Document Properties
- Type of Publication: Bulletin
- Date: December 1996
- No: E-10
- Audiences: Life / P&C
This bulletin outlines safekeeping requirements for assets of
Canadian and foreign insurers under the Insurance Companies
Act (the Act), including the use of foreign depositories. For
Canadian companies, the authority on the use of foreign depositories
rests in the Protection of Assets (Insurance Companies) Regulations,
made pursuant to Section 703(g) of the Act. Safekeeping requirements
for foreign companies are set out in Section 611 of the Act.
Canadian Companies
The Protection of Assets (Insurance Companies) Regulations
(the Regulations) set out the safekeeping requirements for
Canadian companies. Subsection 6 prescribes safekeeping requirements
for assets:
(1) Subject to subsection (2) and section 7, a company shall
ensure that every security is kept securely, in a manner that
prevents unauthorized access to the security, in the custody of:
- the company; or
- an entity that is authorized to act as a custodian of securities
or as a depository or clearing agency for securities by a law
of the jurisdiction in which the entity is carrying on business.
(2) Subsection (1) does not apply in respect of a security that
is:
- under the control of the government of a jurisdiction in
which the company is carrying on business;
- pledged as collateral for the indebtedness or potential indebtedness
of the company;
- loaned to a person pursuant to a written agreement; or d)
in transit.
Section 7 further stipulates that the company must enter into
a written custodial agreement before placing its assets in safekeeping
with a duly authorized custodian, depository or clearing house for
securities:
A company shall not place a security in the custody of an entity
referred to in paragraph 6(1)(b) unless the company has entered
into a written custodial agreement with that entity.
A Canadian insurance company may maintain securities in a foreign
depository as long as the company has a written custodial agreement
with the foreign depository.
A Canadian insurance company may maintain securities in a foreign
depository through its custodian as long as the Canadian company
has a written custodial agreement with its custodian, which in turn
has a written agreement with the depository.
Section 8 of the Regulations prescribes safekeeping requirements
for net proceeds of securities transactions:
A company shall, on a daily basis, deposit any net amount received
by the company as a result of any security transaction in an account
kept by the company:
- in the company;
- with a financial institution that is authorized to accept
deposits by a law of the jurisdiction where the financial institution
is carrying on business;
- with a trust company that is authorized to hold money in
trust by a law of the jurisdiction where the trust company carries
on business;
- with the government of the jurisdiction in which the company
is carrying on business, or with an agency thereof that is authorized
to act as a custodian of securities; or
- with The Canadian Depository for Securities Limited (CDS).
A company cannot keep cash proceeds of a securities transaction
in a foreign depository. As long as the company maintains an account
as described above and receives any net amount in that account on
a daily basis, the requirements of section 8 would be satisfied.
Foreign Companies
Foreign companies are subject to Part XIII of the Insurance
Companies Act. By virtue of their structure, foreign companies
are subject to a different regulatory regime than Canadian companies.
Subsection 611(1) in Part XIII of the Act prescribes that:
(1) The assets that a foreign company is required to maintain
in Canada pursuant to sections 608 and 609 and the regulations
made pursuant to section 610 shall be vested in trust in a Canadian
financial institution chosen by the foreign company and approved
by the Superintendent.
Subsection 2(1) of the Act defines "assets in Canada" as assets
vested in trust for a foreign company under Part XIII of the Act.
Subsection 611(3) of the Act requires that:
A trust deed must be approved by the Superintendent before it
is entered into.
Section 10 of OSFI's Standard Form Trust Agreement permits the
trustee to deposit, subject to the written approval of the Superintendent,
any of the assets vested in trust with the CDS. The Trust Agreement
does not permit the trustee to vest in trust assets with foreign
depositories. The Superintendent does not approve trust agreements
that differ materially from the Standard Form Trust Agreement.
OSFI maintains a prohibition on the use of foreign depositories
by foreign companies for prudential reasons.
OSFI requires legal certainty that it has undisputed and timely
access to assets held in depositories when required. OSFI must be
able to repatriate and realize upon those assets without having
to face legal and other challenges which may conspire to delay or
reduce the amounts ultimately available to Canadian policyholders.
Summary
|
Canadian Companies |
Foreign Companies |
Relevant Legislation |
The Protection of Assets (Insurance Companies) Regulations,
Sections 6, 7, 8 |
ICA, Section 611 |
Canadian Depository for Securities Limited |
may use directly or through custodian |
trustee may use, subject to written approval of
the Superintendent |
Foreign Depositories |
may use directly or through custodian for securities (s.
6)
not permitted for proceeds of securities transactions (s.
8) |
not permitted by OSFI for prudential reasons |