167(2)(e) and 387	165(2)(h), 492, 551, 615(1), 794(2)(d) and 968
16.	Failure to comply with board composition requirements	159, 160, 163(1), 164, 749, 750 and 752	169, 170 and 171	167, 168(1) and (2), 171(1), 172, 796, 797 and 799
17.	Failure to comply with requirements in respect of self-dealing	195(3)	200(3)	204(3) and 660(2)
18.	Failure to report to Superintendent on mandate or responsibilities of conduct review committee or on procedures for complying with self-dealing regime	195(4)	200(4)	204(4) and 660(3)
19.	Failure to report to Superintendent on time on activities of conduct review committee	195(6)	200(6)	204(6) and 660(5)
20.	Failure to appoint chief executive officer, principal officer or chief agent	196(1) and 536(1)	N/A	205 and 579(3)
21.	Failure by director or officer to disclose conflict of interest	202 and 789	206	211 and 836
22.	Failure by director to abstain from being present at meeting or from voting	203(1) and 790(1)	207(1)	212(1) and 837(1)
23.	Failure to notify Superintendent on time of change of address of the head office or principal office	237(3), 535(3) and 814(3)	234(3)	260(3), 544(2.2) and 868(3)
24.	Failure to file with Superintendent a power of attorney appointing new chief agent or containing new address of the chief agency forthwith after the change	N/A	N/A	587
25.	Failure to prepare or maintain records	238, 597(1) and 815	235	261, 647(1), 662 and 869
26.	Failure to notify Superintendent of place of records	239(2), 597(3) and 816(2)	236(2)	262(2) and 870(2)
27.	Failure to take precautions to protect records	244 (with modifications required, as the case may be, under section 598) and 821	241	267 (with modifications required, as the case may be, under section 649) and 875
28.	Failure to obtain approval of Superintendent for maintaining and processing of information outside Canada or to comply with terms and conditions regarding maintenance and processing of information outside Canada	245(1) (with modifications required, as the case may be, under section 598) and 822(1)	242(1)	268(1) (with modifications required, as the case may be, under section 649) and 876(1)
29.	Failure to inform Superintendent of maintenance of copies of records and further processing of information outside Canada or to provide information required by Superintendent	245(4) (with modifications required, as the case may be, under section 598) and 822(3)	242(3)	268(4) (with modifications required, as the case may be, under section 649) and 876(3)
30.	Failure to comply without delay with a direction to maintain copies of records or further process information in Canada	245(6) (with modifications required, as the case may be, under section 598) and 822(5)	242(5)	268(6) (with modifications required, as the case may be, under section 649) and 876(5)
31.	Failure to send to Superintendent copy of annual financial statement, auditor's report, actuary's report, annual return or other material on time	312, 601(2) and 844	296	335, 665(3), 667(2) and 891
32.	Failure to notify Superintendent without delay of designation of member of firm of accountants who will conduct audit	315(3) and (4), 585(4) and (5) and 847(3) and (4)	299(3) and (4)	338(3) and (4) (with modifications required, as the case may be, under subsection 547(1)), 634(3) and (4) and 894(3) and (4)
33.	Failure to fill auditor vacancy forthwith	319(1) and 851(1)	303(1)	342(1) and 638(1)
34.	Failure to notify Superintendent of the appointment of an actuary forthwith after appointment	N/A	N/A	357 and 623(2)
35.	Failure to notify Superintendent of the revocation of the appointment of the actuary forthwith after revocation	N/A	N/A	360(2) and 625(2)
36.	Failure to notify Superintendent of a vacancy in the office of the actuary forthwith after vacancy	N/A	N/A	362 and 626(3)
37.	Insuring of risk not within a class of insurance specified in order	N/A	N/A	443(1) and 573(2)
38.	Failure to obtain approval of Superintendent for engaging in transfers from segregated funds	N/A	N/A	453 and 542.03(4)
39.	Failure to comply within the specified time with an order of the Superintendent to amend policies	419(3)	383(3)	470(3) and 542.07(3)
40.	Failure to comply with restriction on partnerships	421(1), 553.1(1) and 924(1)	385(1)	472(1), 542.09 and 964(1)
41.	Entering into a transaction resulting in aggregate debt obligations and stated capital in excess of limit	N/A	N/A	473(1), 476 and 542.1(1)
42.	Failure to obtain approval of Superintendent for giving up control of an entity	468(11) and 930(11)	390(10)	495(12) and 971(10)
43.	Failure to cease to control entity or dispose of substantial investment acquired or increased by way of temporary investment within divestiture period	471(1) and (2) and 933(1)	393(1) and (2)	498(1) and (2), 557(1) and (2) and 974(1)
44.	Failure to cease to control entity or dispose of substantial investment acquired by way of loan default within divestiture period	472(2) and (3) and 934(2)	394(2) and (3)	499(2) and (3) and 558(2) and (3) and 975(2)
45.	Failure to cease to control entity or dispose of substantial investment acquired by way of realization within divestiture period	473(2) and (3) and 935(2)	395(2) and (3)	500(2) and (3), 559(2) and (3) and 976(2)
46.	Failure to obtain approval of Superintendent for acquiring or disposing of assets in excess of 10% of total assets	482(1) and 944(1)	406(1)	512(1), 569(1) and 987(1)
47.	Holding of consumer and commercial loans in excess of limit	N/A	398 and 399	503, 504, 505, 562, 616 and 617
48.	Holding of interest in real property in excess of limit	476 and 938	401	506, 563, 618 and 981
49.	Holding of equity in excess of limits	477 and 939	402	507, 565, 619 and 982
50.	Holding of interest in real property and equity in excess of aggregate limit	478 and 940	N/A	508, 566, 620 and 983
51.	Failure to comply with a divestment order	480 and 942	404	510, 567 and 985
52.	Failure to comply with an order to increase capital, provide additional liquidity, increase assets or maintain or deposit assets in Canada	485(4), 617 and 949(4)	409(4)	515(4), 608(5), 609(3) and 992(4)
53.	Entering into a prohibited related party transaction	489(1)	413(1)	521(1) and 621
54.	Failure to obtain approval of Superintendent to be reinsured by a related party	N/A	N/A	523(2) and 597(1)
55.	Entering into a related party transaction in excess of limits	495.2, 495.3, 496(2) and 497	420(2) and 421	528.2, 528.3, 529(2) and 530
56.	Failure to obtain full disclosure from a party believed to be a related party	504(1)	428(1)	537(1)
57.	Failure to notify Superintendent of a prohibited or non-approved related party transaction	505	429	538
58.	Carrying on activities prohibited to a foreign bank or entity associated with a foreign bank	510	N/A	N/A
59.	Failure to provide Superintendent with financial statements or other information on time	522.27	N/A	N/A
60.	Failure to submit copy of power of attorney to Superintendent without delay	536(2) and (3)	N/A	N/A
61.	Failure to notify Superintendent of the appointment of the auditor without delay	585(1)	N/A	633(2)
62.	Failure to keep records at chief agency	N/A	N/A	647(3)
63.	Failure to provide Superintendent with required information at the time or in the form specified	600, 628 and 950	431	664 and 993
64.	Failure to comply with an order for the production of information	605, 635 and 954	N/A	671 and 997
65.	Failure to provide information required by Superintendent in relation to an examination	613(2), 643(2) and 957(2)	437(2)	674(3) and 1000(2)
66.	Failure to comply with prudential agreement	614.1, 644.1 and 959	438.1	675.1 and 1002
67.	Failure to comply with direction of compliance	615(1) and (3), 645(1) and (3) and 960(1) and (3)	439(1) and (3)	676(1) and (3) and 1003(1) and (3)
68.	Failure to provide Superintendent with information relating to appointment of directors or officers on time	617.1(3), 647(3) and 963(3)	441.1(3)	678.1(3), 678.3(3) and 1006(3)
69.	Failure to provide Superintendent with information on directors and auditors on time	632(1) and 951(1)	432(1)	549(1), 661(2), 668(1) and 994(1)
70.	Failure to provide Superintendent with changes to information on directors and auditors forthwith after the changes	632(2) and 951(2)	432(2)	549(2), 661(3), 668(2) and 994(2)
71.	Failure to send to Superintendent copy of by-laws on time	633 and 952	433	548(3), 661(1)(a), 669 and 995
72.	Failure to comply with terms, conditions or undertakings relating to approval of Superintendent	973(3)	459.2(3)	1016(3)

Item	Column 1 Short-form Description of Violation	Column 5 Provisions of the Trust and Loan Companies Act	Column 6 Classification of Violation
1.	Failure to obtain approval of Superintendent for carrying on business	52(1)	Very serious
2.	Failure to obtain approval of Superintendent for the insuring in Canada of risks	N/A	Very serious
3.	Failure to comply with conditions or limitations on an order approving the commencement and carrying on of business	57(4) and 58	Very serious
4.	Failure to comply with conditions or limitations on an order approving the insuring in Canada of risks	N/A	Very serious
5.	Failure to obtain approval of Superintendent for issuing shares paid for in property	68(1)	Serious
6.	Holding of own shares	73	Serious
7.	Failure to notify Superintendent of declaration of dividend on time	82(2)	Minor
8.	Failure to obtain approval of Superintendent for declaration and payment of dividend in excess of net income	82(5)	Very serious
9.	Failure to obtain approval of Superintendent for issuing subordinated debt paid for in property	83(1)	Serious
10.	Failure to file with Superintendent proxy circular, notice of meeting, form of proxy or other documents on time	160.05(2)(a)	Minor
11.	Failure to establish audit committee	161(2)(a)	Very serious
12.	Failure to establish conduct review committee	161(2)(b)	Very serious
13.	Failure to establish procedures to resolve conflicts of interest	161(2)(c)	Very serious
14.	Failure to designate committee to monitor procedures to resolve conflicts of interest	161(2)(d)	Very serious
15.	Failure to establish investment or lending policies, standards or procedures	161(2)(g) and 450	Very serious
16.	Failure to comply with board composition requirements	163, 164, 167(1) and 168	Serious
17.	Failure to comply with requirements in respect of self-dealing	199(3)	Very serious
18.	Failure to report to Superintendent on mandate or responsibilities of conduct review committee or on procedures for complying with self-dealing regime	199(4)	Minor
19.	Failure to report to Superintendent on time on activities of conduct review committee	199(6)	Minor
20.	Failure to appoint chief executive officer, principal officer or chief agent	200(1)	Serious
21.	Failure by director or officer to disclose conflict of interest	207	Very serious
22.	Failure by director to abstain from being present at meeting or from voting	208(1)	Very serious
23.	Failure to notify Superintendent on time of change of address of the head office or principal office	242(3)	Minor
24.	Failure to file with Superintendent a power of attorney appointing new chief agent or containing new address of the chief agency forthwith after the change	N/A	Minor
25.	Failure to prepare or maintain records	243	Very serious
26.	Failure to notify Superintendent of place of records	244(2)	Minor
27.	Failure to take precautions to protect records	249	Very serious
28.	Failure to obtain approval of Superintendent for maintaining and processing of information outside Canada or to comply with terms and conditions regarding maintenance and processing of information outside Canada	250(1)	Serious
29.	Failure to inform Superintendent of maintenance of copies of records and further processing of information outside Canada or to provide information required by Superintendent	250(4)	Minor
30.	Failure to comply without delay with a direction to maintain copies of records or further process information in Canada	250(6)	Very serious
31.	Failure to send to Superintendent copy of annual financial statement, auditor's report, actuary's report, annual return or other material on time	317	Minor
32.	Failure to notify Superintendent without delay of designation of member of firm of accountants who will conduct audit	320(3) and (4)	Minor
33.	Failure to fill auditor vacancy forthwith	324(1)	Minor
34.	Failure to notify Superintendent of the appointment of an actuary forthwith after appointment	N/A	Minor
35.	Failure to notify Superintendent of the revocation of the appointment of the actuary forthwith after revocation	N/A	Minor
36.	Failure to notify Superintendent of a vacancy in the office of the actuary forthwith after vacancy	N/A	Minor
37.	Insuring of risk not within a class of insurance specified in order	N/A	Very serious
38.	Failure to obtain approval of Superintendent for engaging in transfers from segregated funds	N/A	Serious
39.	Failure to comply within the specified time with an order of the Superintendent to amend policies	419(3)	Very serious
40.	Failure to comply with restriction on partnerships	421(1)	Serious
41.	Entering into a transaction resulting in aggregate debt obligations and stated capital in excess of limit	N/A	Very serious
42.	Failure to obtain approval of Superintendent for giving up control of an entity	453(10)	Serious
43.	Failure to cease to control entity or dispose of substantial investment acquired or increased by way of temporary investment within divestiture period	456(1) and (2)	Serious
44.	Failure to cease to control entity or dispose of substantial investment acquired by way of loan default within divestiture period	457(2) and (3)	Serious
45.	Failure to cease to control entity or dispose of substantial investment acquired by way of realization within divestiture period	458(2) and (3)	Serious
46.	Failure to obtain approval of Superintendent for acquiring or disposing of assets in excess of 10% of total assets	470(1)	Serious
47.	Holding of consumer and commercial loans in excess of limit	461 and 462	Very serious
48.	Holding of interest in real property in excess of limit	464	Very serious
49.	Holding of equity in excess of limits	465	Very serious
50.	Holding of interest in real property and equity in excess of aggregate limit	466	Very serious
51.	Failure to comply with a divestment order	468	Very serious
52.	Failure to comply with an order to increase capital, provide additional liquidity, increase assets or maintain or deposit assets in Canada	473(4)	Very serious
53.	Entering into a prohibited related party transaction	477(1)	Very serious
54.	Failure to obtain approval of Superintendent to be reinsured by a related party	N/A	Very serious
55.	Entering into a related party transaction in excess of limits	483.2, 483.3, 484(2) and 485	Very serious
56.	Failure to obtain full disclosure from a party believed to be a related party	492(1)	Very serious
57.	Failure to notify Superintendent of a prohibited or non-approved related party transaction	493	Very serious
58.	Carrying on activities prohibited to a foreign bank or entity associated with a foreign bank	N/A	Very serious
59.	Failure to provide Superintendent with financial statements or other information on time	N/A	Minor
60.	Failure to submit copy of power of attorney to Superintendent without delay	N/A	Minor
61.	Failure to notify Superintendent of the appointment of the auditor without delay	N/A	Minor
62.	Failure to keep records at chief agency	N/A	Serious
63.	Failure to provide Superintendent with required information at the time or in the form specified	495	Minor, if the violation relates to information required as part of periodic reports
			Serious, in any other case
64.	Failure to comply with an order for the production of information	502	Very serious
65.	Failure to provide information required by Superintendent in relation to an examination	505(2)	Serious
66.	Failure to comply with prudential agreement	506.1	Very serious
67.	Failure to comply with direction of compliance	507(1) and (3)	Very serious
68.	Failure to provide Superintendent with information relating to appointment of directors or officers on time	509.1(3)	Very serious
69.	Failure to provide Superintendent with information on directors and auditors on time	499(1)	Minor
70.	Failure to provide Superintendent with changes to information on directors and auditors forthwith after the changes	499(2)	Minor
71.	Failure to send to Superintendent copy of by-laws on time	500	Minor
72.	Failure to comply with terms, conditions or undertakings relating to approval of Superintendent	527.2(3)	Very Serious

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

The Canadian financial services sector has been undergoing rapid change for the better part of a decade. In 1996, the federal government created the Task Force on the Future of the Canadian Financial Services Sector to review and advise on the nature of change taking place in the sector. In 1998, the Task Force issued a report, which included numerous conclusions and recommendations. These findings were carefully reviewed by committees of both the House of Commons and the Senate. These committees largely endorsed the findings of the Task Force. Based on the work of the Task Force and the parliamentary committees, the federal government issued a policy paper in June 1999 entitled Reforming Canada's Financial Services Sector: A Framework for the Future. This document served as the policy foundation for Bill C-8, An Act to Establish the Financial Consumer Agency of Canada and to Amend Certain Acts in Relation to Financial Institutions (FCA Act). Bill C-8 received Royal Assent on June 14, 2001.

The FCA Act provides for significant amendments to the laws governing federal financial institutions. As an integrated package, the amendments brought about by the FCA Act promote efficiency and growth in the financial services sector, foster domestic competition, empower and protect consumers of financial services, and improve the regulatory environment for financial institutions.

A key characteristic of the FCA Act is the use of regulations to provide for a more flexible regulatory framework for the financial sector. This allows the government to make modest policy adjustments to the framework in response to significant changes taking place in the global environment in which financial institutions operate. Many regulations are being proposed or modified in order to achieve this policy objective of creating a more flexible regulatory regime.

The remaining amendments bring existing regulations in line with changes made to the financial institutions statutes under the FCA Act.

This is the fifteenth package of regulations that has been brought forward to complete the policy intent of the FCA Act. The first fourteenth packages of regulations were published in the Canada Gazette, Part II, on October 24, 2001, November 21, 2001, March 13, 2002, April 10, 2002, May 8, 2002, June 19, 2002, July 31, 2002, October 9, 2002, June 18, 2003, February 26, 2003, July 2, 2003, August 27, 2003, October 6, 2004, and June 1, 2005, respectively. The fifteenth package was published in the Canada Gazette, Part I, on April 9, 2005.

This document discusses the regulatory impact of the following Regulations:

Administrative Monetary Penalties (OSFI) Regulations

The Administrative Monetary Penalties (OSFI) Regulations (the "Regulations") implement an administrative monetary penalties regime pursuant to which the Superintendent could impose penalties in respect of specific violations, as designated in the schedule to the Regulations. The Regulations classify violations as being minor, serious or very serious, which triggers the maximum penalty applicable under the legislation. The Regulations replace the current Filing Penalties (OSFI) Regulations (the "Filing Penalties Regulations"), which came into force on April 1, 2002.

Under governing legislation, roughly 475 institutions, including federally regulated financial institutions (FRFIs), bank holding companies and insurance holding companies, are required to comply with a variety of legislative and regulatory provisions. Compliance with these provisions is necessary for the Office of the Superintendent of Financial Institutions (OSFI) to carry out its legislative mandate and protect the interests of depositors, policyholders or creditors, as the case may be.

The Regulations are part of the Bill C-8 legislative package (the Financial Consumer Agency of Canada Act, S.C. 2001, c. 9 – the "FCAC Act"). They are made pursuant to subsection 25(1) of the Office of the Superintendent of Financial Institutions Act (the "OSFI Act"), which provides that the Governor in Council may make regulations designating as violations the contravention of specified provisions of a financial institutions Act, of a specified provision of a regulation made under one, or the non-compliance with orders made by the Superintendent, directions, terms and conditions or undertakings, or prudential agreements. Further, the OSFI Act provides that the Governor in Council may make regulations classifying each violation as minor, serious or very serious, and fixing a penalty or a range of penalties in respect of any violation. The Filing Penalties Regulations are being repealed and their provisions are included in the Regulations.

The main objective of the Regulations is to designate the specific violations of the federal financial institutions statutes in respect of which the Superintendent could impose a penalty. The Regulations target only those contraventions that would be subject to little or no interpretation or judgment in determining a breach. This ensures that the Regulations are applied consistently and equitably. In addition to the late and erroneous filing contraventions that are currently dealt with in the Filing Penalties Regulations, the Regulations designate contraventions of specified legislative provisions or instruments issued under these provisions.

Each contravention is classified as a "minor", "serious" or "very serious" violation. Contraventions that may have a significant impact on the safety and soundness of institutions are classified as very serious. Those that may have a lesser impact on institutions' ongoing safety and soundness are generally classified as serious. The OSFI Act provides for a right of appeal to the Federal Court of Canada for penalties imposed in respect of serious and very serious contraventions. All of the late and erroneous filing contraventions are classified as minor.

The penalties to be imposed by the Superintendent vary depending upon whether the violation is minor, serious or very serious. Subject to the maximum amounts set out in subsection 25(2) of the OSFI Act, the Superintendent has discretion to fix their actual amount using the criteria set out in section 26 of that Act. However, for late and erroneous filing contraventions, the penalties are a function of the size of the total assets of the institution and of the number of days during which the contravention occurs, up to the maximum amount set out in the Regulations.

The Administrative Monetary Penalties (AMP) framework applies to FRFIs, bank holding companies and insurance holding companies. Federally regulated pension plans are not subject to the AMP framework at this time.

The administrative monetary penalties regime is not designed to be punitive but is intended to encourage institutions to comply with their governing statute. By encouraging compliance, the regime will assist OSFI in pursuing its mandate of protecting the rights and interests of depositors, policyholders and creditors.

Alternatives

An option would be to carry on with the status quo, that is, no AMP regime and maintain only the filing penalties regime. However, given the introduction of an AMP regime in the OSFI Act and the explicit authority of the Governor in Council to make regulations addressing these matters, no other alternatives were considered.

Benefits and Costs

The enclosed Regulations are integral to the overall policy objectives of the FCA Act. As such, their cost-benefit justification cannot be separated from the overall costs and benefits of the legislative package itself.

The FCA Act provides an improved regulatory structure that balances the competing interests of stakeholders. While individual legislative measures may impose some burden on a particular stakeholder group, there are overall net benefits for all stakeholders. For example,

- Consumers benefit from strengthened consumer protection measures, a more transparent complaints handling process, and the advantages brought about by increased competition.

- Financial institutions face modestly increased regulation through enhanced regulatory rules and a strengthened consumer protection regime. However, they benefit from greater organizational flexibility and broader powers. The new Financial Consumer Agency of Canada (FCAC) has an annual budget of about $7 million, the cost of which is passed on to financial institutions in the form of allocated assessment.

- The OSFI faces moderately increased regulatory challenges as a result of provisions intended to encourage new entrants, but the cost is offset by improved prudential regulatory powers and increased competition. The exact cost implications for OSFI of the legislative package are not easily calculable. The transfer of responsibility for administering the consumer provisions of the financial institutions legislation to the FCAC reduces OSFI's costs. The relaxed new entrant requirements have increased OSFI's workload and costs, some of which are borne by the new entrants. However, the streamlined approval process has reduced the cost of regulation and cost burden directly borne by financial institutions. In all, it is expected that the improved regulatory structure, once fully implemented, will not have increased OSFI's cost of regulation substantially.

Each of the regulations included in this and other packages is intended to implement a specific aspect of the overall policy structure introduced by the FCA Act. The regulations may either be beneficial, cost/benefit neutral, or impose a burden on one or more relevant stakeholder groups. Since the weighing of costs and benefits has been done at the legislative level, the regulations must be examined in light of their contribution to the balance of the overall policy framework that was approved in the FCA Act.

The Regulations will not require additional resources or create any additional monitoring costs.

Consultation

The FCA Act and its related Regulations are part of a policy development process dating back to 1996. At every stage of the process stakeholders have been consulted. More recently, in June 2003, OSFI sent proposed Regulations for comment to selected stakeholders. Two parties expressed minor comments and sought clarification. Subsequently the Regulations were further revised in response to comments that were received and to reflect initiatives to expand the list of violations to include additional items relating to Superintendent approvals. A second consultation was initiated in June 2004 to provide the industry an opportunity to comment on the revised draft. Two parties expressed comments related to consistency of classifications of violations and sought further clarification. Comments were addressed and clarification was provided.

The Regulations were pre-published in the Canada Gazette, Part I, on April 9, 2005. Only one stakeholder submitted comments, which related to the scope and amounts of the penalties, and sought clarification with respect to the classification of certain violations, the discretion of the Superintendent to impose or fix a penalty, and the right of appeal in respect of a violation. Clarification was satisfactorily provided.

None of the comments resulting from the pre-publication in the Canada Gazette, Part I required further changes to the Regulations.

Compliance and Enforcement

The OSFI will be responsible for ensuring compliance with prudential aspects of the Regulations.

Contact

Gerry Salembier
Director
Financial Institutions Division
Financial Sector Policy Branch
Department of Finance
L'Esplanade Laurier, 15th Floor, East Tower
140 O'Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: (613) 992-1631
FAX: (613) 943-1334

Footnote a

S.C. 1999, c. 28, s. 131

Footnote b

S.C. 2001, c. 9, s. 476

Footnote c

S.C. 1997, c. 15, s. 339; S.C. 2001, c. 9, s. 477

Footnote d

R.S., c. 18 (3rd Supp.), Part I

Footnote 1

SOR/2002-119

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