The Supreme Court of Canada has ruled that the federally chartered banks must abide by provincial rules concerning the promotion of insurance products.

According to the ruling released by the SCC this morning, in 2000, Alberta enacted changes to its Insurance Act purporting to make federally chartered banks subject to the provincial licensing scheme governing the promotion of insurance products. The banks brought an application for a declaration that their promotion of certain insurance products authorized by the Bank Act was banking, and that the Insurance Act and its associated regulations were, “constitutionally inapplicable to the banks’ promotion of insurance by virtue of the doctrine of interjurisdictional immunity or, alternatively, inoperative by virtue of the doctrine of federal paramountcy.”

The trial judge dismissed the banks’ application. He found that the challenged provisions of the Insurance Act were valid provincial legislation. He also found that the doctrine of interjurisdictional immunity was inapplicable because the promotion of authorized insurance was not at the core of banking, and that the doctrine of federal paramountcy was inapplicable because there was no operational conflict between the federal and provincial legislation.

The Court of Appeal upheld the lower court decision. And, today, the SCC supported both lower court rulings. “The Insurance Act and its associated regulations apply to the banks’ promotion of insurance,” it found. “The fact that Parliament allows a bank to enter into a provincially regulated line of business such as insurance cannot, by federal statute, unilaterally broaden the scope of an exclusive federal legislative power.

“When promoting insurance, the banks are participating in the business of insurance and only secondarily furthering the security of their loan portfolios,” it added. “The banks’ claim to interjurisdictional immunity must therefore be rejected, and they have to comply with both federal and provincial laws because the paramountcy doctrine is not engaged in this case.”

Advocis, which argued before the Supreme Court of Canada for uniform standards of professional conduct among all who market insurance products, is pleased with the verdict.

“First and foremost, this unanimous result is a victory for advisors and Canadian consumers. 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, Advocis president. “It’s only fair that all who sell insurance products should abide by the same rules.”