Disclosure of Changes to the Board or Senior Management of Federally Regulated Financial Institutions (FRFIs) 


May 2014

Financial Services Bulletin
Ahsan Mirza, Pat Forgione, David Zhou, Summer Student
In January, the Office of the Superintendent of Financial Institutions Canada (OSFI) issued a draft advisory entitled Changes to the Membership of the Board and Senior Management, which was discussed in our January 2014 insurance bulletin. The final version of the advisory on Changes to the Membership of the Board or Senior Management (the "Advisory"), was issued by OSFI on May 14, 2014, and is applicable to all federally regulated financial institutions (FRFIs) with immediate effect.

The final Advisory contains very few deviations and revisions from the draft advisory which was released in January. The few revisions that have been made are intended to provide greater clarity about OSFI's intent in introducing the Advisory. This was in response to concerns and comments that the Advisory may represent a formal vetting process by OSFI of senior appointments at FRFIs. The draft advisory also contained a specific 30 day early notification period for senior management appointments, which some commentators considered onerous. This 30 day requirement has been removed from the final Advisory, which stipulates that, for both board and senior management appointments, the notification must be provided as early as possible in the appointment process. Similarly, for the introductory meeting requirements, the Advisory has left the timing requirement to occur as early as possible following a candidate's appointment or election rather than stipulating a timeframe. The final Advisory clarifies language around the "exceptional circumstances" under which a FRFI may complete the OSFI early notification process in a more compressed timeframe.

OSFI also expressly rejected or disagreed with several of the comments that were submitted during the consultation period after the draft advisory was released. OSFI rejected the notion that wholly-owned subsidiary FRFIs of domestically-owned FRFIs should be exempted from the Advisory because the directors and senior management of the parent will have been subject to the Advisory's requirements. Similarly, OSFI rejected the comment that Canadian-incorporated FRFI subsidiaries of foreign parent entities should be exempted from this Advisory because of the unique governance relationships these FRFIs have with their foreign parents. OSFI was also asked to consider the Advisory's impact on smaller FRFIs and noted that the early notification requirements apply to all FRFIs (including smaller FRFIs) while the introductory meeting requirements generally do not apply to small FRFIs; however, OSFI also noted that it reserves discretion to make requests for introductory meetings in respect of appointments at smaller FRFIs where its supervisory judgment may warrant. Another comment submitted to OSFI was to the effect that OSFI should not use introductory meetings as an "assessment" of a FRFI's corporate governance. OSFI expressly disagreed with this notion and clarified its position that all interactions between OSFI and a FRFI or any of its employees may constitute an "assessment" of the FRFI's corporate governance, introductory meetings being one of the many tools OSFI uses for on-going assessment of FRFIs' corporate governance. However, OSFI has stated elsewhere that it is not ‘vetting' or otherwise exercising approval over FRFIs' preferred candidates and that it recognizes the importance of FRFIs' ability to make independent decisions, including decisions on the appointment of senior management or nomination of directors.

The content and requirements of the draft Advisory were discussed at length in our January, 2014 insurance bulletin. To summarize, the Advisory complements OSFI's Corporate Governance Guideline (published in January, 2013) which states that "FRFIs should notify OSFI of any potential changes to the membership of the FRFI board and senior management and any circumstances that may adversely affect the suitability of board members and senior management." The Advisory requires FRFIs to provide early written notice to their OSFI relationship manager of their preferred candidate for all appointments and elections to senior management and director positions. The Advisory states that a FRFI should provide notice to OSFI as early as possible in the appointment/election process. OSFI expects the FRFI to provide notice before an appointment is made and before a candidate takes office. The stated purpose of the early notification is to allow OSFI to convey concerns or comments, if any, to the FRFI's board before an appointment is made. Independent of the early notification, a FRFI must complete all other required returns and file all other required information per OSFI guidelines and advisories. Under exceptional circumstances (i.e. where a timely appointment is deemed necessary for the purpose of an FRFI's operational requirements), FRFIs may provide early notification in an unusually shorter timeframe. The requirements for documentation to be submitted with the early notification (candidate's CV, etc.) remain unchanged from those proposed in the draft Advisory. For large, complex FRFIs, such as the six domestic systemically important banks (D-SIBs), the Advisory also requires an introductory meeting between OSFI and the candidate following the candidate's appointment/election to the senior management/director position.

by Ahsan Mirza, Pat Forgione, Stephanie M. Robinson, Sean Brandreth and David Zhou, Summer Student

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014