CDIC Adds EFC Non-compliance as Surcharge Trigger

Summary#

The Canada Deposit Insurance Corporation (CDIC) is proposing to change the Canada Deposit Insurance Corporation Prescribed Practices Premium Surcharge By-law. The change would make failing to follow the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law a reason for a premium surcharge. The proposal was published October 29, 2022 and is open for comments for 30 days.

What it does#

• Adds "failing to comply with one or more provisions of the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law" to the list of practices that can trigger a premium surcharge under the Canada Deposit Insurance Corporation Prescribed Practices Premium Surcharge By-law.
• Makes small housekeeping edits to the by-law text (replacing the long title and removing an obsolete short title).
• Notes the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law was made on March 2, 2022 and that non‑compliance with it could create risks for an orderly resolution of a member institution.
• The change is a proposal (not final). If adopted, the by-law would come into force the day it is registered.

Who's affected#

• Canada Deposit Insurance Corporation member institutions — that generally means federally regulated banks and other deposit-taking institutions that are CDIC members.
• Institutions that must amend their eligible financial contracts under the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law are the most likely to face a surcharge if they do not comply.
• The general public and bank customers are not directly targeted, but may be affected indirectly because the rule is meant to reduce risks to the financial system.

Why it matters#

• The change gives CDIC a clear enforcement tool (a premium surcharge) if member institutions do not update their eligible financial contracts as required.
• That should encourage compliance with the Eligible Financial Contracts By-law, which CDIC says helps reduce the risk of disorderly resolution of a bank and protects overall financial stability.
• CDIC states the amendment would not add regulatory costs beyond the surcharge mechanism itself.
• This is a proposed amendment; it is not law yet and could change after the public comment period.