Canadian Underwriter

OSFI draft guideline tightens oversight of Canadian branches of foreign insurers

November 4, 2020   by David Gambrill

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Canada’s solvency regulator has released a new draft guideline that tightens the regulator’s oversight of foreign insurance and bank branches in Canada.

Among other changes to existing regulations, the Office of the Superintendent of Financial Institutions (OSFI) is requiring local branches in Canada to document the flow of funds between the Canadian branch and its home office outside of Canada. It is also expanding its definition of “branch management” to extend beyond just chief agents or other single-person representatives.

“It has been widely expected that the draft guideline would heighten governance expectations of branches and their home offices, in part to address a perception in some quarters that branches had it much easier from a governance standpoint than federally incorporated insurers and banks,” Stuart S. Carruthers and Andrew S. Cunningham of Stikeman Elliott LLP observed in a blog post. “Branches, particularly insurance branches, vary greatly in size and sophistication, from large operating entities to very small branches often in run-off or virtually dormant and without local full-time employees.”

OSFI does not regulate foreign insurance companies as a whole, but it does expect the Canadian branches to be compliant with the Insurance Companies Act.

The new guideline, which is subject to public consultation until Dec. 18, proposes new rules for documenting the flow of funds between the Canadian branch and the foreign home office.

“In situations where the foreign entity’s home office performs material functions on behalf of the [Canadian] branch, either directly or through its own outsourcing arrangements, OSFI expects branch management to document such arrangements with the foreign entity’s home office in written service level agreements,” OSFI’s draft guidelines read. “In particular, any arrangements that involve the flow of funds between the foreign entity’s home office and its branch should be clearly documented.

“The details of such arrangements should be provided to OSFI. Branch management should provide OSFI with 30-days advance notice of any proposed fund transfer(s), or series of proposed fund transfers, to the foreign entity’s home office that materially deviate from the documented process provided to OSFI.”

Also new is the definition of “Branch Management,” as Carruthers and Cunningham observe.

“As expected, the draft guideline defines the persons who hold regulatory responsibility for a foreign branch more broadly than the existing guidelines, which focus such responsibility on one person (the Chief Agent for an insurance branch or the Principal Officer for a bank branch), with allowance for delegation by that person to the entity’s home office or elsewhere,” the Stikeman Elliott lawyers wrote.

“In contrast, the draft guideline places such duties on ‘Branch Management,’ defined as ‘individuals who have the authority and responsibility of overseeing the business in Canada for, or on behalf of, the foreign entity.’ These individuals may include the Chief Agent or Principal Officer, as well as senior officers of the foreign entity, regardless of where they are located. OSFI expects the composition of branch management to be commensurate with the overall size and complexity of the branch.”


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