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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Canada | Publication | November 17, 2021
The Quebec Minister of Finance recently tabled Bill 3 before Quebec’s National Assembly to amend various legislative provisions mainly concerning the financial sector (Bill)1. The purpose of the Bill is to amend the investment rules for insurers to reduce the gap between the regulatory regimes governing Québec-incorporated insurers and those incorporated under jurisdictions other than Québec.
Insurers are currently limited in the investments they can make in damage insurance brokerage firms. The nature of these restrictions and the insurers’ place of incorporation are directly correlated. As such, Québec-incorporated insurers are subject to the rules set out in the Insurers Act2, while insurers incorporated in jurisdictions other than Québec are only subject to the rules set out in Québec’s Act respecting the distribution of financial products and services3 in this regard. However, there are certain disparities between these two regimes that are currently causing inequality in the industry.
In fact, section 84 of the Insurers Act provides that an authorized Québec insurer may not acquire or hold contributed capital securities issued by a legal person or a partnership or participations in a trust in excess of 30% of the value of those securities or participations or the number of those securities or participations allowing it to exercise more than 30% of the voting rights.
Section 150 of the Act respecting the distribution of financial products and services, which targets both authorized Québec insurers and insurers incorporated under jurisdictions other than Québec, prohibits a damage insurance firm from registering with the Autorité des marchés financiers (AMF) if the investments of a financial institution, financial group or legal person related thereto represent more than 50% of the value of the firm’s equity capital or allow it to exercise more than 20% of the voting rights attached to the shares issued by the firm.
Insurers incorporated under jurisdictions other than Québec therefore currently benefit from greater latitude regarding the level of interest they may acquire in damage insurance brokerage firms than insurers incorporated in Québec.
The main purpose of the amendment introduced by the Bill is to harmonize the two regimes. To remedy this inequality, the Bill contemplates allowing an authorized Québec insurer to acquire and hold contributed capital securities in a firm registered in damage insurance beyond the limits imposed by section 84 of the Insurers Act, to the extent that the insurer, its financial group or legal persons related thereto comply with the limits set out in section 150 of the Act respecting the distribution of financial products and services.
The intended effect of this proposed change is to ease the restrictions imposed on insurers incorporated in Québec and, as a result, reduce existing disparities. Thus, if the Bill is passed in its current form, it will allow authorized Québec insurers to benefit from greater latitude in terms of the level of ownership they are eligible to acquire in Québec damage insurance brokerage firms.
The author wishes to thank Justine Bardagi for her help in preparing this legal update.
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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