01 June 2007

Supreme Court Dismisses Banks' Insurance Appeal

The Globe and Mail, Tara Perkins, 1 June 2007

The Supreme Court of Canada's dismissal yesterday of an appeal launched by eight large Canadian banks means that insurance continues to fall in the purview of the provinces. The Supreme Court was looking at the extent to which banks must comply with provincial laws regulating the promotion and sale of insurance. Specifically, it was considering whether the consumer protection rules in Alberta's 2000 insurance laws governed the promotion of insurance products that the banks are now allowed to sell under the federal Bank Act. The Supreme Court upheld earlier decisions by Alberta courts.
Financial Post, Duncan Mavin, 1 June 2007

A Supreme Court of Canada ruling has dealt another blow to the ambitions of Canada's banks to increase their earnings from insurance sales.

The ruling, in a case the banks had hoped would extend their existing rights to sell insurance products under the Bank Act, states that "the promotion of authorized insurance is not part of the core of banking because it is not essential to the function of banking."

Although the case has had little public exposure, one senior insurance company executive called yesterday's ruling a "momentous decision."

Under the federal Bank Act, banks are prohibited from selling insurance, except for creditors insurance. In 2000, Alberta introduced changes to its Insurance Act that would bring creditor insurance sold by the banks under provincial regulations.

"The banks claimed that they were engaged in the provision of ordinary banking services under the federal act, so that they were immune to provincial legislation in respect of the business of banking, and that provincial legislation could not supersede federal legislation," said Finn Poschmann, director of research at the C.D. Howe Institute

The Supreme Court's decision against the banks' position will make their creditor insurance less efficient, said Mr. Poschmann.

"Clearly the distribution of creditors insurance products will be less competitive than it was," he said.

However, the insurers and financial advisors disagreed with that view.

They applauded the Supreme Court's ruling and said a ruling in favour of the banks would have given them an unfair advantage.

"The Supreme Court of Canada's unanimous ruling preserves a level playing field for financial advisors and an environment that places consumers' interests first," said Steve Howard, president of advisor association Advocis.

"It's only fair that all who sell insurance products should abide by the same rules."