Vol. 133, No. 50 — December 11, 1999

Prescribed Deposits (Authorized Foreign Banks) Regulations

Statutory Authority

Bank Act

Sponsoring Agency

Office of the Superintendent of Financial Institutions

REGULATORY IMPACT ANALYSIS STATEMENT

Description

Bill C-67 (An Act to amend the Bank Act, the Winding-up and Restructuring Act and other Acts relating to financial institutions and to make consequential amendments to other Acts, assented to on June 17, 1999, being chapter 28 of the Statutes of Canada, 1999), gives regulated foreign banks the power to establish a branch to carry out banking activities in Canada. Regulated foreign banks were previously required to set up a Canadian-incorporated subsidiary to carry out financial activities in Canada. The new branching regime is intended to reduce costs and regulatory burden for foreign banks choosing to operate in Canada on a branch basis, thereby promoting competition in the financial services sector.

The legislation provides regulated foreign banks with the option of requesting the consent of the Minister of Finance to establish a full-service branch or a lending branch in Canada. These "authorized foreign banks" have generally the same business powers and responsibilities as domestic banks, with the exception of restrictions placed on their ability to accept deposits or borrow money. A full-service branch is not permitted to accept deposits of less than $150,000. A lending branch, on the other hand, is not permitted to accept deposits of any size and is restricted to borrowing only from other financial institutions.

The Prescribed Deposits (Authorized Foreign Banks) Regulations and Sales or Trades (Authorized Foreign Banks) Regulations are required to implement policy set out in the legislation in respect of the deposit-taking restriction on full-service branches and the restriction placed on borrowing by lending branches.

In order to avoid constraining the ability of full-service branches to serve the needs of their commercial customers, the legislation allows exceptions to the $150,000 minimum deposit requirement to be set out in regulations. The Prescribed Deposits (Authorized Foreign Banks) Regulations set out these exceptions, limiting them to specified classes of sophisticated investors.

With respect to the funding options of lending branches, the legislation allows for the subsequent sale or trade of debt obligations, banker's acceptances or guarantees issued by a lending branch, subject to terms and conditions to be set out in regulations. The Sales or Trades (Authorized Foreign Banks) Regulations set out these terms and conditions, ensuring that subsequent sales or trades are limited to other financial institutions and to denominations of $150,000 or more.

In addition, the Government is proposing Prescribed Deposits (Banks without Deposit Insurance) Regulations for banks that have opted-out from Canada Deposit Insurance Corporation (CDIC) coverage. These Regulations, which are identical to the Prescribed Deposits (Authorized Foreign Banks) Regulations, will allow "CDIC opt-out" banks to service the needs of their commercial customers. The Regulations set out exceptions to the $150,000 minimum deposit requirement for sophisticated investors.

Alternatives

Given that the new Regulations implement policy set out in the legislation, no other alternative was considered.

Benefits and Costs

Full-service branches will benefit from having greater flexibility to serve their commercial customers, while lending branches will benefit from enhanced funding options. There are only minimal costs associated with the new Regulations.

Consultation

The legislative provisions that provided regulation-making power to permit certain exceptions to the $150,000 minimum deposit requirement and to permit the subsequent sale or trade of debt instruments issued by lending branches subject to certain terms and conditions were included in Bill C-67 as a result of consultations with the foreign bank community following introduction of the bill.

Draft Regulations were sent to the foreign bank community and other interested stakeholders for comments. Officials from the Department of Finance, Office of the Superintendent of Financial Institutions (OSFI) and Canada Deposit Insurance Corporation met with these interested parties in early September 1999 to discuss these Regulations. A few technical changes were made to the Regulations to reflect the comments received from these consultations. Interested parties have indicated their support for these Regulations.

Compliance and Enforcement

The new foreign bank branching regime, including the new Regulations, requires some adjustments to OSFI's practices and procedures, particularly in relation to the supervision of foreign bank branches. These changes have had an impact on OSFI's resources, given the need to establish a Foreign Bank Branch Supervision Division, the costs of which are recovered by OSFI from assessments levied on financial institutions.

OSFI is developing the necessary amendments to existing administrative and monitoring procedures to ensure adequate compliance with the new regime.

Contact

Charlie O'Hara, Chief, Policy Development, Financial Sector Policy Branch, L'Esplanade Laurier, East Tower, 20th Floor, 140 O'Connor Street, Ottawa, Ontario K1A 0G5, (613) 992-2402 (Telephone), (613) 943-8436 (Facsimile).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to subsections 545(3)(see footnote a) and (6)(see footnote b) of the Bank Act(see footnote c), proposes to make the annexed Prescribed Deposits (Authorized Foreign Banks) Regulations.

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mr. Charles P. Johnston, Regulations Officer, Legislation and Precedents Division, Office of the Superintendent of Financial Institutions, 255 Albert Street, Ottawa, Ontario, K1A 0H2.

Ottawa, December 9, 1999

MARC O'SULLIVAN
Assistant Clerk of the Privy Council

PRESCRIBED DEPOSITS (AUTHORIZED FOREIGN BANKS) REGULATIONS

INTERPRETATION

1. The definitions in this section apply in these Regulations.

"deposit" has the meaning that would be given to it by the schedule to the Canada Deposit Insurance Corporation Act for the purposes of deposit insurance if that schedule were read without reference to subsections 2(2), (5) and (6) of that schedule. (dépôt)

"first deposit transaction" means the first deposit transaction, in relation to a prescribed deposit referred to in section 2, between a person and an authorized foreign bank. (première opération de dépôt)

PRESCRIBED DEPOSITS

2. For the purposes of subsection 545(3) of the Bank Act, a prescribed deposit is a deposit of less than $150,000 that is taken by an authorized foreign bank from

(a) Her Majesty in right of Canada or in right of a province, an agent of Her Majesty in either of those rights, including a municipal or public body empowered to perform a function of government in Canada, or an entity controlled by Her Majesty in either of those rights;

(b) the government of a foreign country or any political subdivision of that country, an agency of the government of a foreign country or any political subdivision of that country, or an entity that is controlled by the government of a foreign country or any political subdivision of that country;

(c) an international agency of which Canada is a member, including the Inter-American Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development and any other international regional bank of which Canada is a member, and an international agency of which Canada is a member that is a member of the World Bank Group;

(d) a financial institution;

(e) a pension fund that is maintained in respect of a pension plan registered for income tax purposes and that has total assets under administration of more than $100 million at the time the first deposit transaction is made;

(f) a mutual fund that is regulated under an Act of the legislature of a province or under the laws of a jurisdiction outside Canada and the assets of which are managed by a person that has total assets under their management of more than $10 million at the time the first deposit transaction is made;

(g) an entity that, at the time the first deposit transaction is made, has for the fiscal year immediately preceding that deposit transaction, gross revenues of more than $5 million; or

(h) any other entity, where the deposit facilitates the provision of the following services by the authorized foreign bank to the entity, namely,

COMING INTO FORCE

3. These Regulations come into force on the day on which they are registered.

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Prescribed Deposits (Banks without Deposit Insurance) Regulations

Statutory Authority

Bank Act

Sponsoring Agency

Office of the Superintendent of Financial Institution

REGULATORY IMPACT ANALYSIS STATEMENT

For the Regulatory Impact Analysis Statement, see the Prescribed Deposits (Authorized Foreign Banks) Regulations.

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to subsections 413(5)(see footnote d) and (6)(see footnote e) of the Bank Act(see footnote f), proposes to make the annexed Prescribed Deposits (Banks without Deposit Insurance) Regulations.

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mr. Charles P. Johnston, Regulations Officer, Legislation and Precedents Division, Office of the Superintendent of Financial Institutions, 255 Albert Street, Ottawa, Ontario, K1A 0H2.

Ottawa, December 9, 1999

MARC O'SULLIVAN
Assistant Clerk of the Privy Council

PRESCRIBED DEPOSITS (BANKS WITHOUT DEPOSIT INSURANCE) REGULATIONS

INTERPRETATION

1. The definitions in this section apply in these Regulations.

"Act" means the Bank Act. (Loi)

"deposit" has the meaning that would be given to it by the schedule to the Canada Deposit Insurance Corporation Act for the purposes of deposit insurance if that schedule were read without reference to subsections 2(2), (5) and (6) of that schedule. (dépôt)

"first deposit transaction" means the first deposit transaction, in relation to a prescribed deposit referred to in section 2, between a person and a bank referred to in paragraph 413(1)(b) of the Act. (première opération de dépôt)

PRESCRIBED DEPOSITS

2. For the purposes of subsection 413(5) of the Act, a prescribed deposit is a deposit of less than $150,000 that is taken by a bank referred to in paragraph 413(1)(b) of the Act from

(a) Her Majesty in right of Canada or in right of a province, an agent of Her Majesty in either of those rights, including a municipal or public body empowered to perform a function of government in Canada, or an entity controlled by Her Majesty in either of those rights;

(b) the government of a foreign country or any political subdivision of that country, an agency of the government of a foreign country or any political subdivision of that country, or an entity that is controlled by the government of a foreign country or any political subdivision of that country;

(c) an international agency of which Canada is a member, including the Inter-American Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development and any other international regional bank of which Canada is a member, and an international agency of which Canada is a member that is a member of the World Bank Group;

(d) a financial institution;

(e) a pension fund that is maintained in respect of a pension plan registered for income tax purposes and that has total assets under administration of more than $100 million at the time the first deposit transaction is made;

(f) a mutual fund that is regulated under an Act of the legislature of a province or under the laws of a jurisdiction outside Canada and the assets of which are managed by a person that has total assets under their management of more than $10 million at the time the first deposit transaction is made;

(g) an entity that, at the time the first deposit transaction is made, has for the fiscal year immediately preceding that deposit transaction, gross revenues of more than $5 million; or

(h) any other entity, where the deposit facilitates the provision of the following services by the bank to the entity, namely,

COMING INTO FORCE

3. These Regulations come into force on the day on which they are registered.

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Sales or Trades (Authorized Foreign Banks) Regulations

Statutory Authority

Bank Act

Sponsoring Agency

Office of the Superintendent of Financial Institution

REGULATORY IMPACT ANALYSIS STATEMENT

For the Regulatory Impact Analysis Statement, see the Prescribed Deposits (Authorized Foreign Banks) Regulations.

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to paragraph 540(4)(b)(see footnote g) and (5)(b)(see footnote h) and subsection 540(6)(see footnote i) of the Bank Act(see footnote j), proposes to make the annexed Sales or Trades (Authorized Foreign Banks) Regulations.

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mr. Charles P. Johnston, Regulations Officer, Legislation and Precedents Division, Office of the Superintendent of Financial Institutions, 255 Albert Street, Ottawa, Ontario, K1A 0H2.

Ottawa, December 9, 1999

MARC O'SULLIVAN
Assistant Clerk of the Privy Council

SALES OR TRADES (AUTHORIZED FOREIGN BANKS) REGULATIONS

INTERPRETATION

1. In these Regulations, "Act" means the Bank Act.

PRESCRIBED CLASSES OF ENTITIES

2. For the purposes of paragraphs 540(4)(b) and (5)(b) of the Act and these Regulations, the prescribed classes of entities are all the classes of entities made up of any of the entities referred to in subparagraphs 540(4)(a)(i) and (ii) of the Act.

CONDITIONS OF SALES OR TRADES OF FINANCIAL INSTRUMENTS, SECURITIES AND BILLS OF EXCHANGE

3. The financial instruments referred to in paragraph 540(4)(b) of the Act and the securities and bills of exchange referred to in paragraph 540(5)(b) of the Act may be sold to an entity within a class of entities prescribed by section 2 or traded with such an entity on condition that

(a) they are sold or traded in denominations of $150,000 or more; and

(b) the seller or trader, as the case may be, in writing notifies the entity to which it sells or with which it trades the financial instruments, securities or bills of exchange that

COMING INTO FORCE

4. These Regulations come into force on the day on which they are registered.

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Footnote a

S.C. 1999, c. 28, s. 35(1)

Footnote b

S.C. 1999, c. 28, s. 35(1)

Footnote c

S.C. 1991, c. 46

Footnote d

S.C. 1999, c. 28, s. 21.1

Footnote e

S.C. 1999, c. 28, s. 21.1

Footnote f

S.C. 1991, c. 46

Footnote g

S.C. 1999, c. 28, s. 35(1)

Footnote h

S.C. 1999, c. 28, s. 35(1)

Footnote i

S.C. 1999, c. 28, s. 35(1)

Footnote j

S.C. 1991, c. 46

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