CDIC Eligible Financial Contracts By-law

Summary#

The Canada Deposit Insurance Corporation proposes the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law. It would require federally regulated banks and other CDIC members to change some cross-border financial contracts so Canada’s resolution “stay” rules apply, with staged dates of October 1, 2023 and October 1, 2024 and a public comment period of 30 days.

What it does#

• Applies to the class of all federal member institutions (CDIC members).
• Covers eligible financial contracts (EFCs) that:
  • allow certain counterparty actions that the CDIC’s stay rules would normally limit, and
  • are not governed by Canadian law or involve at least one counterparty who is not a Canadian resident or Canadian entity.
• Excludes EFCs that are both governed by Canadian law and have a counterparty who is a Canadian resident or Canadian entity.
• Requires those covered EFCs to include wording that the parties agree the “stay” provisions in the Canada Deposit Insurance Corporation Act apply to the actions the counterparty might take.
• Sets when contracts become subject to the rule:
  • If an EFC is entered into, amended, or renewed on or after October 1, 2023, it is subject when at least one other party is a federal member institution or an institution identified by the Financial Stability Board as a global systemically important bank.
  • Other EFCs entered into, amended, or renewed on or after October 1, 2024 are also subject.
• The by-law itself would come into force on the day it is registered. This notice seeks public input for 30 days after publication.

Who's affected#

• Canada Deposit Insurance Corporation’s federal member institutions — mainly federally regulated banks and similar firms — will need to review and update certain international contracts.
• Foreign counterparties to those contracts, including foreign banks, affiliates and institutions identified by the Financial Stability Board, will be part of the changes.
• Exempt parties that are not required to be covered include governments, central banks, clearing houses, and central counterparties.
• It’s not always clear from the notice how many or which specific contracts for each institution will need changes; that will depend on each contract’s law and counterparties.

Why it matters#

• The change aims to reduce the risk that foreign courts or counterparties can immediately terminate key contracts (like derivatives) if a Canadian bank enters resolution. That sudden termination can spread problems and raise costs for taxpayers and the financial system.
• It brings Canada closer to international practice on managing cross-border financial failures.
• For banks and their foreign counterparties, this will mean legal work to add or confirm contract language and possibly renegotiations. For the public, it’s meant to support a more orderly handling of failing banks and limit costly disruptions.