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  • Equity crowdfunding - The Autorité des marchés financiers adopts a new prospectus exemption for startups

    The Lavery GO inc. Program team is happy to inform you that the Autorité des marchés financiers(AMF) announced yesterday the implementation of an equity crowdfunding exemption which allows startups to raise up to $500,000 in capital per year. Under this exemption, startups whose head office is located in Quebec may offer their shares to public investors through an online participative financing portal that is either relying on the exemption from the dealer registration requirement or is operated by a registered dealer and by using the pre-established offering documents which are available on this portal. The highlights of this crowdfunding exemption are as follows: The issuer may raise up to $250,000 per offering, subject to a limit of two offerings per calendar year. Investors may invest up to $1,500 per offering; however, there is no limit as to the number of offerings to which an investor may participate. The shares acquired under this exemption cannot be resold except under another prospectus exemption or a prospectus. The crowdfunding exemption will also be implemented in British Columbia, Saskatchewan, Manitoba, New Brunswick and Nova Scotia. This new exemption is excellent news for startups as it will allow them to access a new source of capital to support their development. It also sets up the tone for the much expected Regulation 45-108 respecting Crowdfunding, which is still under discussion among the Canadian Securities Administrators. For more information respecting this equity crowdfunding exemption, please contact Étienne Brassard or Guillaume Synnott. Étienne Brassard: 514 877-2904 | [email protected] Guillaume Synnott: 514 877-2911 | [email protected]

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  • The cooperative capital markets regulatory system: Publication oF the legislative Drafts – a new stage is reached

    On September 8, the Canadian Department of Finance announced the signature of a memorandum of agreement (the "Agreement") between the provinces of British Columbia, Ontario, Saskatchewan and New Brunswick, and the federal government (the "Participating Jurisdictions") formalizing the terms and conditions of the Cooperative Capital Markets Regulatory System (the "Cooperative System"), a project to set up a national regulator for the Canadian securities industry.  At the same time, the Participating Jurisdictions published the drafts of the proposed federal and provincial legislation to implement the Cooperative System. The plan is for the uniform provincial legislation, known as the provincial Capital Markets Act (PCMA), to be tabled for adoption in each of the participating provinces and territories. The complementary federal legislation, entitled the Capital Markets Stability Act (CMSA), should be submitted for approval to the House of Commons.  We would remind you that, on September 13, 2013, the governments of British Columbia and Ontario, and the federal government, for the first time, announced the conclusion of an agreement in principle to jointly establish the Cooperative System. On July 9, 2014, Saskatchewan and New Brunswick agreed to join the project by signing an amended agreement in principle.  The publication of these statutory proposals certainly marks an important stage in the project to implement the Cooperative System. Moreover, the Participating Jurisdictions have indicated that they are actively pursuing the work on setting up the Cooperative System so that it will be functional by the fall of 2015.  Thus, it is clear that the transition to the Cooperative System is actively underway and that the possibility of seeing it in operation in the not-too-distant future is increasingly likely.  We provide you below with an overview of the proposed regulatory scheme.  The Memorandum of Agreement  The Memorandum of Agreement defines the structure, governance and accountability of the capital Markets regulatory authority (CMRA), the common regulator that will be set up for the Cooperative System.  The CMRA will administer the CMSA, the PCMA and a set of regulations adopted pursuant to the powers delegated by each participating province and territory.  The CMRA will, in particular, have a “regulatory Division” that will be responsible for the policy, regulatory operations, advisory services and regulatory enforcement functions, as well as a division consisting of an independent tribunal charged with conducting the proceedings on the enforcement of the regulations.  In addition, the Memorandum of Agreement provides as follows:  The Cooperative System will be supervised by a Council of Ministers consisting of the ministers responsible for the securities regulation of each participating provincial and territorial jurisdiction, as well as the federal Finance Minister.  The CMRA’s board of directors will be comprised of at least nine and no more than twelve experts appointed as independent directors by the Council of Ministers on the recommendation of a nominating committee, and who will be broadly representative of the regions of Canada.  A Chief Regulator will serve as the chief executive officer of the Regulatory Division while Deputy Chief Regulators will be appointed for those of the participating provinces that have a particular importance for the capital markets nationally, i.e. British Columbia and Ontario, to date.  The CMRA will have a regulatory office in each participating province and territory.  Service agreements will be entered into to integrate existing securities regulatory entities currently charged with securities regulation in the participating provinces and territories into the CMRA.  A single, simplified fee structure will be designed to allow for the self-funding of the CMRA.  The federal government will provide transitional funding to those provinces and territories that will forego net revenue as a result of transitioning to the Cooperative System.  The CMSA  The CMSA deals with issues relating to criminal law, data collection on a national scale, and systemic risk in the national capital markets.  In criminal matters, the CMSA integrates and modernizes certain existing criminal code offences and also provides for a few new offences. Some of the offences contained in the CMSA include fraud, fraudulently affecting value or market price, market manipulation, insider trading, misrepresentation, criminal breach of trust, forgery and benchmark manipulation.  The CMRA will be equipped with national powers of data collection for purposes of monitoring activity in capital markets with the goal of detecting systemic risks related thereto. The CMRA will be able to enact national regulations not only on the collection of information and records, but also the keeping thereof and disclosure to the statutory authorities.  The role given to the CMRA as a new systemic risk oversight and control body is probably one of the most significant changes that will be introduced under the Cooperative System. Thus, the CMRA will be granted regulatory powers over market infrastructure entities that are considered to have systemic importance, such as trading systems, credit rating organizations, market intermediaries and even clearing houses, subject, in this last case, to the authorization of the Bank of Canada.  In addition, the CMRA will have special powers to take extraordinary measures throughout Canada to counter threats to financial stability. For example, it will be able to issue an urgent order to address a serious and immediate systemic risk by prohibiting a person from engaging in a practice or activity related to the risk, suspend or restrict trading in a security or derivative, or suspend or restrict trading on an exchange. Finally, the CMRA will cooperate and coordinate its actions with other regulatory bodies in the federal, provincial and foreign financial sectors in order, among other things, to ease the burden imposed on market actors. it will also have the mandate of representing canada internationally on issues relating to the regulation of capital markets.  The PCMA  The PCMA deals with all issues of provincial and territorial jurisdiction. It includes various provisions concerning recognized entities (such as exchanges, self-regulatory organizations, auditor oversight organizations and clearing agencies), registration of market intermediaries, requirements governing initial public offerings, the derivatives regime, continuous disclosure and proxy solicitation, take-over bids and issuer bids, business practices and civil liability.  According to the Participating Jurisdictions, the PCMA is a product of the updating and harmonization of the provincial securities acts currently in force. The current capital markets regulatory frame­work will therefore essentially remain unchanged.  We should nevertheless mention that the Participating Jurisdictions have chosen to adopt a modernized approach toward certain areas of regulation known as the “platform approach”. Thus, the PCMA sets out the fundamental provisions of capital markets law, leaving it up to the forthcoming regulations that will be adopted by the CMRA to enact the specific requirements, a method which promotes regulatory flexibility.  In addition, the PCMA gives the CMRA several tools for ensuring the compliance with and enforcement of the law, particularly with respect to inspections, investigations, evidence gathering and searches. It provides for higher fines than those currently in force among the Participating Jurisdictions for regulatory offences relating to insider trading, share price manipulation, benchmark manipulation and fraud.  The PCMA makes some small changes to the scheme of civil liability of the Participating Jurisdictions as compared with the current law, particularly concerning the burden of proof, the limitation period, and a private right of action.  Next stages  The Participating Jurisdictions will be receiving comments from the public on the drafts of the CMSA and the PCMA until november 7, 2014. Comments can be submitted via the Cooperative System’s website at www.ccmr-ocrmc.ca.  In addition to the publication of the legislative drafts, the Participating Jurisdictions have indicated that they have been working on developing the initial regulations and would be publishing the first draft regulations for comments by December 19, 2014. Furthermore, they intend to submit the PCMA and CMSA for adoption by the respective competent legislative assemblies by June 30, 2015, so that the CMRA will be able to start operations by the fall of 2015.  Finally, the Participating Jurisdictions have taken advantage of the publication of the PCMA, the CMSA and the agreement to renew their invitation to the governments of the other provinces and territories, including Quebec, to join the Cooperative System. 

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  • What precautions should a proposed director take prior to accepting to act as a corporate director? / What are the duties of a member of a board of directors?

    This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin). 3. WHAT PRECAUTIONS SHOULD A PROPOSED DIRECTOR TAKE PRIOR TO ACCEPTING TO ACT AS A CORPORATE DIRECTOR? A person who is invited or wishes to become a director should clearly make some prior verifications, including: his interest for the organization and its objectives; the requirements of the position as to time and efforts and his availability in that respect; the actual possibility to make a significant contribution, therefore resulting in added value for the legal person; the quality of incumbent directors, who will be his colleagues if he accepts to act as a director; the receptivity of management respecting sound governance and the help provided by management to directors to enable them to discharge their duties and play their full role; the quality of the existing corporate governance; the financial health of the legal person; the existence of actual or threatened significant proceedings against the legal person; the compliance by the organization with laws and contracts; the existence of adequate directors’ and officers’ liability insurance coverage; the availability of an indemnification undertaking by the legal person in favour of the director; the existence of recent director resignations and the reason thereof; the proportionality of compensation relative to the liability risks (mainly in the case of reporting issuers).Preliminary discussions with the chief executive officer, the chairman of the board and some current and former directors may be helpful in obtaining adequate confirmations in respect of many of these items. However, these discussions should be completed by reviewing documents such as the financial statements, court records, minutes...).A person who is an officer, director or employee of a corporation must also ensure that the new office as director is acceptable to the first corporation. The new office may in fact contravene a policy of the corporation, the contract between the individual and the corporation or the interest of the corporation.The risks to reputation related to accepting to act as director with some legal persons are not to be neglected either. We have recently seen that the reputation of high quality persons who had accepted on a pro bono basis to act as directors of not-for-profit organizations suffered as a result. The media, politicians and even auditors general sometimes draw quick, ill-founded conclusions as to the proper discharge of their duties by directors.4. WHAT ARE THE DUTIES OF A MEMBER OF A BOARD OF DIRECTORS?Incorporating statutes, particularly the Canada Business Corporations Act1 and the Business Corporations Act2 (Quebec), as well as the Civil Code of Québec3 all stipulate two general duties which directors are subject to, that is, the duty of care and the duty of loyalty. The Canada Business Corporations Act stipulates these duties as follows:“122. (1) [Duty of care of directors and officers] Every director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”In addition to these general duties, a director is also subject to many statutory obligations or presumptions of liability or guilt under various statutes, particularly for unpaid salaries and remittance of deductions at source and GST/QST. It is important for directors to be aware of all the statutory obligations and presumptions and know how to recognize them, ensure that the legal person takes appropriate measures in this respect and that the board supervises such measures. _________________________________________1 Canada Business Corporations Act, R.S.C. 1985, c. C-44.2 Business Corporations Act, C.Q.L.R., c. S-31.1 art. 119.3 Civil Code of Québec, L.R.Q., c. C-1991, articles 321 and following.

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  • Self-evaluation process of financial institutions regarding the Sound Commercial Practices Guideline: What is the objective and what will be the impacts?

    The Sound Commercial Practices Guideline (the “Guideline”) published by the Autorité des marchés financiers (the “AMF”) in June 2013 and intended for insurers of persons or damages, holding companies controlled by an insurer, trust and savings companies or financial services cooperatives that are authorized by the AMF to conduct business in Quebec, including in particular those financial institutions governed by the statues of another province or country (collectively referred to hereafter as the “Target institutions”), has made it possible for the AMF to communicate its expectations regarding the legal requirement of financial institutions to adhere to sound commercial practices, specifically with respect to determining the necessary strategies, policies and procedures regarding the fair treatment of consumers.In connection with its oversight work, the AMF recently forwarded to the Target institutions a request for information relating to the application of the requirements set out in the Guideline. By way of this request, the AMF primarily requires these Target institutions to undertake a self-evaluation process regarding the AMF’s expectations as stipulated in the Guideline by completing a questionnaire available on the AMF website.The self-evaluation questionnaire proposed by the AMF is divided into eight sections – i.e. the eight topics contained in the Guideline1 - and each of these sections includes examples of sound practices for which the Target institution is encouraged to perform a self-evaluation. The Target institutions are required to indicate whether or not these practices apply to their situation based on their nature, size, and on the complexity of their activities as well as on their risk profile by replying using a “Rating” based on a numbered scale from 0 to 42. The Target institutions are required to forward to the AMF an electronic response to this request for information by no later than September 30, 2014 using the AMF’s File Transfer Services.In its letters to the Target institutions, the AMF specifies that the objective of its request is to allow the Target institutions to identify the points to be improved on in their process of applying the standards set out in the Guideline and to make it possible for them to correct any weaknesses identified. The AMF goes on to say that the results gleaned in connection with this process will provide it with a better overview of the progress made by the Target institutions in their efforts to comply with the Guideline requirements and to become more familiar with the practices put in place by them as part of their commercial activities.Several of the Target institutions, specifically those in the insurance sector, have raised concerns regarding the apparent rigidity of this process and questioned its potential scope. While, at first glance, the initiative may seem demanding, it should not yield negative consequences for the Target institutions that undertake it. In connection with this process, it is our understanding that the AMF will in particular take into consideration the fact that some of the Target institutions that are also governed by the laws of other jurisdictions are already in compliance with certain regulations similar to those set out in the Guideline.Depending on the circumstances, this self-evaluation process should not apply to financial institutions that are in dissolution or that do not conduct any new activities in Quebec. These institutions should, however, take the necessary measures to communicate with the AMF in order to confirm their status and ensure that the AMF clearly exempts them from the requirement to complete the self-evaluation questionnaire.According to the AMF, this procedure must not be construed by the Target institutions as an investigation or even an inspection by the AMF of their activities in Quebec. Rather, it is more a kind of survey that will make it possible for the provincial regulator to be able to determine the extent to which the Target institutions can meet the results expected in the Guideline and to have a better understanding of financial sector practices.In the event that your organization should encounter any difficulty during this self-evaluation process, we would be pleased to help guide you through the process and determine, if needed, the answers that must be provided to the AMF.________________________________1 1) Governance and corporate culture; 2) Design and marketing of new products; 3) Incentives management; 4) Disclosure to consumers; 5) Product advertising; 6) Claims examination and settlement; 7) Complaint examination and dispute resolution; 8) Protection of personal information.2 0 = Not applicable; 1 = Process not implemented; 2 = Informal process or one that is in the process of being implemented; 3 = Formal and implemented process but one without any control mechanisms in place; 4 = Formal and implemented process with a control mechanism in place.

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  • Is a director required to be a shareholder or member of the legal person? / Who is eligible to become a director?

    This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin).1. IS A DIRECTOR REQUIRED TO BE A SHAREHOLDER OR MEMBER OF THE LEGAL PERSON?Subject to the following, the answer to this question is no.However, the governing statute, articles of incorporation, internal or administrative by-law or unanimous shareholder agreement may stipulate specific eligibility conditions.For example, as a non-exhaustive list of examples: the incorporating statute or the by-law of a not-for-profit organization (NFPO), professional corporation or some other legal persons may stipulate requirements as to membership, residence, citizenship, etc.; the articles of incorporation of a corporation or a unanimous shareholder agreement may confer on a shareholder the authority to appoint one or several directors or provide that a director must also be a shareholder.2. WHO IS ELIGIBLE TO BECOME A DIRECTOR?The eligibility conditions are mainly found either in the Civil Code of Québec1 for legal persons governed by it or in the incorporating statute of the legal person, as completed in both cases by the internal or administrative by-law duly adopted by the legal person or a unanimous shareholder agreement.Under all relevant statutes, a director must be a natural person. A legal person cannot be a member of the board of directors of another legal person.Article 327 of the Civil Code of Québec2 stipulates that “Minors, persons of full age under tutorship or curatorship, bankrupts and persons prohibited by the court from holding such office” are disqualified for office as directors. Exclusions which are similar in whole or in part are to be found in most incorporating statutes of legal persons.Most incorporating statutes do not require directors to be shareholders or, in the case of a NFPO, a member of the legal person.Moreover, some incorporating statutes prescribe eligibility conditions, such as citizenship or residence.Some statutes other than the incorporating statutes or some regulations or decisions of regulatory authorities establish prohibitions from acting as a director generally or, in other circumstances, from acting as a director of specific legal persons.In another publication entitled “May a director be removed by the board of directors during his term of office?”3 we discussed some additional eligibility conditions which may be prescribed by the internal or administrative by-law. Some legal person may, for example, wish to impose as an eligibility condition the absence of criminal record to avoid having to file an application with the court under article 329 of the Civil Code of Québec4 to obtain the removal of a director who has been found guilty of an offence pursuant to the Criminal Code.Failure to meet the conditions of eligibility and the loss of eligibility should, in our opinion, result in most cases and for most purposes, in the automatic disqualification of a natural person as a director.Any person who is invited to become a director of a legal person and the legal person itself must therefore verify that the applicable eligibility conditions are met. _________________________________________1 Civil Code of Québec, CQLR, c. C-1991.2 Civil Code of Québec, CQLR, c. C-1991.3 Lavery website - Publications - André Laurin - “The Corporate Director’s Q & A”, “20. May a director be removed by the board during his term of office?”.4 Civil Code of Québec, CQLR, c. C-1991.

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  • Capital requirements of life insurance companies : Where do we stand ?

    AT THE INTERNATIONAL LEVELOn December 16, 2013, the International Association of Insurance Supervisors (the “IAIS”), which groups the regulators of 140 countries, including Canada, published a consultation document proposing to the international community a series of regulatory capital safeguard requirements applicable to global systemically important insurers1. Earlier in 2013, the IAIS had established some criteria to allow the Financial Stability Board, an economic group related to the G20, to identify these global systemically important insurers which may, in the event of bankruptcy, disrupt the international financial system due to their size, complexity, global scale and degree of interdependence with other financial institutions or the exclusive nature of the services they provide.Having for mission to promote effective supervision of the global insurance industry and contribute to its financial stability, the IAIS has undertaken the first step of its project which should lead to the adoption, by G20 countries, of a first set of international capital requirements for global systemically important insurers deemed to be “too big to fail”.It had indeed become necessary to implement such regulatory framework given the absence of consistent international capital requirements for global systemically important insurers, the inadequacy of the requirements applicable to banking institutions in the Basel agreements having regard to the specificity of insurance companies and, as the 2008 financial crisis remin-ded us, the importance of ensuring better resiliency of these important insurance institutions in the event of possible economic disruptions.Following the consultations currently conducted by the IAIS, it is anticipated that the conclusion of this first step will consist in the final adoption of these first international requirements by the G20 in November 2014 at the next G20 summit in Brisbane, Australia.The IAIS anticipates completing the second step of its project on or about late 2015 by adopting a series of additional requirements with higher loss-absorbing capacity targets for all global systemically important insurers.The final step of the project will consist in the adoption by the G20 of a risk-based international capital standard applicable to global systemically important insurers, called “risk-based group-wide global insurance capital standards” or “ICS”. These ICS standards will be applicable to globally active insurance companies, which particularly includes the global systemically important insurers. The work respecting the ICS standards is due to be completed by the end of 2016.The IAIS anticipates that the full implementation of its global regulatory framework for insurance companies should begin in 2019, after two years of field testing and adjustment of its standards, to be carried out in 2017 and 2019.Lastly, it should be noted that on July 18, 2013, the Financial Stability Board published a first list of global systemically important insurers. No Canadian insurance company was included among the nine identified companies2. However, this list will be updated annually beginning in November 2014.IN CANADAIn Canada, the Office of the Superintendent of Financial Institutions (“OSFI”) participates in the initiatives of the IAIS for promoting the harmonization between these initiatives and its own framework of regulatory capital applicable to federal life insurance companies, which is currently provided for in some OSFI guidelines3.In September 2012, the OSFI published its Life Insurance Regulatory Framework, a document stating the priorities of the OSFI as to the regulation of federally chartered life insurance companies4 and particularly announcing an in-depth review of the capital adequacy requirements for these insurers. In a press release issued on November 12, 2013, the OSFI was reviewing the first year following the coming into force of this regulatory framework.The new proposed regulatory framework provides for the adoption of a new guideline respecting the regulatory capital requirements, which will, among other things, (i) incorporate new risks not explicitly covered by the current framework; (ii) accommodate smaller companies, as well as larger, more complex companies; (iii) link risk measures to the quality of capital available to absorb losses; and (iv) take into account the interaction between risks (diversification/concentration).Although it was originally anticipated that the consultation of industry members would be completed in 2014 with the progressive implementation of the changes being made between 2014 and 2016, the OSFI stated in its press release dated November 12, 2013 that the deadline for completing the new capital framework was postponed to 2016 and it was therefore anticipated that it would come into force in 2018.The OSFI intends to continue its work on its new regulatory capital framework and publish in 2016, for public consultation purposes, a provisional version of its new guideline. The period between 2016 and 2018 will be used to conduct parallel tests prior to the complete implementation of this new guideline anticipated for 2018.At the same time, the OSFI announced in December 2013 the adoption of revisions of its MCCSR guideline. The revisions take into account the change of accounting standards, provide clarifications to users and take into account the recent A-4 and E-19 guidelines on the implementation of internal risk and capital assessment systems by life insurance companies. The revisions of the MCCSR guideline came into force on January 1, 2014.IN QUEBECLastly, it is to be noted that on December 18, 2013, the Autorité des marchés financiers (“AMF”) announced the adoption of modifications to its Capital adequacy requirements guideline applicable to insurers holding a permit to operate in the insurance of persons industry in Quebec5.The changes made on this occasion remain minor. They mainly constitute measures for harmonizing Quebec regulations with the standards of the OSFI or the OECD, adapting the accounting language and clarifications made in response to questions raised by industry members.The most obvious change is certainly the one concerning the treatment of the risks specific to the damage insurance subsidiaries held by insurance of persons companies. The AMF explains that the changes made to this effect will now take into account some risks which were not previously considered.The changes to this AMF guideline came into force on January 1, 2014. However, the modifications pertaining to the treatment of damage insurance subsidiaries will only come into effect on January 1, 2015.CONCLUSIONThe recent initiatives of the various regulating bodies of the insurance industry, both at the national and international level, demonstrate the growing concern about the issue of creditworthiness and proper capitalization of these financial institutions.As international standards respecting capital were up until now mainly applicable to the banking industry, the international community has recognized the systemic importance of insurance companies and the need to provide that industry with global standards specifically adapted to their operating model. At the Canadian and Quebec level, the OSFI seems to closely monitor these developments and the AMF demonstrated that it was continuing its harmonization efforts.The 2008 crisis and particularly the case of AIG certainly confirmed the fundamental need for ensuring the strength of life insurance companies in order to increase the capacity of the financial system to absorb the shocks caused by financial and economic tensions and proportionally reduce the risk of repercussions on the real economy.The challenge now facing the financial and regulatory communities is certainly the speed at which the standards developed may become obsolete in view of the speed at which financial markets evolve. Regulatory authorities must ensure that the adaptation of their normative schemes follows the pace of the development of financial operations which are increasingly complex and sophisticated. It is therefore expected that the prudential regulatory scheme will be called upon to constantly adjust. Insurance companies will have no choice but to keep ahead of developments._________________________________________1 Basic Capital Requirements (BCR) for Global Systemically Important Insurers (G-SIIs): Proposal.2 In alphabetical order: Allianz SE; American International Group, Inc.; Assicurazioni Generali S.p.A.; Aviva plc; Axa S.A; MetLife, Inc.; Ping An Insurance (Group) Company of China, Ltd.; Prudential Financial, Inc.; Prudential plc.3 Minimum Continuing Capital and Surplus Requirements (MCCSR), Guideline A-4: Regulatory Capital and Internal Capital Targets and Guideline E-19: Own Risk and Solvency Assessment (ORSA).4 Although the provinces have jurisdiction to regulate issues respecting the capital adequacy of insurance companies operating in their respective territories, many of them have decided, for convenience purposes, to delegate this role to the OSFI. Therefore, the capital requirements of the OSFI apply not only to federally chartered insurance companies, but also to those chartered by a province having an agreement with the OSFI to this effect. For its part, Quebec has chosen to regulate itself the operation of insurance company operating in its territory.5 However, in practice, insurance of persons companies, whether federally chartered or incorporated under a provincial law, which submit to the regulatory capital requirements of the OSFI, are deemed to also satisfy the AMF requirements in this respect.

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  • Regulatory Offences in the Distribution of Insurance Products: A Call for Diligence

    On November 21, 2013, the Supreme Court of Canada issued its judgment in the case of La Souveraine, Compagnie d’assurance générale v. Autorité des marchés financiers, 2013 SCC 63, a decision which is now critically important in the context of the distribution of insurance products in Quebec. Indeed, the judgment sheds light on the extent to which insurers operating in Quebec may incur penal liability for regulatory offences committed by financial services firms which they authorize to distribute their products.In this case, the highest court of the land found an insurer guilty of the offence stipulated at section 482 of the Act respecting the distribution of financial products and services (the “ADFPS”) for having provided its consent to a Manitoba damage insurance brokerage firm which was not registered with the Autorité des marchés financiers (the “AMF”) to provide Quebec merchants with the opportunity to participate in a master insurance policy issued by the insurer to cover the inventories financed by a third party institution.Section 482 of the ADFPS provides that every insurer that helps, by encouragement, advice or consent or by an authorization or order, or induces a firm or an independent representative or independent partnership through which it offers insurance products to contravene any provision of this Act or the regulations is guilty of an offence.Although the case involved a situation of non compliance with the registration rules of a firm located in Quebec pursuant to the ADFPS, it is important to note that an offence which may have resulted in the filing of a penal complaint against an insurer pursuant to its section 482 may extend to the violation of any supervisory rule prescribed under the ADFPS by a firm, an independent representative or an independent partnership.The Court confirmed that section 482 of the ADFPS creates a strict liability offence for the insurer, that is, an offence for which the prosecution is not required to prove the culpable intent of the insurer. In turn, the physical element of the offence does not require evidence to the effect that the insurer has taken positive action to encourage the violation of the Act by the firm. For the insurer, to simply fail to oppose in due course to the illegal distribution of its insurance products is regarded as a consent or an authorization to such distribution.However, the Court noted that a due diligence defence is available to the insurer and it may be found not guilty if it demonstrates that it has committed an error in fact (which leads it to believe, on reasonable grounds, in a mistaken set of facts that, if true, would have rendered his or her act or omission innocent) or proves that it had taken all reasonable precautions to avoid the violation being committed. This being said, an insurer cannot rely on an error in law as a defence since “ignorance of the law is no excuse”. In the case under review, the insurer in question was therefore unable to validly defend itself by arguing that it did not believe that the complex distribution operations to which it was a party and which extended to several other provinces required that brokers not based in Quebec who were offering the product to persons or entities from Quebec were required to be registered in Quebec with the AMF. The insurer could not defend itself on the basis of an erroneous interpretation of the ADFPS.In this respect, the Court noted that as participants in a regulated industry, insurers agree to submit to strict standards which they are required to know and comply with.This decision of the Supreme Court therefore brings back to the forefront the obligation for any insurer conducting business in Quebec to ensure strict control and monitoring of the regulatory compliance of the activities related to the distribution of its products which are conducted on its behalf in Quebec by persons regulated under the ADFPS. In this respect, insurers must be proactive and demonstrate diligence. They cannot just obtain the opinion of inexperienced third parties, including their distributors, or rely on the silence of the AMF to efficiently mitigate the risk to their reputations brought about by having penal proceedings instituted against them.This new interpretation of Quebec regulatory penal law constitutes a good reason for insurers to adopt policies and procedures to better assess compliance with the process for the distribution of their products in Quebec by brokerage firms subject to registration and above all, to comply with the exculpatory standard which they are required to meet should they face proceedings arising from regulatory violations of brokers who distribute their products.

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  • The Office of the Superintendent of Financial Institutions published its draft guideline Liquidity Adequacy Requirements

    On November 28, 2013, the Office of the Superintendent of Financial Institutions (OSFI) published its draft guideline entitled Liquidity Adequacy Requirements1 which set out the new liquidity requirements that may eventually apply to federal deposit-taking institutions, that is, the banks, bank holding companies and trust and loan companies.This draft guideline is a direct follow-up to the most recent work of the Basel Committee on Banking Supervision (the “Committee”) in the context of Basel III. As a member of the Committee, the OSFI participated in the development of the international liquidity framework2. The draft guideline aims to integrate these new requirements to the Canadian prudential regulatory framework. It also formalizes the use of the net cumulative cash flow (NCCF) monitoring tool, which has been developed in Canada.Divided into six chapters, the draft guideline is mostly based on the documents of the Committee. It proposes various quantitative and qualitative liquidity metrics, including the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), the NCCF monitoring tool, a series of additional liquidity monitoring tools and Intraday Liquidity Monitoring Tools. These various requirements aim to give an overview of the overall perspective of the liquidity adequacy of an institution, which a single measurement would not achieve.The OSFI anticipates that the work on the draft guideline should be completed in 2014. The LCR, NCCF and the liquidity monitoring tools should come into force on January 1, 2015. The dates of coming into force of the Intraday Liquidity Monitoring Tools will be communicated later on.To be taken into consideration at the time of the final drafting of the guideline, comments must be sent to the OSFI no later than Friday, January 24, 2014._________________________________________ 1 The draft guideline is available by clicking here. 2 The international liquidity framework is comprised of: Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (January 2013), Basel III: International framework for liquidity risk measurement, standards and monitoring (December 2010) (section II.2, Net Stable Funding Ratio) and Monitoring tools for intraday liquidity management (April 2013).

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  • New measures to protect consumers of prepaid credit cards: The follow-up

    This publication was authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. In November 2012, Lavery published a newsletter concerning the announcement made by the Harper government on October 24, 2012 of the adoption of new regulations to protect consumers who use prepaid credit cards so that they are better able to choose the forms of payment best suited to their needs. At that time, on October 27, 2012, the draft Prepaid Payment Products Regulations (the "Federal Regulations") were published for comment in Part I of the Canada Gazette.On December 3, 2013, the Department of Finance Canada announced that comments on these draft Federal Regulations had been received from numerous stakeholders representing financial institutions, payment network operators, consumer groups and industry associations. These comments were considered in the drafting of the final version of the Federal Regulations published on December 4, 2013 in Part II of the Canada Gazette. In its Regulatory Impact Analysis Statement ('RIAS'), the federal government indicated that technical amendments had been made to improve certain aspects of the draft Federal Regulations. The purpose of these amendments was to eliminate certain duplicative disclosure requirements when both the initial and additional disclosure documents are received simultaneously, and to clarify the type of product restrictions which must be disclosed, namely, restrictions which can be reasonably expected to have an impact on a consumer's decision to purchase a card.The RIAS indicates that other broader issues falling outside the scope of the Federal Regulations were also raised during the consultations, for example, the applicability of Canada Deposit Insurance Corporation insurance and the applicability of the unclaimed balances provisions to prepaid products issued by federally-regulated financial institutions. Since prepaid products are increasingly penetrating the Canadian market, the federal government indicated that these issues must be studied in greater depth in the future to ensure the soundest protection for consumers.We reiterate that the Federal Regulations will apply to all federally-regulated financial institutions, such as banks, trust and loan companies, insurance companies and cooperative retail associations having the power to issue prepaid payment products.Stakeholders in the federal financial sector commented that some time would be needed to change their systems in order to implement the new requirements. Accordingly, May 1, 2014 was set as the date for the coming into force of the Federal Regulations.The unveiling of the Federal Regulations was contemporaneous with the publication, on November 8, 2013, of consultation documents (in French only) by the Office de la protection du consommateur (the 'Office') in Quebec. These consultation documents contain suggestions by the Office for prepaid cards and reward cards, particularly where there is an interaction between these two payment instruments. More specifically, these suggestions relate to cases in which prepaid cards are offered to consumers for the purpose of awarding 'points' in the context of the application of loyalty programs associated with the issuance of rewards cards.Would this be a 'promotional product' within the meaning of the Federal Regulations? According to the Office, it seems not since numerous consumers participate in loyalty plans in consideration for the payment of membership fees and the value of the accumulated privileges can be considerable, sometimes as much as several thousand dollars.We note that the two levels of government have similar concerns regarding the protection of consumers' rights. Provincially, no draft bill has been made public, but the Office has invited stakeholders to submit their comments by December 20, 2013. It is to be hoped that there will be some harmonization between the legislative texts on the subject to ensure the fair treatment of all the stakeholders, whether they are governed by the federal or provincial statutory provisions.At the present time, the definition of 'prepaid card' set out in the Consumer Protection Act includes any medium of exchange that is paid in advance and allows the consumer to acquire goods or services from one or more merchants.Whether they are subjet to the laws on the distribution of financial products and services or consumer protection law, Lavery's clients have access to the legal advisers they need to answer their questions on the regulations applicable to prepaid credit cards, and to advise them on the issues that are likely to have repercussions for their business.

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  • Electronic commerce in insurance products: The CCIR adopts the final version of its position paper

    Over the last few years, the Canadian Council of Insurance Regulators1 (“CCIR”) has taken an active interest in the issue of the electronic commerce of insurance products and the necessity of ensuring the adequate protection of the interests of consumers in this context. In May 2013, the Electronic Commerce Committee of the CCIR (the “Committee”) published a first version of its position paper on the electronic commerce of insurance products (the “Position Paper”) which included various recommendations aimed at gathering comments from the members of the industry. It is on this occasion that Lavery published its article entitled “E-Distribution of Insurance Products: the CCIR Publishes its Recommendations”, which summarized the recommendations proposed by the Committee in its Position Paper. For an overview of the nature of these recommendations, we are referring you to this article, which this text builds on2.This fall, the Committee finalized its recommendations in the light of the changes proposed by the industry stakeholders. In November 2013, it announced that it had completed the final step of the consultation process, that is, the adoption by the CCIR of the final version of the Position Paper. The final document may be consulted by clicking here. The Committee enthusiastically noted the general acceptance by the industry stakeholders of the recommendations as published in the first version of the Position Paper in spring 2013.In fact, the changes that were made to the May 2013 version of the Position Paper are rather circumscribed. They are mostly limited to introducing more precise wording. However, the following changes deserve to be noted:1. In its recommendation pertaining to the information to be provided to consumers and which are deemed essential for understanding the product, the Committee insisted on the importance of such information being drafted in clear and simple language.2. As to the possibility of designating a beneficiary by electronic means, the Committee abandoned its recommendation whereby the designation should be followed by a written verification as a protection against fraud. It now recommends that these designations be simply confirmed electronically or by other means.3. As to comparison shopping sites, the Committee makes an additional recommendation, namely that regulators will survey these websites and enforce the regulation when needed.Thus, the essence of the version of the position paper posted online in spring 2013 has been maintained. The changes made following the consultation with the stakeholders improved some of the recommendations so they better meet the objective of protecting the public. These final recommendations will serve as a guide for the various Canadian regulators in the process of harmonizing the supervision of the industry in its electronic context. In particular, we can hope that the Quebec legislator and the Autorité des marchés financiers will intervene during the 2014 calendar year so the Quebec industry is able to benefit from better guidance in this respect._________________________________________1 The CCIR is a national forum which promotes collaboration among the Canadian provincial regulators for improving insurance regulations and protect public interest.2 LAVERY, DE BILLY, E-Distribution of Insurance Products: the CCIR Publishes its Recommendations, In Fact And In Law Express, May 2013.

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  • Legal newsletter for business entrepreneurs and executives, Number 18

    CONTENTS Easing the financing rules while waiting for crowdfunding Avoiding disputes by entering into a shareholders’ agreement Tenth anniversary of Bill 72 : Land protecton and rehabilitationEASING THE FINANCING RULES WHILE WAITING FOR CROWDFUNDINGJosianne BeaudryThere is no doubt that small and mediumsized enterprises (“SMEs”) and businesses in the startup phase (also known as early- stage businesses) face multiple challenges when seeking financing. Not only must they identify investors who are prepared to take the risk of investing in their projects, they must also ensure that they comply with the rules on raising capital imposed by the securities regulators.Under the rules in force in Quebec and the rest of Canada, for a corporation to raise capital, unless it has an exemption, it must retain the services of a firm registered in an appropriate category with the Canadian Securities Administrators, and must also prepare and provide the purchasers with a disclosure document known as a “ prospectus”.This procedure is generally too onerous and demanding for SMEs and startups, not to mention the obligations these companies would have after the financing to prepare and distribute continuous disclosure documents, such as financial statements, management’s discussion and analysis and press releases.Thus, SMEs and startups are often limited to raising funds from business associates, family (“love money”) and accredited investors — which are generally persons with a net income before taxes exceeding $200,000 or net assets of at least $5,000,000.SMEs and startups also have the option of soliciting funds from a broader range of investors without having to prepare a prospectus through the use of an offering memorandum. The offering memorandum is a disclosure document similar to a prospectus but which is more simple to prepare and less costly. This financing alternative seems generally to be overlooked and underused by SMEs and startups. The lack of use of the offering memorandum is likely due to the accompanying regulatory requirement of preparing audited financial statements drawn up in accordance with the IFRS. This type of financing appears to be much more popular in the Canadian West.However, in this regard, on December 20, 2012, the Autorité des marchés financiers (“AMF”) issued an interim local order allowing SMEs and startups that are not otherwise reporting issuers, as defined in the securities legislation, to distribute their securities by means of an offering memorandum without having to include audited financial statements drawn up in accordance with the IFRS.Thus, it is henceforth possible for these corporations to issue an offering memorandum without having to prepare audited financial statements. Moreover, the unaudited financial statements accompanying the offering memorandum may even be drawn up in accordance with the Canadian GAAP applying to private issuers.However, to take advantage of this easing of the regulatory requirements, the issuer must limit the total amount of all of its offerings made under this rule to $500,000 and limit the aggregate acquisition cost per purchaser to $2,000 per 12-month period preceding the offering (and not $2,000 per issuer). A warning must also be added to the offering memorandum clearly informing any purchaser of the fact that the financial statements are not audited and are not drawn up in accordance with the IFRS, and of the limits on the investment threshold.It should also be noted that, under the Quebec legislation, the use of an offering memorandum by a corporation to raise funds is subject to translation requirements. Thus, for purposes of soliciting financing in the province of Quebec, the offering memorandum must either be written in French or in both French and English.Conscious of the financing needs of SMEs and startups, at the same time as the AMF was announcing the easing of the rules on the contents of the offering memorandum (which is slated to apply for a maximum period of two years), the AMF also launched a consultation on equity crowdfunding.Equity crowdfunding consists of raising capital from a large number of investors, who are not necessarily accredited investors, by means of an electronic platform in return for the issuance of securities. Some jurisdictions such as the United States (under development since April 5, 2012), England and Australia have adopted rules authorizing equity crowdfunding.These rules generally provide that corporations may only raise a modest amount through this type of financing. Similarly, the amount investors may invest is also small. At present, this type of financing is prohibited in Canada unless one has an exemption or issues a prospectus.The main objective of equity crowdfunding is to facilitate access to capital at a reduced cost. However, this objective is difficult to reconcile with recent developments in the regulation of Canadian securities markets aimed at protecting investors.Indeed, in carrying out their mission to protect investors, Canadian authorities have continued to increase the regulatory requirements (disclosure, compliance, proficiency, etc.), which also has the effect of increasing the operating costs of the various participants in the financial markets.Some financial market stakeholders are concerned about the risks of an exodus of innovative Quebec corporations and talent which could be tempted to move south to the U.S. to finance their projects, where they would benefit from a more streamlined and less costly financing environment. The Canadian Securities Administrators will have to meet the challenge of finding the difficult balance between the financing needs of SMEs and startups and the protection of investors.AVOIDING DISPUTES BY ENTERING INTO A SHAREHOLDERS’ AGREEMENTJean-Sébastien DesrochesDisputes between shareholders sometimes have serious consequences for a business corporation and can be an impediment to the carrying on of the operations in the ordinary course of business. Such disputes are usually complex and costly while also being protracted in nature. In this context, a well-written shareholders’ agreement that is tailored to the business can help to avoid disputes or, at least, limit their scope and provide a framework for managing them.Shareholders’ agreements may not age well over time. They may not evolve in sync with the business and its shareholders, particularly in a context of expansion and growth. Furthermore, it is generally difficult to change a shareholders’ agreement once it has been signed, and an attempt to change the ground rules in midstream could be a source of additional conflicts between the shareholders. It is therefore imperative for the shareholders to establish their rights and obligations, as well as those of the corporation, in a shareholders’ agreement as early as possible in the life of the corporation.No one will be surprised to learn that money is the main cause of disputes between shareholders, whether it is the money invested (or to be invested) in the corporation or money that the corporation pays (or will pay) to its shareholders in the form of dividends or otherwise. At the same time, the shareholders’ contributions in property, services, time and money often create friction within the corporation, particularly since the shareholders’ business, financial and other expectations may evolve differently - even in opposite directions - over time.Apart from financial issues, personal conflicts can also inflame the relationship between the shareholders, especially when family members are involved with the business. The same is true when decisions are to be made on the global objectives of the corporation and strategic issues.In addition, if the corporation has shareholders from different jurisdictions, cultural differences can also give rise to tension between the shareholders. In such cases, the text of the shareholders’ agreement must be very explicit and should, if possible, be supported by concrete examples of the application of the more complex clauses, such as valuation of the shares and the procedure for exercising a right of first refusal. In all cases, it is essential to provide for the order of priority for the exercise of the various rights, remedies and mechanisms contained in the agreement to avoid adding issues of interpretation of the agreement to the existing business issues.It is often at times when the business of the corporation is not faring so well that the common disagreements between shareholders tend to flare up and lead to litigation. The shareholders’ agreement should therefore anticipate the future situations which the corporation may face, whether positive or negative, such as refinancing, the arrival of new shareholders, family succession, the acquisition or sale of a business, international expansion, the development of new markets, and retirement from the business.The ability to anticipate future developments takes on its full importance when one considers the context in which the shareholders’ agreement is being entered into. Thus, the shareholders’ and drafter’s objectives may be different in the case of an agreement concluded for tax and estate planning purposes versus an agreement dealing, for instance, with the arrival of a new investor, a transaction for the acquisition of the business (e.g., business transfer or succession) or a start-up situation. Even in a very particular context such as this, the shareholders’ agreement should still give the corporation and its shareholders the means to achieve their ambitions and the requisite flexibility to carry out all their business projects.In addition to their status as shareholders, the shareholders may also hold several other titles or functions in the corporation, since they often also act as directors, officers and employees. Disputes may therefore arise as a result of these different roles and the associated rights and obligations, and degenerate very quickly into personal disputes.The drafting and negotiation of a shareholders’ agreement is a complex and exacting exercise requiring both legal and practical experience. Thus, a review of the cases in the courts shows that disputes pertaining to the most complex terms and conditions of the agreement, such as the mechanisms for the arrival and departure of shareholders and transfers of securities (right of first refusal, purchase and sale (shotgun) clause, etc.) as well as interpretation of non-competition, non-solicitation and intellectual property provisions, are among the subjects most frequently debated in the courts.Valuation mechanisms for assessing the price of the shares in different situations should also be clearly established in the shareholders’ agreement. Such mechanisms should oversee and govern any discussions on the value to be attributed to the shares of the corporation in the context of a sale or transfer, including in complicated situations where there are ongoing disputes among the parties.Lastly, it is fundamental to provide for effective conflict resolution mechanisms tailored to the needs of the parties ( confidentiality of the process, cultural and linguistic factors, obligation to pursue the operations of the business as a going concern in spite of the dispute, etc.) that allow for action to be taken quickly to preserve the value of the business. This will enable the parties to avoid the forced liquidation of the business, with its disastrous consequences for the employees, suppliers and clients.TENTH ANNIVERSARY OF BILL 72: LAND PROTECTION AND REHABILITATIONSophie PrégentThe planning of a construction project or start-up of an industrial activity requires prior verification of a number of matters. Despite the introduction, ten years ago this year, of rules in the Environment Quality Act (EQA) governing the protection and rehabilitation of contaminated lands, the physical condition of the project site is often still a neglected issue.While the question of soil contamination can raise issues of civil relations, such as, for example, civil liability or the warranty of quality (against latent defects), in this article, we will focus exclusively on the obligations that can arise from the EQA.The purpose of the EQA is environmental protection. This protection is embodied in measures for prior protection, emergency responses and rehabilitation in the EQA. The EQA also imposes certain duties to act on the users of immovables.POWER TO ISSUE ORDERSThe Minister of Sustainable Development, Environment, Wildlife and Parks ( MSDEWP) has broad powers, including, in particular, the power to order the filing of a rehabilitation plan if he has reason to believe, or ascertains, that contaminants are present on land in a concentration exceeding the limit values prescribed by regulation,1 or that they are likely to affect the environment in general.2Since 2003, this power has applied to all persons who have had custody of the land, in any capacity whatsoever. Such an order can therefore be imposed on tenants and is not limited only to the owner or “polluter” of the land.Thus, it is important for any purchaser to be familiar with the history of the land so that it can assess whether there is a risk that this type of situation could arise.Where such an order has been issued, some means are available for a person to exempt himself from it, in particular, where (i) he was unaware of or had no reason to suspect the condition of the land having regard to the circumstances, practices and the duty of care, or (ii) he was aware of the condition of the premises, but shows that he acted at all times with care and diligence in conformity with the law and, finally, (iii) he shows that the condition of the premises is a result of circumstances exterior to the land and attributable to a third party.CESSATION OF INDUSTRIAL OR COMMERCIAL ACTIVITYWhere a person permanently ceases carrying on a commercial or industrial activity referred to in schedule III of the Land Protection and Rehabilitation Regulation3 (LPRR), the operator must conduct a characterization study of the land.4 This obligation applies where the activity permanently ceases and it triggers the further obligation to carry out the rehabilitation of the land if the contaminants present in the soil exceed the regulatory concentration limit. This work must be performed in accordance with a rehabilitation plan which is submitted to the MSDEWP and approved by him.While this obligation to carry out the rehabilitation of the land only applies to the operator of the activity, it creates a restriction on the use of the land which must definitely be taken into account by the purchaser in the context of a transaction. Indeed, the failure by the operator to perform the rehabilitation will have significant consequences for the purchaser, especially if it wishes to change the use of the land.CHANGE IN USEWhere a person wishes to change the use of land which served as the site of a commercial or industrial activity listed in schedule III of the LPRR, he must conduct a characterization study, unless he already has such a study in hand, and it is still current.5Obviously, in the context of an acquisition, if this obligation exists, it is advisable for the purchaser to ensure it is satisfied by the vendor, or, at the very least, that the condition of the premises be very clearly disclosed to avoid any unpleasant consequences down the road.If the characterization study reveals that contaminants are present in amounts exceeding the regulatory limits, a rehabilitation plan will have to be submitted to the MSDEWP for approval, after which the rehabilitation will have to be done before the new use of the land can commence. This work will obviously create delays for the purchaser since the municipality will not issue the necessary permits to proceed with the subdivision or construction until the land has been decontaminated.In the event that the land has already been decontaminated in accordance with the applicable procedures, it is important for the purchaser to carefully review the rehabilitation plan submitted to the MSDEWP and the various entries made in the land register to determine whether there are any restrictions on the use of the land, or whether any excess contaminants may have been left in the ground with the consent of the MSDEWP.REGISTRATION REQUIREMENTSThe EQA contains a series of measures requiring the publication of notices in the land register with respect to contaminated lands,6 specifically, notices of contamination, notices of decontamination, and notices of use restriction. In addition, in some circumstances, certain notices must also be given to the local municipality, to the Minister of SDEWP, and even to neighbours.Clearly, the existence of such notices must be verified when any transaction is being undertaken. However, it is important to remember that the EQA does not regulate all of the situations relating to contaminated lands and, in particular, historic contamination and contamination resulting from activities not covered by the LPRR. The existence or lack of registrations against the land in the land register does not therefore guarantee that the premises are in compliance with the rules of the EQA on the rehabilitation of contaminated soils.LIMITED APPLICATIONThus, as far as contaminated soils are concerned, the application of the EQA is limited. For instance, there is no general obligation to perform the rehabilitation of land following the completion of a characterization study done on a voluntary basis. However, the presence of contaminants could trigger a restriction on the use of the land which could prevent the purchaser from being able to use it for the planned activity.7Accordingly, as a purchaser, it is very important to be well informed of the condition and history of an immovable, and even, most of the time, to obtain an environmental characterization of the subject property. It is a question of exercising the care and diligence of a responsible purchaser._________________________________________ 1 The Land Protection and Rehabilitation Regulation, CQLR, chapter Q-2, r 37.2 Section 31.43 of the Environment Quality Act, CQLR, chapter Q-2, provides more specifically that this applies to contaminants which are “likely to adversely affect the life, health, safety, welfare or comfort of human beings, other living species or the environment in general, or to be detrimental to property”.3 Supra, note 1. This is a list of most of the activities that are likely to cause soil contamination.4 See sections 31.51 and following of the EQA.5 See sections 31.51 and following of the EQA.6 See sections 31.51 and following of the EQA.7 For example, a residential development that cannot proceed on land where contaminants exceed the acceptable limits for residential usage.

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  • E-Distribution of Insurance Products: the CCIR Publishes its Recommendations

    In January 2012, the Electronic Commerce Committee of the Canadian Council of Insurance Regulators (CCIR)1 released an issue paper entitled “Electronic Commerce in Insurance Products”, through which it invited insurers and intermediaries to provide feedback on certain targeted issues respecting online insurance distribution.Many stakeholders responded; 25 submissions were sent to the CCIR. The organization has just published its report under the form of a position paper in which it makes recommendations to online insurance providers.CONTENTS OVERVIEWThe position paper deals with the following issues:  Information and advice to consumers Identification of the online insurance provider and the complaint process Disclosure of necessary information about the product Opportunity to review the accuracy of information provided Copies of the application and the contract Reliability of transactions Protection of personal information Designation of beneficiary Termination of insurance contract by the insurer Comparison shopping sites Social media  SUMMARY OF THE RECOMMENDATIONSHere are the outlines of the CCIR report and its recommendations. The full version of the recommendations is available online at http://www.ccir-ccrra.org/en/pubs/1. INFORMATION AND ADVICE TO CONSUMERSThe CCIR remarks that consumers must have access to all the necessary information in order to understand the product offered and make an informed purchase decision. The selected product must satisfy the consumer’s needs, irrespective of the means of communication chosen by consumers. The CCIR noted that some insurance products are more complex than others and the need for advice may vary from one person to another; in all cases the CCIR is of the view that the advice must be adapted to the type of insurance product offered and the client’s profile. Therefore, the CCIR believes that consumers should be presented with a disclosure stressing the importance of advice and how to obtain it.2. IDENTIFICATION OF THE ONLINE INSURANCE PROVIDERThe CCIR states that consumers must have access to the information and coordinates which would allow them to identify the insurance provider and verify that it is a regulated entity registered with the regulator of its province. The CCIR also recommends that the coordinates and procedure for filing a complaint be disclosed on the website, including a link to the website of the regulator having jurisdiction over the entity in question.3. DISCLOSURE OF NECESSARY INFORMATION ABOUT THE PRODUCTThe CCIR indicates that in order to make an informed decision, consumers must have access to certain specific information about the product, including the warranty, exclusions and limitations, the type of consumer for whom it is intended, the premium, the right to terminate the insurance contract, etc. This information must be presented in a simple, clear and timely manner.4. OPPORTUNITY TO REVIEW THE ACCURACY OF INFORMATION PROVIDEDIn the context of e-distribution of insurance products, consumers themselves complete the application form online. In order to avoid any error that would negatively affect consumers and providers, the CCIR recommends that consumers be given the opportunity to validate their answers once more before sending the online application.5. TERMS AND CONDITIONSThe CCIR stresses the importance of consumers having a copy of the application and the contract that they can refer to following the transaction. Although the format of the documents must enable consumers to reproduce and store them, the method of communicating the documents is not specified.6. RELIABILITY OF TRANSACTIONSThe CCIR notes the undesirable consequences of using a defective computer system network that can negatively affect the process and the fact that online insurance providers have the responsibility to ensure that the consumer’s personal information is secure.7. PROTECTION OF PERSONAL INFORMATIONIn order to avoid the inadvertent disclosure of personal information, identity theft, fraud, misappropriation and money laundering, the CCIR stresses the importance of protecting the personal information of consumers.8. DESIGNATION OF BENEFICIARYThe CCIR discussion paper raised the issue of whether the designation or change of beneficiary through electronic means should be authorized. In the absence of specific legislative provisions authorizing the electronic designation of beneficiary, the CCIR notes that insurers currently continue to require that designations be made on paper. However, British Columbia and Alberta recently made changes to their respective regulations, which could make insurers more willing to authorize beneficiary designations through electronic means. The CCIR committee adopted a position recommending that insurers have in place effective systems for offering consumers the option of designating and changing beneficiaries by electronic means.9. TERMINATION OF THE CONTRACTIn the January 2012 discussion paper, the CCIR asked whether insurers should be allowed to terminate a contract by electronic means if both parties consented. The CCIR mentions that British Columbia and Alberta recently chose to maintain the requirement of an insurance termination notice on paper. In light of the mixed opinions on the subject, the CCIR chose to maintain the status quo on that issue; it recommended no change to existing practices respecting contract termination for the time being.10. COMPARISON SHOPPING SITESThe CCIR raises some issues relating to comparison shopping sites, particularly as to their independence, the disclosure of information to consumers, whether or not these sites are involved in transacting insurance and whether or not they are subject to regulation. The CCIR prevailing view is that no additional rules appear to be necessary at this time. However, the CCIR adds that these sites should have the same obligations as regulated entities subject to the current regulatory framework and that regulators should require comparison shopping sites to comply with applicable legislation.11. SOCIAL MEDIADue to the increasing use of social media in the insurance industry, particularly for marketing purposes, the CCIR is of the opinion that social media is a form of communication like any other and that the rules, particularly pertaining to ethics, advertising, suitability and record keeping must be complied with when insurers and representatives use social media.NEXT STEPSThe CCIR has invited industry stakeholders to provide commentary on the CCIR recommendations by July 26, 2013. The CCIR will subsequently review the stakeholders’ comments. Final recommendations will then be adopted and published by the CCIR. It should be noted that submissions will be made publicly available by the CCIR.CONCLUSIONThese recommendations strive to harmonize provincial rules in the practice of the offer and distribution of insurance products in Canada. Considering the involvement of the Autorité des marchés financiers in the development of the position paper, these recommendations suggest the direction that the regulation of the online distribution of insurance products in Quebec should take. In the meantime, it will be interesting to see the industry reaction to the guiding principles suggested by the CCIR._________________________________________ 1 The CCIR is a national forum which promotes collaboration among the Canadian provincial regulators for improving insurance regulations and protect public interest.

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  • Amendments made to the Act respecting insurance of Quebec to allow transfers between participating funds and non-participating funds

    On June 14, 2013, the Act respecting insurance (Quebec) (the "Act") was amended by sections 1 to 5 of An Act to amend various legislative provisions mainly concerning the financial sector. The new sections, 66.1.1 to 66.1.6, have been added to the Act in order to henceforth allow an insurance company incorporated under the laws of Quebec ("Quebec Insurer") that has issued participating policies ("Participating Policies") to make a transfer from its participating fund ("Participating Fund") to a surplus account or a retained earnings account ("Non-Participating Fund"), provided that the Quebec Insurer adopts a participating fund surplus management policy approved by its board of directors ("Policy"). These new provisions of the Act respecting insurance are therefore giving immediate effect to proposal 46 contained in the Report on the Application of the Act respecting insurance and the Act respecting trust companies and savings companies, which was tabled in the National Assembly of Quebec on April 30, 2013 by Quebec's Minister of Finance and the Economy, and which is currently the subject of public consultations (the "Application Report").The purpose of these new sections is to provide a solution to the problem stemming from the fact that a number of Quebec Insurers had, for several years now, stopped issuing Participating Policies, and the fact that their Participating Funds had become closed pools which benefited, often unfairly, from productivity gains resulting from the increase in the non-participating business volume of those insurers. Moreover, the Application Report noted that the actuarial forecasts for some Participating Policies had been determined on the basis of mortality assumptions which turned out to be too pessimistic. Since people have on average been living much longer than initially anticipated in these assumptions, this was therefore reflected in the financial results of the Participating Funds of Quebec Insurers whose performance was better than expected. Several Quebec Insurers have therefore found themselves with large surpluses, identified in their net equity as surpluses allocated to the Participating Fund. Sections 66 and 66.1 of the Act already provided for certain rights of the holders of Participating Policies of Quebec Insurers, including the right to share in the portion of the profits from the insurer's participating account. However, the Act and regulation thereunder did not specify how transfers were to be made between Participating Funds and Non-Participating Funds. Following certain decisions rendered by Canadian courts with respect to transactions involving such transfers, and in the absence of a specific legal framework, Quebec's regulatory authorities had until now been quite reluctant to permit such transfers, except in the context of projects to demutualize or convert Quebec Insurers, which would then entail the adoption of special statutes governing such transfers, among other things. If no transfers had been permitted, there would then have been a serious risk of a tontine effect the result of which would have been that the profits of some Participating Funds would only have belonged to the last survivor of the holders of Participating Policies in the event of the winding-up of the insurer. The effect of the new sections, 66.1.1 to 66.1.6, of the Act is therefore to offer a legal solution to Quebec Insurers that enables them to address this problem. Section 66.1.1 of the Act states that the Policy must establish a method for calculating the surplus maintained in the Participating Fund, including for the purpose of guaranteeing the performance of the Quebec Insurer's obligations to its holders of Participating Policies. This Policy must be approved by the Quebec Insurer's directors, it must be presented (but not approved) at a general meeting of its shareholders or members, and finally, it must also be filed with the Autorité des marchés financiers ("AMF"), pursuant to section 66.1.2 of the Act.Section 66.1.3 of the Act provides that, before every transfer from the Participating Fund to a Non-Participating Fund, the Quebec Insurer's actuary must file a report certifying that the transfer is in compliance with the Policy, and this report must be filed with the AMF no less than 30 days before the date of transfer. Section 66.1.4 enables the AMF to prohibit any transfer, or to allow it subject to certain conditions, if it finds that the transfer is advisable in the interests of the Participating Policyholders. Section 66.1.5 allows the AMF to require the filing of any relevant information or document relating to the Policy or a transfer made thereunder. Finally, section 66.1.6 of the Act permits the AMF to give written instructions to Quebec Insurers that are issuing Participating Policies regarding the management of the participating fund surplus. The addition of these new sections to the Act therefore represents an initiative by the Quebec legislature that will henceforth give Quebec Insurers who have issued Participating Policies, or who will be doing so in the future, an advantage over insurers incorporated in other Canadian jurisdictions where it becomes necessary to eliminate or reduce large surpluses identified in their net equity as surpluses allocated to the Participating Fund. For any questions on this bulletin or the amendments to the Act, please do not hesitate to contact Marc Beauchemin at 514 877-3004.

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