How does the Canadian Bank Resolution Framework apply to a foreign bank with a branch in Canada?
A well known foreign bank focused on funding small and medium businesses has collapsed. The bank was headquartered elsewhere but did business in Canada.
No information was located in the CDIC Resolution Plan Assessment Framework, June 2022 relating to foreign banks with Canadian branches. Guidance may be gleaned from various sources, including relevant sections from the Bank Act, SC 1991, c 46 and publications of the Office of the Superintendent of Financial Institutions.
Section 1 of the Bank Act, SC 1991, c 46 defines a foreign bank as an entity incorporated or formed by or under the laws of a country other than Canada.
On application by a foreign bank, the Minister may make an order permitting the foreign bank to establish a branch in Canada to carry on business in Canada (s.524(1)). (Bank Act, SC 1991, c 46)
Section 1 defines an authorized foreign bank as a foreign bank that is the subject of an order under subsection 524(1) of the Bank Act, SC 1991, c 46. (Bank Act, SC 1991, c 46)
The Office of the Superintendent of Financial Institutions regulates and supervises domestic banks and foreign banks operating in Canada. Foreign bank subsidiaries are regulated under the Bank Act, SC 1991, c 46. Foreign bank subsidiaries are controlled by eligible foreign institutions. (Banks, Office of the Superintendent of Financial Institutions)
Foreign banks that have been authorized under the Bank Act, SC 1991, c 46 to establish branches in Canada are permitted to carry on banking business in Canada. Some are permitted to offer full banking services. Generally, these foreign banks may not in Canada accept deposits of less than $150,000. Some foreign bank branches distinguished as lending branches are subject to restrictions under subsection 524(1) of the Bank Act, SC 1991, c 46, and, as such, are prohibited from accepting deposits or otherwise borrowing money except from financial institutions. (Foreign Bank Branches, Office of the Superintendent of Financial Institutions)
Part XII.1 of the Bank Act, SC 1991, c 46 governs the establishment of a branch by a foreign bank as well as the on-going operation and supervision of such a branch. The Office of the Superintendent of Financial Institutions is responsible for assessing applications by foreign banks seeking to establish a branch in Canada, and makes recommendations to the Minister of Finance, who has the authority to approve the establishment of a foreign bank branch. A foreign bank that is the subject of an order permitting it to establish a branch in Canada is referred to as an Authorized Foreign Bank. (Guide to Foreign Bank Branching)
The Guide to Foreign Bank Branching (the "Guide") outlines the process to establish a foreign bank branch under the Bank Act, SC 1991, c 46 along with the information that a foreign bank applicant is expected to submit in support of the application. The Guide also sets out the various prudential, regulatory and legislative criteria and information requirements relative to applications for the establishment, and commencement of business, of a foreign bank branch. (Guide to Foreign Bank Branching)
Section 1 of the Bank Act, SC 1991, c 46 (the "Act") defines a foreign bank as an entity incorporated or formed by or under the laws of a country other than Canada:
foreign bank, subject to section 12, means an entity incorporated or formed by or under the laws of a country other than Canada that
(a) is a bank according to the laws of any foreign country where it carries on business,
(b) carries on a business in any foreign country that, if carried on in Canada, would be, wholly or to a significant extent, the business of banking,
(c) engages, directly or indirectly, in the business of providing financial services and employs, to identify or describe its business, a name that includes the word “bank”, “banque”, “banking” or “bancaire”, either alone or in combination with other words, or any word or words in any language other than English or French corresponding generally thereto,
(d) engages in the business of lending money and accepting deposit liabilities transferable by cheque or other instrument,
(e) engages, directly or indirectly, in the business of providing financial services and is affiliated with another foreign bank,
(f) controls another foreign bank, or
(g) is a foreign institution, other than a foreign bank within the meaning of any of paragraphs (a) to (f), that controls a bank incorporated or formed under this Act,
but does not include a subsidiary of a bank named in Schedule I as that Schedule read immediately before the day section 184 of the Financial Consumer Agency of Canada Act comes into force, unless the Minister has specified that subsection 378(1) no longer applies to the bank; (banque étrangère)
Section 1 defines an authorized foreign bank as a foreign bank that is the subject of an order under subsection 524(1) of the Bank Act, SC 1991, c 46:
authorized foreign bank means a foreign bank that is the subject of an order under subsection 524(1); (banque étrangère autorisée)
[...]
PART XII.1 Authorized Foreign Banks
Application
Application to authorized foreign banks
523 (1) This Part applies only in respect of the business in Canada of authorized foreign banks.
Assets and liabilities
(2) The assets and liabilities of an authorized foreign bank in respect of its business in Canada, as shown by its books and records, are considered to be the assets and liabilities of the authorized foreign bank in respect of its business in Canada.
Formalities of Authorization
Order permitting carrying on of business in Canada, etc.
524 (1) On application by a foreign bank, the Minister may make an order permitting the foreign bank to establish a branch in Canada to carry on business in Canada under this Part.
Section 522 of the Bank Act, SC 1991, c 46 provides that a foreign bank may maintain representative offices in Canada that are registered with the federal the Superintendent of Financial Institutions in the prescribed manner:
Permitted Canadian offices
522 A foreign bank may
(a) with the approval of the Superintendent and
(i) subject to any terms and conditions that are attached to the approval, and
(ii) subject to and in accordance with rules that are prescribed in relation to the operation of representative offices and the conduct of their personnel,
maintain representative offices in Canada that are registered with the Superintendent in the prescribed manner; and
(b) with the approval of the Governor in Council and subject to any terms and conditions that are attached to the approval, locate its head office in Canada and, from that office, issue directions and do all other things reasonably necessary for the conduct of its banking business outside Canada.
As per Banks, Office of the Superintendent of Financial Institutions, the Office of the Superintendent of Financial Institutions ("OSFI") regulates and supervises domestic banks and foreign banks operating in Canada. Foreign bank subsidiaries are regulated under the Bank Act, SC 1991, c 46:
OSFI regulates and supervises domestic banks and foreign banks operating in Canada. Foreign bank subsidiaries are regulated under the Bank Act. Foreign bank subsidiaries are controlled by eligible foreign institutions.
As per Foreign Bank Branches, Office of the Superintendent of Financial Institutions, foreign banks that have been authorized under the Bank Act, SC 1991, c 46, to establish branches in Canada are permitted to carry on banking business in Canada:
Foreign banks that have been authorized under the Bank Act to establish branches in Canada are permitted to carry on banking business in Canada. Some are permitted to offer full banking services. Generally, these foreign banks may not in Canada accept deposits of less than $150,000.
Some foreign bank branches distinguished as lending branches are subject to restrictions under subsection 524(1) of the Bank Act, and, as such, are prohibited from accepting deposits or otherwise borrowing money except from financial institutions.
As per the Guide to Foreign Bank Branching ("the "Guide"), Part XII.1 of the Bank Act, SC 1991, c 46 governs the establishment of a branch by a foreign bank as well as the on-going operation and supervision of such a branch. The Guide outlines the process to establish a foreign bank branch under the Act along with the information that a foreign bank applicant is expected to submit in support of the application:
Part XII.1 of the Bank Act (BA) governs the establishment of a branch by a foreign bank as well as the on-going operation and supervision of such a branch. The Office of the Superintendent of Financial Institutions (OSFI) is responsible for assessing applications by foreign banks seeking to establish a branch in Canada, and makes recommendations to the Minister of Finance (the Minister), who has the authority to approve the establishment of a foreign bank branch (FBB). A foreign bank that is the subject of an order permitting it to establish a branch in Canada is referred to as an Authorized Foreign Bank (AFB).
A foreign bank may apply to establish either a "full-service branch" or a "lending branch"Footnote1. The BA permits full-service branches and lending branches to carry on the same activities except in relation to deposit taking. Lending branches may only take deposits or otherwise borrow from other financial institutions. Subject to certain exceptionsFootnote2, full-service branches may only hold deposits that are above $150,000.
Purpose
This Guide outlines the process to establish an FBB under the BA along with the information that a foreign bank applicant ("Applicant") is expected to submit in support of the application to:
a. the Minister seeking an order permitting the foreign bank to establish a branch in Canada to carry on business in Canada; and
b. the Superintendent of Financial Institutions (Superintendent) for the making of an order approving the commencement and carrying on of business in Canada by the Authorized Foreign Bank.
This Guide also sets out the various prudential, regulatory and legislative criteria and information requirements relative to applications for the establishment, and commencement of business, of an FBB.
The primary objective of this Guide is to promote awareness and enhance the transparency of the assessment criteria and processes for the establishment of an FBB.
Section 6(1) of the Foreign Bank Representative Offices Regulations, SOR/92-299 states as follows:
Operation of Representative Offices
6 (1) No representative office of a foreign bank shall undertake a business activity other than
(a) promoting the services of the foreign bank or an affiliate of the foreign bank other than an affiliate incorporated in Canada; or
(b) acting as a liaison between clients of the foreign bank and other offices of the foreign bank or of affiliates of the foreign bank other than an affiliate incorporated in Canada.
(2) No person employed in a representative office of a foreign bank shall, in the course of that employment, undertake or carry on any business activities other than activities that are in furtherance of the activities of the representative office referred to in paragraphs (1)(a) and (b).
(3) Subsection (2) does not apply to employees of a foreign bank in respect of which an order under subsection 524(1) of the Act has been made.
Banks, Office of the Superintendent of Financial Institutions
Foreign Bank Branches, Office of the Superintendent of Financial Institutions
Guide to Foreign Bank Branching
Foreign Bank Representative Offices Regulations, SOR/92-299
CDIC Resolution Plan Assessment Framework, June 2022
Office of the Superintendent of Financial Institutions
