Is a bank website the same as a bank branch? Canada's finance minister thinks so, which means that banks, which are not allowed to sell insurance through branches, are to be banned from selling it online too. Writer Michael Imeson

What is it? Canadian banks are still reeling from the shock of being told they will no longer be able to sell insurance online. The Canadian government, egged on by insurance brokers, plans to close a legal loophole that allows banks to do so. Under the Bank Act and supporting regulations, banks are not allowed to market or sell insurance through branches. They can own insurance companies, but they must keep their banking and insurance businesses - including branch networks - separate. However, banks have been promoting insurance on websites and channelling consumers to their insurance subsidiary websites to finalise sales. It is all perfectly legal, but the government says it is against the spirit of the rules.

Who dreamed it up?

James Flaherty, Canada's minister of finance, is therefore changing the rules. He has written to Nancy Hughes Anthony, president of the Canadian Bankers Association (CBA), and to the large Canadian banks reminding them that they are not allowed to sell insurance in a bank branch and telling them that the government intends to subject websites to the same restrictions as branches.

The minister acted after pressure from the Insurance Brokers Association of Canada (IBAC).

Brokers argue that banks using websites to direct customers to their insurance subsidiaries runs counter to what the law intended, is unfair to consumers, and deprives brokers of business.

What are the main provisions?

The precise change has yet to be announced, but it will probably be a straightforward extension of the regulations to cover bank websites as well as branches.

What's in the small print?

At the end of his letter to the banks, the minister tells them they had better start preparing for the change.

What does the industry say?

Bankers are stunned. "We are completely shocked that Mr Flaherty would want to limit how and where consumers can access information about insurers," said the CBA after receiving his letter. "Furthermore, Mr Flaherty has taken this step without any public consultations with Canadians or the banking industry."

The CBA points out that in June the Office of the Superintendent of Financial Institutions (OSFI) ruled that a bank website is not a bank branch and that banks are in compliance with the Bank Act when they promote insurance on their websites. "We heard no concerns from the government when OSFI issued its ruling, but it's clear IBAC has been lobbying to have this ruling overturned," says the CBA.

"Insurance brokers from across the country applaud the government and Mr Flaherty for ensuring that rules governing bank branches will be the same as bank conduct on the internet," says IBAC chief executive Dan Danyluk. He believes that consumers are vulnerable at the point where credit is granted, and that the new regulation will ensure "that consumers are able to make a free choice when buying insurance products".

How much will it cost?

Millions of dollars a year for bank-owned insurers.

What do the regulators say?

The finance minister told the CBA it is the government's policy that banks should separate insurance business from their banking business. "This means that websites will become subject to the same insurance business regime that currently applies to branches," he said.

The law of unintended consequences

It could limit Canadians' access to insurance.

Could we live without it?

Banks don't want it, brokers do. A compromise suggested by banks is that the rule change should only apply to banks' marketing websites, not their corporate sites. Brokers say that makes no sense, since it would still amount to selling insurance online.


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