The Deposit Insurance Act, 2020, which was debated in Parliament in late 2019, assented to by the Governor General and Gazetted on January 10, 2020, is a legislation that is designed to provided some additional (albeit limited) protections for depositors against Bank or Credit Union failures or closures.

The phrase “limited protections” is utilized above because while the Act does mandate financial institutions to contribute towards the Deposit Insurance Fund (“the Fund”) that would be used for compensatory purposes, the law sets a per-depositor $20,000 upper limit on any such compensation in the event the financial institutions fails or is otherwise wound up (see “covered events” at Section 25 of Act).

Interestingly, it must be noted that section 28 (4), however, does provide that any deposit insurance payment made to the insured depositor could have deducted from it any default payments owed to the financial institution by the insured depositor. This deduction is to be carried out by the Deposit Insurance Corporation established at section 4 of the Act.

As it pertains to instances in which deposit insurance payments can be made, section 25 of the Act describes “Covered Events” as occurring “on or after the effective date [of] (a) the appointment of a liquidator, (b) the voluntary or compulsory winding-up or dissolution of the Fund member (i.e. Bank or Credit Union); and (c) the revocation of the license of a domestic bank or the cancellation of the registration of a credit union”.

As referenced earlier, the Act establishes the Deposit Insurance Corporation, which is tasked with both administering the Act (section 4) as well as managing the Deposit Insurance Fund (established at section 11).

Additionally, the law mandates Fund Members to pay into the Fund an annual premium, which is a percentage of the total insurable deposits held by the bank or credit union (section 18). The formula for calculating the annual premium (0.1% x Average Insurable Deposits) is outlined in Schedule II of the Act. It must be noted that section 20 of the Act allows for the Corporation’s Board to amend the rate after 3 years from the start of the Fund.