How to buy an insurance brokerage in Quebec: licences, ownership rules and what transfers

In Quebec, the firm that distributes insurance is itself registered, and the regulator is the Autorité des marchés financiers (AMF). The governing law is the Act respecting the distribution of financial products and services, with regulations beneath it. A buyer in Quebec should look at three things in this regime: the category under which the firm is registered, who is allowed to own it, and the notices and records the regulations require. This guide takes them in that order. For the national picture, see buying an insurance brokerage in Canada.

Registration with the AMF

Under section 71 of the Act, no one may act as a firm, or hold themselves out as one, unless registered with the AMF, subject to an exception for a financial institution’s advertising. Section 72 provides that only a legal person with an establishment in Quebec may register to act as a firm. Because the registration belongs to that legal person, ask your lawyer how an asset purchase or a share purchase would affect it. Under the Act, a legal person that registers as a firm must also show that it has insurance meeting the requirements set by regulation to cover its liability, and that any representative acting for it who is not an employee is covered by such insurance. It must pay the contribution it owes to the Fonds d’indemnisation des services financiers in addition to the registration fees. The regulation on registration adds that, to maintain its registration, a firm must send the AMF, at its request and within 30 days, any proof relating to that insurance. Ask the seller for the current registration, the policy and the proof of those payments.

Brokerage or agency: the category matters

For damage insurance, the Act draws a line. A firm registered in the damage insurance discipline is registered as a damage insurance agency, except where it can be registered as a brokerage in that discipline. No one may present themselves as a damage insurance brokerage without being registered as one. Only a firm that meets the Act’s conditions can be registered as a brokerage. Among them, it must not be an insurer, its capital must comply with the Act’s ownership provision, and its representatives who offer damage insurance must be brokers who comply with sections 6 and 38 of the Act, where the products fall in a category prescribed by the regulation made under section 38. After an inspection, if the AMF considers the evidence referred to in section 38 insufficient and the firm has not remedied it in the time allowed, the AMF may register the firm as an agency instead.

Who may own a brokerage

Section 150 of the Act provides that a firm cannot be registered as a damage insurance brokerage where a financial institution, a financial group or a corporation related to them holds an interest above stated limits, measured by voting rights or by the value of the firm’s equity. The section does not prohibit a financing agreement or a service contract between a financial institution and a firm. Sections 151 to 155 carve out exceptions, including for certain firms by reference to their listing or shareholding on 21 December 1988 and for a firm whose shares are listed on a stock exchange, each with its own conditions and limits. If the buyer is, or is owned by or related to, a financial institution or financial group, ask a Quebec lawyer to review the structure of the purchase against these sections before anything is signed. The sections set the limits, so read them directly.

Notifying the AMF after the closing

Quebec’s regulation on registration says that if a change in circumstances affects the accuracy of the information and documents the firm provided, the holder of the registration must notify the AMF in writing within 30 days of the change. Whether a change of ownership, or of the people who run the firm, falls within that rule is a question for the buyer’s lawyer, who can also tell you what the AMF expects to see. Put the notice on the closing checklist, name who sends it, and ask the seller to hand over the file of what was last filed. The regulation counts the 30 days from the change itself.

Insurance and records the regulations require

Two regulations bear on the business you would take over. The regulation on firms sets requirements that the firm’s liability insurance must meet, including that the cover reaches faults, including gross faults, errors, negligence and omissions committed in the firm’s activities or by its mandataries, employees or representatives’ trainees in performing their duties, whether or not they are still in office when the claim is made. The regulation on books and records requires a firm to keep and update its books and records at an establishment in Quebec. Ask where the seller keeps its records and whether the policy you would inherit carries those terms.

What to ask the seller for

• The AMF registration, showing the discipline and whether the firm is registered as a brokerage or an agency.
• The register of shareholders and any financial institution or related corporation holding an interest, to test the ownership provision.
• The liability insurance policy, to compare its terms with the regulation.
• The books and records, and the Quebec establishment where they are kept.
• The last filings made with the AMF, including any notice of a change in circumstances.