Surcharge for EFC By-law Non-compliance

Summary#

This item is a by-law change from the Canada Deposit Insurance Corporation that makes failure to follow the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law a reason to charge a premium surcharge under the Canada Deposit Insurance Corporation Prescribed Practices Premium Surcharge By-law. The change came into force on March 3, 2023 (the day it was registered).

What it does#

• Replaces and simplifies the title of the existing Canada Deposit Insurance Corporation Prescribed Practices Premium Surcharge By-law.
• Adds a new ground for a premium surcharge: failing to comply with one or more provisions of the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law.
• Takes effect on the registration day (March 3, 2023).

Who's affected#

• Federal member institutions covered by the CDIC — i.e., banks and other financial institutions that are CDIC members — are the main parties affected. If they do not comply with the EFC By-law, they could face a premium surcharge.
• The change is aimed at enforcing an earlier rule: the Canada Deposit Insurance Corporation Eligible Financial Contracts By-law, which the CDIC made on March 2, 2022.
• It is not clear from the notice what surcharge amounts or exact enforcement steps will follow; those details are not included.

Why it matters#

• The CDIC says non-compliance with the EFC By-law creates a risk to an orderly resolution of a failing member institution and to the wider financial system. Adding a surcharge gives the CDIC a financial penalty tool to encourage compliance.
• For the public, the change is intended to reduce the chance of disruption in a bank failure by making sure certain contracts are written so the CDIC can act more smoothly.
• The CDIC also states this amendment is not expected to add regulatory costs or new administrative burden for member institutions.