On March 21, 2015, the Government of Canada proposed a regulation under the Canadian Payments Act (Act) to establish criteria for selecting independent directors of the Canadian Payments Association (Association) in accordance with conflict-of-interest principles. The regulation would also provide balanced representation on the Association’s Board of Directors for the largest users of and contributors to the Canadian payments system.1
The regulation follows on amendments to the Act in late 2014.2 Once effective, the amendments will replace the governance structure of the Association with a 13-member, majority-independent Board of Directors. The Board will consist of seven elected independent directors, five elected member directors, and the President of the Association, who will become an ex officio director appointed by the elected directors. The Board will be chaired by an independent director who is selected by the elected directors rather than by the Bank of Canada.3
What You Need To Know
- Qualifications for director candidates: In addition to possessing a sufficient range of skills, expertise and experience, Association directors must be senior executives within their organizations, equivalent to the level of senior vice president or executive vice president. The regulation also proposes that two out of five member directors be representatives from domestic systemically important banks.4 The seven independent directors must be independent of the Association and its member financial institutions.
- Requirements for independence: The regulation prohibits conflicts of interest, or an appearance of conflicts of interest among independent directors, each of whom must not:
- within the last three years, have had a direct material relationship with the Association or a member financial institution (including member affiliates), such as being an executive or employee of a member, having a business relationship with a member, being a shareholder or employee of an organization that has such a business relationship, or being an adviser to the Association; or
- be perceived to have an indirect material relationship with the Association or a member, such as being a spouse or dependent family member of an officer of a member institution, when such a relationship could reasonably be expected to interfere with the director’s independent judgment.
- Enforcement and monitoring: The proposed regulation would come into force July 2015. The Department of Finance will monitor compliance with the regulation, and contravention of the new rules would result in the Minister of Finance issuing a directive to the Association requiring compliance.
1 Canadian Payments Act, R.S.C. 1985, c. C-21; Canadian Payments Association Election of Directors Regulations, Canada Gazette Part I (March 21, 2015).
2 Economic Action Plan 2014 Act, No. 2, S.C. 2014, c. 39, ss. 334-359, which received royal assent on December 16, 2014. The amendments to the Act arise in part from reviews of the payments system by the Department of Finance in 1998 and the Task Force for the Payments System Review in 2012.
3 The Board previously consisted of 16 members, and did not require that a majority of directors be independent. Neither the Bank of Canada nor Ministerial appointees will sit on the new Board, which will be advised on technical and operational aspects of the Canadian payments system by a newly established Members Advisory Council.
4 The Superintendent of Financial Institutions has identified the follow six financial institutions as falling into this category: Bank of Montreal, Bank of Nova Scotia (The), Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, Toronto-Dominion Bank (The).
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