BANK OF NOVA SCOTIA

Regulatory Developments

The Bank continues to monitor global regulatory developments relating to a broad spectrum of topics, in order to ensure that control functions and business lines are responsive on a timely basis and business impacts, if any, are minimized. A high-level summary of some of the key regulatory developments that have the potential of impacting the Bank’s operations is included below.

OSFI Draft Revised Guideline E-23 Model Risk

The E-23 Guideline, which is principles-based, sets out OSFI’s expectations related to enterprise-wide model risk management (MRM). It applies to all federally regulated financial institutions, including private pension plans, insurance, and trust and loan companies, and to all models, whether they require formal regulatory approval or not. OSFI expects model risk to be managed through a risk-based approach and on an enterprise-wide basis. The consultation period is closed, and the final version is expected to be published in Summer 2025. The Bank is monitoring this proposed regulatory development.

OSFI Guideline B-15: Climate Risk Management

OSFI’s Guideline B-15 – Climate Risk Management is effective as of October 31, 2024. This guideline aims to streamline climate disclosures and promote transparency of climate-related risks. OSFI also released new Climate Risk Returns that will collect standardized climate-related data on emissions and exposures from FRFIs. The Climate Risk Returns are due in December 2024.

Interest Rate Benchmark Reform

The publication of the 1-month, 2-month and 3-month Canadian Dollar Offered Rate (CDOR) tenors ceased as of June 28, 2024. The Bank has successfully transitioned all contracts referencing CDOR and Bankers Acceptances (BAs) to alternative rates such as Canadian Overnight Repo Rate Average (CORRA) or Prime.

Canadian Federal Tax Measures

On August 12, 2024, the Department of Finance released draft legislation on the proposed increase to the capital gains inclusion rate from 50% to 66.7% for gains or losses realized after June 24, 2024.

A Notice of Ways and Means Motion was tabled on September 23, 2024 to implement the draft legislation for the increased capital gains inclusion rate. This legislation is expected to be enacted in a future bill and its impact is not material to the Bank.

Global Minimum Tax

The Organisation for Economic Co-operation and Development (OECD) published Pillar Two model rules in December 2021 as part of its efforts toward international tax reform. The rules aim to have large multinational enterprises, with consolidated revenues in excess of€750 million, pay a minimum effective tax of 15% in each jurisdiction they operate. OECD member countries are in the process of developing domestic tax legislation to implement the rules. In June 2024, Canada enacted the Global Minimum Tax (GMT) Act as part of Bill C-69. During the year, certain countries have also enacted their local GMT legislation to introduce a domestic minimum top-up tax. These laws will apply to the Bank from fiscal year 2025 onwards.

The IASB previously issued amendments to IAS 12 Income Taxes for a temporary mandatory exception from the recognition and disclosure of deferred taxes related to the implementation of Pillar Two GMT rules, which the Bank has applied.

The Bank has performed an assessment of its potential GMT impact and continues to monitor relevant legislation and available guidance when released across various jurisdictions. GMT is expected to apply to earnings from jurisdictions including Bahamas, Barbados, Cayman Islands and Ireland. Based on the Bank’s preliminary assessment, the Bank expects an increase in its effective tax rate by approximately 1% for the year ending October 31, 2025.

OSFI Draft Revised Guideline E-21: Operational Risk

On August 22, 2024, OSFI published the final revised Guideline E-21: Operational Risk Management and Resilience (Guideline E-21). Guideline E-21 sets out OSFI’s expectations for financial institutions to prepare for and recover from adverse events, such as internal control failures, pandemics and technology failures. Expectations in the guideline are subject to phased implementation, with full adherence by September 1, 2026. The Bank is working on a multi-year plan to in respect of this regulatory development.

Consumer Protection (Quebec)

On September 12, 2024, the Quebec Government introduced Bill 72, An Act to protect consumers against abusive commercial practices and to offer better transparency with respect to prices and credit (Bill 72). Bill 72 amends Quebec’s Consumer Protection Act and provides new protections for consumers, including with respect to the unauthorized use of a deposit account or fraud. The Bank is assessing the application of Bill 72.