Publications

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.

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.

In a recent decision by the Court of Appeal of Québec, the Honourable Jacques Chamberland, J.C.A. reviewed the application of exclusion clauses contained in a home insurance policy in the context of criminal activities1.THE FACTSThe Appellant, Union canadienne compagnie d’assurance insured the building of respondent, Mrs. Lise Houle and her spouse, Christian Alexandre. The latter was growing cannabis in the insured building. In fact, the residence (the kitchen and possibly the basement) was used for germinating the cannabis seeds while the garage was used for growing the seedlings after they were planted. This was unknown to Mrs. Houle, who never went into the garage as she was disabled.A fire caused by the electrical installations used for growing cannabis occurred on August 8, 2006 and damaged both the residence and the garage.EXCLUSIONSThe insurer relied on the two following exclusions to deny coverage to its insured:  [translation] “16. In addition to the exclusions set out elsewhere in this contract, WE DO NOT COVER:(…)The constructions:(…)Occupied by the INSURED and used for illegal or criminal activities.21. The LOSSES caused by the criminal acts (…) of an INSURED.” THE JUDGMENT IN THE FIRST INSTANCEIn the first instance, judge Sophie Picard first examined exclusion clause 16. She concluded that in the absence of the words “in whole or in part”, as was the case in the decision Promutuel Bagot v. Lévesque2, this exclusion only applied to constructions of which “a substantial part” is used for criminal activities. Therefore, she was of the view that the garage was excluded, but not the residential building, which was only used in part for growing marijuana.The judge also concluded that exclusion clause 21 applied to Mr. Alexandre, who was producing cannabis, but not to Mrs. Houle, who was completely unaware of these activities.THE JUDGMENT OF THE COURT OF APPEALThe Court of Appeal examined exclusion clause 16, first referring to article 2402 par. 1 C.C.Q., which provides that an insurer may be released from its obligations in the events that a breach of the law constitutes a criminal act:  « 2402. In non-marine insurance, any general clause whereby the insurer is released from his obligations if the law is violated is deemed not written, unless the violation is an indictable offence. (…)» The Court noted that the clause of the policy provided for an exclusion for the “constructions” and not the “insured premises”, used for illegal activities. Accordingly, this clause had to be analyzed in relation to each of the constructions and not the insured premises as a whole, as the Appellant was maintaining.However, contrary to the trial judge, the Court of Appeal was of the view that it was wrong to tie the application of the exclusion clause to the extent the building was used for criminal activities. [translation] “ [26] In my view, the occupation of a construction by the insured and its use for illegal activities are sufficient to conclude that this construction is not insured, regardless of whether all or only part of the construction is used.” Despite the fact that the words “in whole or in part” are absent from the wording of the clause, it remains that it is not necessary for the insurer to demonstrate that a “substantial part” of the construction has been used for criminal activities. The Court of Appeal therefore concluded that the issue to be decided was whether the construction had been used for criminal activities, without it being necessary to determine the degree of such use. In the circumstances, since both the residence and the garage were used for criminal activities, both constructions were excluded from insurance coverage. In view of this conclusion, the Court deemed it unnecessary to review exclusion clause 21. CONCLUSIONWe note that the very wording of the various clauses is particularly important when analyzing insurance policies. In the case under review, the absence of the words “in whole or in part” resulted in a debate before the Court of Appeal.This case also raises the issue of knowledge by an insured of an illegal use of the premises when examining the exclusion. The Court of Appeal does not specifically deal with this issue in the case under review. However, the Superior Court, examining a similar exclusion, came to the conclusion that the use for criminal purposes by a third party cannot be used against an insured where the insured does not have specific control over such use for criminal purposes3. However, the clause examined in that decision did not provide that the premises had to be occupied by the insured, as was the case in the Union canadienne v. Houle decision. It will be interesting to see whether the Court of Appeal will eventually deal with this specific issue._________________________________________ 1 L’Union canadienne compagnie d’assurance v. Houle, 2013 QCCA 677. 2 EYB 2011-28493 (C.A.). 3 Lévesque v. Compagnie d’assurance Desjardins, 2013 QCCS 1552.

The decision of the Court of Appeal in the La Capitale case has been expected since February 2012 when the Superior Court dismissed the class action taken against an insurer who, with the consent of the policyholder, had unilaterally modified the waiver of premiums clause in a group insurance contact.1To better understand the context, please refer to our newsletter in June 2012 following the Superior Court judgment.THE FACTSTwo suits were brought against La Capitale by Plaintiffs Tremblay and Beaver, both public sector employees; they were authorized to institute a class action and represent class members covered by the group insurance contract who were or had been disabled since 1996 and from whom the waiver of premiums benefit had been withdrawn by a modification to the insurance contract. The group consisted of approximately 1,200 members.The Plaintiffs became disabled in 1996 and 1997, respectively, and are still disabled. They claim the right to have their premiums waived under their group insurance contract until the age of 65, as long as they remain disabled.When he became disabled in 1996, Mr. Tremblay belonged to a bargaining unit covered by the collective agreements signed with the FTQ. The long-term care centre for which he worked terminated his employment in 2000 due to his disability. In 2005, his bargaining unit became disaffiliated with the FTQ and in June 2006 the insurer notified him that insurance coverage was withdrawn because his union was no longer affiliated with the FTQ.Mr. Beaver’s situation is somewhat different. He was employed by a school board when he became disabled in 1997 and he still retains an employment relationship with it. His insurer notified him in November 2007 that under a new provision of the insurance contract, it could cease granting the waiver of premiums after 36 months of benefits. Because he had benefited from the waiver since 1997, the insurer claimed it was justified in ending it.Plaintiffs Tremblay and Beaver’s claims were joined together for hearing and they claimed, on behalf of the members of the class, that their right to the waiver of premiums be restored.All the contracts entered into between the times of their respective disabilities and the modifications that deprived them of the waiver of premiums for sickness insurance and dental care, which came into force in 2001, contained a clause entitled Modifications to the Policy [Translation], which reads as follows:“The policyholder may, at all times, after agreement with the Insurer, make changes to the contract regarding the categories of eligible persons, the extent of protection and the sharing of costs between the categories of insured persons. Such changes shall then apply to all insured parties, whether active, disabled or retired.” [Translation] (Our underlining)THE SUPERIOR COURT JUDGMENTThe Superior Court concluded that given the power granted to the contracting parties, i.e. the policyholders (a group of numerous associations representing the insureds) as well as the insurer, they could negotiate modifications to the contract because a specific clause authorized them to do so. Thus, the clause terminating the waiver of premiums was valid without the agreement of the individual insureds.The Superior Court added that the waiver is not a benefit recognized in the insurance policy, but rather a provision found in the section on payment of premiums, which confirms that the waiver of premiums is not one of the insured benefits.Although the facts in dispute and the number of parties involved make this a complex case, the real question in dispute is whether the policyholder and the insurer had the right to unilaterally modify the group insurance contract.THE COURT OF APPEAL DECISIONThe Appellants repeated all of their arguments. They claimed that “disability” and the waiver of premiums attached to it at the beginning of their respective disabilities was an insured risk. This right to the waiver crystallized when their disabilities arose and the modification made to the group policy on January 1, 2001 was not valid. Lastly, they claimed that the insurer had committed a fault that engaged its liability.The Court, in a decision written by Justice Thibault, first traced the history of the successive contracts and the provisions of the Civil Code that apply to them.It noted that the contract in force on March 1, 1991 provided for not only a waiver of premiums in cases of disability, but also a clause authorizing modifications to the contract upon agreement between the insurer and the Committee (policyholder) and those modifications apply to all insureds, whether they are active, disabled or retired.The contract in force since January 1, 1997 provided for a waiver of premiums in cases of disability, but it ceased at 65 yearsof age or when the insured no longer fulfilled the conditions of insurability. The clause giving the policyholder and the insurer the power to modify the contract was similar.The contract in force since January 1, 2001 added as a cause of cessation of the waiver of premiums privilege the date on which the Committee confirms cessation of the employees group’s membership in the union, which is the policyholder, or cessation of the member’s membership in the employees group. The 65 years of age limit and the clause permitting modification of the contract remained similar.On January 1, 2008, an endorsement was added to the contract from 2001 and it provided that, in addition to the causes described above, the sickness insurance and dental care plans ceased at the date of the end of the employment relationship or 36 months after the date of the commencement of the participant’s disability.The Court of Appeal confirmed that the benefits that the insurer must pay under the sickness and dental care coverages do not depend on the occurrence of a disability; they are not linked to disability.As for the waiver of premiums that is tied to the occurrence of disability, it is not a coverage to which the insurer has committed itself because the insurer has not taken on responsibility for it, but instead it is shared between the participants. This benefit results from the policyholder’s decision to transfer to the active participants the premiums that the disabled participants are not required to pay.Then the Court considered the argument concerning the “crystallization” of the Appellants’ rights at the times of their respective disabilities, because it is important for the insurers to know whether or not the successive contracts are distinct contracts, although the Court judged this issue to be secondary considering the fact that the contract from 1997 contains a preamble stating that it is a consolidation of the contract and endorsements in force since 1991.The contract applicable at the time of the occurrence of the disability of each of the Appellants was the one from 1997. Although it was replaced by the contract from 2001 and modified by the endorsement of 2008, all the modifications were made at the request of the policyholder because the active employees expressed their dissatisfaction with the high cost of the premiums paid for the plan. At that time, the policyholder’s insurance advisor had informed it that the waiver of premiums benefit until 65 years of age was very generous and that most plans limited the waiver period to three years.Given that all of the contracts that had been in force since the Appellants’ disabilities authorized the policyholder and the insurer to modify them by agreement and that they provided that the modifications applied to all the insureds irrespective of their status, no right could “crystallize” at the dates of disability. However, it was agreed that the Appellants continued to have the benefit of the life insurance with a waiver of premiums.Lastly, the Appellants argued that article 2405 C.C.Q. required that the modification putting an end to the contract in the event of a change in the union’s allegiance be brought to their attention. The Court rejected that argument; the group insurance contract is based on the definition of a given group for the benefit of which it is negotiated. The policyholder has authority from this group to negotiate and could agree on a modification concerning the categories of eligible persons. The Court accepted the views expressed by author Michel Gilbert stating that article 2405 C.C.Q. “can apply only to individual insurance because one cannot expect that participants come forward concerning a modification in which they are not involved.” [Translation]CONCLUSIONThe modification clauses are valid and any change, addition or withdrawal of a coverage or privilege can be invoked against all of the active, disabled or retired insureds, without them having to be notified about it, if the bilateral agreement procedure is respected.The Plaintiffs have 60 days to apply for leave to appeal to the Supreme Court._________________________________________   1 2012 QCCS 746.

On March 26, 2013, the Office of the Superintendent of Financial Institutions (“OSFI”), the Canadian bank regulator, issued an Advisory in which it identified the banks considered to be systematically important for Canada in accordance with the framework set out by the Basel Committee on Banking Supervision. These banks are the Bank of Montreal, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, the National Bank of Canada, the Royal Bank of Canada and the Toronto-Dominion Bank.In October 2012, the Basel Committee published a document setting out certain principles for Member States of the Bank for International Settlements to help them address the impact that the distress or failure of certain banks can have on domestic financial systems and national economies.Following this designation as domestic systematically important banks, the above-mentioned banks will need to comply with stricter financial standards in order to expand their capacity to absorb unexpected losses. They will thus have to establish a risk-weighted capital ratio requirement equaling a 1 per cent common equity surcharge. OSFI also reserves the right to periodically revise this capital surcharge in light of domestic and international developments.Thus, as of January 1, 2016, the designated banks will be required to meet a risk-weighted all-in Pillar 1 target common equity Tier 1 of 8% compared to a 7% requirement for smaller institutions.In its Advisory, OSFI clarifies how such additional loss absorbency, which is required from designated banks, matches well with the capital targets established by the OSFI 2013 Capital Adequacy Requirements Guideline and the Internal Capital Adequacy Assessment Process Guideline. The OSFI Advisory also discusses the supervisory and disclosure implications for banks designated systematically important for Canada.

The quality of corporate governance practices increasingly represents a key factor to maintaining the trust of depositors, policyholders and most stakeholders who are active on capital markets. Considering the unique features of financial institutions and the risks arising from their responsibilities, some aspects of corporate governance are particularly important for these institutions, including banks, insurers, trust companies, loan companies and cooperative credit associations.On January 28, 2013, the Office of the Superintendent of Financial Institutions Canada (hereinafter “OSFI”) published the final version of its Corporate Governance Guideline. OSFI previously issued for comment a draft guideline on August 7, 2012. Several comments submitted at that time were taken into account by OSFI.The new version of this guideline is intended for all federally-regulated financial institutions (hereinafter “FRFIs”), which are supervised and regulated by OSFI. It does not include the Canadian branch operations of foreign banks and insurance companies since they have no board of directors in the country. However, OSFI expects their Chief Agent or Principal Officer, who oversee matters of corporate governance in Canada, to be acquainted with the Guideline.OSFI has updated the former 2003 Guideline because it was no longer in accordance with OSFI’s Supervisory Framework, revised in 2010, and to reflect the newly adopted best international standards and practices with regard to corporate governance. By updating the Guideline, OSFI is taking a stand on the global financial crisis that started in 2008 and the corporate governance of financial institutions, which has become an issue of growing importance in the last 10 years.The new version of the Guideline focuses on the following core objectives:  ensure that FRFIs have prudent corporate governance practices and procedures that contribute to their safety and soundness; promote industry best practices in corporate governance; harmonize the OSFI Guideline with the Supervisory Framework, revised in 2010 and in effect since 2011; and address international standards as articulated by a number of international organizations, such as the Financial Stability Board, the Organisation for Economic Co-operation and Development, the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors.The Guideline was also updated to reinforce the role of boards and senior management, including as follows:  enhance the effectiveness of boards, particularly with regard to their responsibilities and competencies; strengthen FRFIs’ risk governance, including by developing a “Risk Appetite Framework”; and improve the overall internal control framework of FRFIs by clarifying the roles of the Chief Risk Officer and Audit Committee.OSFI expects FRFI boards and senior management to be proactive and knowledgeable about the corporate governance best practices applicable to their institution. OSFI also expects FRFIs to assess their operations according to the Guideline and take appropriate action to ensure compliance. FRFIs are required to put in writing the results of their self-assessment and the related action plans by May 1, 2013. Self-assessments are to be retained by FRFIs and made available to OSFI upon request.OSFI expects that all FRFIs will fully implement the Revised Guideline on corporate governance by January 31, 2014.

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. On February 13, 2013, the Financial Consumer Agency of Canada (the “Agency”) issued a new guidance (the “Guidance”) to clarify the interpretation that must be given to the Code of Conduct for the Credit and Debit Card Industry in Canada (the “Code”) with regard to three issues within the Canadian payment card industry (credit or debit cards) that, according to the Agency, are not in line with some of the key principles set out in the Code. These clarifications to the Code, provided by the Agency, will enable small businesses and merchants to be more informed about the scope of the rights and obligations of the parties regarding the terms of the agreements concluded between payment card network operators and their respective participants.The Agency’s mandate is to supervise payment card network operators to determine whether they are in compliance with the provisions of the Payment Card Networks Act1. The Code was developed by the Government of Canada with the cooperation of the Canadian payment card industry and was introduced in April 2010 to promote greater transparency for merchants and consumers. The Code’s main objective is to ensure full disclosure of all processing fees related to payment card transactions.According to the Agency, certain practices of the Canadian payment card industry contravened the letter and spirit of the Code. The Guidance recommends increased disclosure of information by payment card networks to merchants and the elimination of certain sales and business practices deemed inappropriate by the Agency. In addition, the Agency has stated that certain practices fail to comply with the Code because they do not ensure the provision of information to merchants in a manner that is clear, simple and not misleading.The issues identified by the Agency primarily deal with costs disclosure and the terms applicable to the business relationship between payment card network operators and merchants. Among other things, the Agency has observed that merchants could be misled regarding the terms of the merchant-acquirer agreement they were required to sign and that is was difficult for them to make informed decisions about the payment card network services they choose to receive. Furthermore, the Agency noted that merchants were not always aware they were signing agreements with multiple providers for certain services related to the processing of payment card transactions. Multiple service provider agreements would impose certain penalties to merchants when they decide to cancel these related service contracts. The Agency wants to abolish such practices.Pursuant to the Guidance, if a merchant decides to opt out of a related service contract because of a processing fee increase or any fee increase, no penalty would be imposed. Likewise the Agency believes that a package of contracts signed by a merchant for the processing of payment card transactions must be given a value equal to the main agreement signed with the acquirer or his representative.Payment card network operators will work directly with their participants to correct the deficiencies identified by the Agency and establish appropriate timeframes within which to address the concerns raised by merchants. The Agency also wants payment card network operators and their participants to work together to ensure that vital information is provided to merchants in a consolidated fashion, such as a cover page, before a multiple service provider agreement is entered into by the merchant. The Agency has provided an “information summary box” that it strongly encourages participants to adopt with respect to the contract signing procedure.The Agency expects that payment card network operators will publicly commit to this Guidance and incorporate the required amendments into their operating rules within 90 days of the date of the Guidance, which was issued on February 13, 2013. The Agency further expects that all participants will comply with the Guidance before it comes into effect, i.e. on November 12, 2013. In addition to Agency requirements, the provisions of Bill S-2152, which received first reading on December 11, 2012, are worth mentioning. One of the bill’s main objectives is to legislate on interchange rates with regard to credit card transactions. All these new measures and proposals will undoubtedly generate heated debate in the payment card industry._________________________________________   1 S.C. 2010, c. 12, s. 1834.  2 An Act to amend the Payment Card Networks Act (credit card acceptance fees), First session, Forty-first Parliament, 60-61 Elizabeth II, 2011-2012.

On January 6, 2013, the Basel Committee on Banking Supervision announced that it was relaxing the liquidity rules that will be applied to banks beginning in 2015. The Group of Central Bank Governors and Heads of Supervision (“GHOS”), the oversight body of the Basel Committee, then unanimously adopted the last changes made by the Basel Committee to the liquidity coverage ratio (“LCR”), which were presented in the version published in December 2010. This ratio is intended to enable banking institutions to withstand a severe crisis for a period of 30 days. The new rule will require banks to hold enough securities that can be easily be converted into cash, such as government or corporate bonds, to cover net cash outflows in case of serious funding difficulties for one month, in order to avoid a taxpayer-funded bailout.Changes to the LCR are made at four levels:a) revisions to the definition of high quality liquid assets (“HQLA”) and net cash outflows by expanding the range of qualifying assets for these liquidity reserves to, among other things, equities and residential mortgage-backed securities (“RMBS”);b) a timetable for the gradual phase-in of the LCR standard;c) reaffirmation of the usability of the stock of liquid assets in periods of stress, including during the transitional period; and d) approval for the Basel Committee to continue its work on the interaction between the LCR and the provision of facilities by central banks.The full text of the LCR rules, incorporating the changes discussed here, was published on Monday, January 7, and is available on the website of the Bank for International Settlements.The GHOS announced that the LCR would be subject to transitional provisions, which will follow those defined for the implementation of the Basel III capitalisation requirements. More specifically, the LCR will come into force, as planned, on January 1, 2015, but the minimum requirement will initially be fixed at 60%, thereafter increasing annually by 10 points to 100% on January 1, 2019. The banks are therefore being given four more years, as many of them had indicated that it was impossible to meet the original deadline of January 2015 for building these reserves while continuing their lending operations. The aim of this gradual approach is to ensure that the implementation of the LCR does not disturb the process for strengthening the banking systems or ongoing financing of economic activity, particularly in certain euro zone countries.The Basel Committee can now turn its attention to improving the other component of the new global liquidity standard, the net stable funding ratio, still in the observation phase, which is scheduled for implementation in 2018.

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. The title of this newsletter gives a good summary of the explanatory notes that serve as an introduction to Bill 14, entitled An Act to amend the Charter of the French language, the Charter of human rights and freedoms and other legislative provisions (the “Bill”). The legislator is concerned that English is being used systematically in certain workplaces. The Bill was tabled on December 5, 2012 and the proposed amendments are designed to reaffirm the primacy of French as the official and common language of Quebec.

With regard to our In Fact and In Law Express newsletter of July 2012, entitled ‘‘AMF Investigations: The duty to answer an investigator and his jurisdiction to rule on objections’’, please be informed that, on December 20, 2012, the Supreme Court dismissed Fournier’s application for leave to appeal a Court of Appeal decision, which convicted Fournier of an offence under section 195(4) SA because of his refusal to testify whereas lower courts acquitted him.The Court of Appeal judgment is now final.

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. On October 24, 2012, the Harper government announced its intentions to enact new regulations to protect consumers who use prepaid credit cards in order to broaden their options regarding the forms of payment that best suit their needs. Such prepaid payment products allow consumers to make purchases or cash withdrawals through a payment network like American Express, MasterCard or Visa, with funds that have been paid in advance to a financial institution. Properly speaking, they are not credit cards because the funds must be paid in advance in order to use them, but they offer many of the same advantages, such as being able to shop on line, or make reservations by phone. The use of such prepaid cards does not result in interest charges, but the financial institutions that issue them often charge fees for using or activating the card. Moreover, some prepaid cards may have an expiry date, which, once exceeded, means that the holder loses the unused balance on the card.

Two recent decisions of the Court of Appeal remind us of the duty on investment advisors and financial security advisors to know their client and the correlative duty of information. In both cases, the Court of Appeal held that the advisor had breached his duty to know his client, assess the client's needs, and inform and advise the client. Both cases also dealt with the client's possible contributory negligence.

The Securities Act [SA] allows the Autorité des marchés financiers [the “AMF”] to order investigations to ensure compliance with the SA and to repress contraventions which may be committed. This is the context in which the Court of Appeal handed down a decision on June 22, 2012 going to the very heart of the role played by the AMF’s investigators and the scope of their powers during examinations conducted in connection with an investigation.