CPPM Policy Chapter 9: Indemnities and Guarantees

Last updated on June 19, 2024

This Core Policy and Procedures Manual chapter describes policy with respect to indemnities and guarantees.



9.0 Application

This policy applies to indemnities and guarantees given by or on behalf of government. It does not cover indemnities or guarantees received by government from other parties.

9.1 Objectives

The objectives of this policy are to ensure that:

  • government manages and controls the contingent liabilities created by the giving of indemnities and guarantees through consistent approval, recordkeeping, monitoring, and payment processes
  • public reporting of indemnities and guarantees given by or on behalf of government is accurate and timely
  • the underlying risks associated with indemnities and guarantees are assessed, understood and mitigated to the extent possible.

9.2 Definitions

Indemnities and guarantees share a similar purpose: they both promise compensation by a party for adverse consequences arising from a legal relationship involving other parties. Further, they are both instruments that may be used to allocate risk to a party that would not otherwise bear the risk.

  • Guarantee – A guarantee is a legally binding promise to pay a debt or perform an obligation of another party if that other party fails to do so.
  • Incremental Contingent Liability – An incremental contingent liability is an indemnity or a guarantee that increases a party’s financial exposure through the assumption of another party’s risk.
  • Indemnity – An indemnity is a legally binding promise to make another party financially whole in the event of specified losses or damages.

9.3 Authority

Various statutes provide specific legislative authority for giving indemnities and guarantees by or on behalf of government, however overall legislative control of this subject is contained in and under section 72 of the FAA.  Neither an indemnity nor a guarantee (other than a guarantee in connection with the issue and sale of securities to be guaranteed by the government) can be given by or on behalf of the government except in compliance with a regulation of the Lieutenant Governor in Council under s. 72(3) of the FAA.  The two primary such regulations are the Indemnities and Guarantees Regulation which

  1. designates persons by whom an indemnity or guarantee may be given on behalf of government; and
  2. specifies the circumstances in which certain approval must be obtained before an indemnity or guarantee is given on behalf of government;

and the Excluded Employees (Legal Proceedings) Indemnity Regulation.

Payments by government in respect of indemnities and guarantees are provided for in section 74(1) of the FAA.

9.4 Roles and responsibilities

Minister of Finance and Deputy Minister of Finance

  • May give, and have approval authority for giving, on behalf of government, indemnities and guarantees.

Executive Director of Risk Management Branch

  • Reviews indemnity and guarantee proposals and has authority to give, or to approve the giving of, on behalf of government, indemnities and guarantees.

Risk Management Branch (RMB)

  • Maintains a record of all indemnities and guarantees that have been either:
  1. approved or given by the Executive Director of RMB, the Deputy Minister of Finance, the Minister of Finance, on behalf of government; or
  2. approved by any other person authorized to approve an indemnity or guarantee on behalf of government under an enactment other than the FAA.

Ministries

  • manage indemnity and guarantee approval requests
  • maintain records of all guarantees and indemnities approved and/or given
  • assess the underlying risks of all indemnities and guarantees at least annually.

Chief Financial Officers

  • Monitor and manage the portfolio of indemnities and guarantees given by their minister on behalf of government.

9.5 Policy

9.5.1 Approval and giving of indemnities and guarantees (for those that require prior written approval)

  1. Approval of an indemnity or guarantee occurs when a person designated under the Indemnities and Guarantees Regulation provides in writing their official agreement that the proposed indemnity or guarantees is satisfactory.
  2. The giving of an indemnity or guarantee occurs when an authorized person formally binds government to the legally binding indemnity or guarantee.
  3. Unless the power to give an indemnity or a guarantee is conferred in an enactment other than the FAA and a different approval process is set out in a related enactment, all proposed indemnities and guarantees that require prior written approval are submitted to the Executive Director of RMB for review. See the Indemnities and Guarantees Guidance Document (PDF).
  4. Proposed indemnities and guarantees may be approved by the Executive Director of RMB, where:
    1. the underlying risk has been assessed,
    2. the indemnity or guarantee wording, and the terms of the instrument in which the indemnity or guarantee is included, are satisfactory to the Executive Director,
    3. the indemnity or guarantee is necessary for the successful completion of an approved government activity or program, and
    4. in the opinion of the Executive Director of RMB, either:
      1. the liability is not greater than the liability that would be imposed on government in the absence of the indemnity or guarantee; or
      2. any incremental contingent liability is reasonable for the activity or program, or results in a greater benefit to the taxpayers of British Columbia.
  5. An indemnity or guarantee must be given only by a person authorized to execute or issue the instrument that contains the indemnity or guarantee.

9.5.2 Management of indemnities and guarantees (including those that do not require prior written approval)

  1. The RMB must maintain a central record of all approvals of indemnities and guarantees, including indemnities and guarantees approved by the Minister of Finance, the Deputy Minister of Finance, the Executive Director of RMB, and by any other person authorized to approve an indemnity or guarantee under an enactment other than the FAA.
  2. Chief Financial Officers must establish processes for the management and monitoring of the portfolio of indemnities and guarantees given by or on behalf of government by their minister. See the Indemnities and Guarantees Guidance Document (PDF).
  3. Ministries must maintain records of the approval obtained in respect of each indemnity or guarantee, if applicable, and must review and reassess the underlying risk of all indemnities and guarantees at least annually. See the Indemnities and Guarantees Guidance Document (PDF).
  4. Ministries must ensure that collateral held to secure a guarantee, if any, is safeguarded and controlled.
  5. If an enactment other than the FAA, or regulations made under the FAA, includes a process for approval of an indemnity or guarantee, ministries must provide written notice to the Executive Director of RMB each time an approval of an indemnity or guarantee has been granted under such other enactment or regulation.
  6. Ministries must report indemnities and guarantees in accordance with Chapter H – Financial Reporting.

9.5.3 Payment and recovery on an indemnity or guarantee

  1. When ministries receive a request from a third party for a payment, or for the Province to defend the third party in a legal proceeding, to satisfy an indemnity or guarantee, they must immediately exercise any rights of government to mitigate government’s liability in consultation with legal counsel.
  2. Ministries must make provisions in the annual estimates of the programs under which guarantees are issued for the costs involved in the protection and liquidation of subrogated collateral.
  3. Requests for payment under an indemnity or guarantee must be signed off by the Chief Financial Officer of the ministry.
  4. Chief Financial Officers must maintain records and report payments made by their ministry to satisfy an indemnity or guarantee, in accordance with Chapter H – Financial Reporting.

Asset Management < Previous | Next > Travel

Contact information

Financial Management Branch

Contact an Advisor

Fax
250 356-6164
Mailing
PO BOX 9413 STN PROV GOVT Victoria BC V8W 9V1