Canadian Bank Act Regulations Anticompetitive for Canadian Business
Since 1992, Canadian financial institutions, regulated by the Canadian Bank Act, have had the ability to recommend and promote export receivables insurance to their commercial banking customers. Receivables insurance policies enable Canadian businesses to increase a customer’s borrowing base and credit limits as well as provide additional financial stability and sales growth potential. In Europe and other developed economies receivables insurance is standard best practice for accounts receivables management.
Receivables insurance also strengthens the collateral position, and hence the overall strength, of the financial institution.
The Office of the Superintendent of Financial Institutions (OSFI) has ruled that based on the Bank Act Regulations, Canadian financial institutions are prohibited from promoting comprehensive receivables insurance. (Comprehensive receivables insurance policies cover receivables generated from export transactions AND those resulting from sales to Canadian businesses which generally make up much of a company’s receivables asset base). The most recent review by OFSI upheld the ruling in 2016 and can be found here. Because of that ruling, only Export Development Canada’s receivables insurance policies can be recommended by Canadian financial institutions.
“The Bank Act Regulations have resulted in an uncompetitive landscape for insurance companies with a negative impact on Canadian businesses,” said David Dienesch, Chairman of the Banking Committee of the Receivables Insurance Association of Canada. “Revising the Bank Act regulations, by removing restrictions on Canadian Banks to promote Comprehensive Receivables Insurance, will provide Canadian business with better access to working capital and promote fair competition in the insurance sector.”
It is the Receivables Insurance Association of Canada’s position that:
The Bank Act Regulations are depriving Canadian businesses of the benefits of a broad range of export and comprehensive receivables insurance options available from several different companies in the free market.
The Bank Act regulations are putting Canadian businesses, particularly SMEs, at a disadvantage by not allowing financial institutions, who are acting as trusted advisors to commercial customers, the full range of solutions which are available to their foreign competitors.
Because Canadian financial institutions are prohibited by the Bank Act from advising their clients of all the receivables insurance policies, many Canadian businesses do not enjoy the benefits of a free market and competitive pricing resulting from fair competition among receivables insurers, and instead are directed to only one option that Canadian financial institutions are permitted to refer to.
For context, there are currently 11 active receivables insurers operating in Canada. Each with a different value proposition – the largest three receivables insurance underwriters maintain approximately 80 percent of the global credit insurance market. These receivables insurers all have extensive resources with the ability to service Canadian businesses in every corner of the world. The organization is encouraging the Canadian Government to revise the Bank Act regulations which have resulted in a situation that appears to contravene the spirit of the Competition Act.
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