Canada: OSFI Ruling: Foreign Bank Not Conducting "Business In Canada" By Offering Its Credit Card Program To Their U.S. Corporate Clients’ Canadian Affiliates

From time to time the Office of the Superintendent of Financial Institutions (Canada) issues rulings on how it applies or interprets provisions of the federal financial institutions legislation, regulations or guidelines. Recently, OSFI published a ruling on whether the undertaking of certain activities in Canada in support of a foreign bank's credit card program would cause the foreign bank to engage in or carry on, directly or through a nominee or agent, business in Canada for the purposes of Part XII of the Bank Act (Canada). The ruling provides further clarity on what a foreign bank may do in Canada without establishing a branch or subsidiary.

BACKGROUND

The ruling dealt with a foreign bank that was proposing to offer Canadian dollar corporate credit cards to the Canadian affiliates of its U.S. corporate clients. It was understood that the foreign bank did not have a office or other establishment in Canada and that it would, from outside Canada, negotiate, execute and deliver the credit card agreements. It was noted that in certain cases representatives of a Canadian affiliate would participate in the negotiations from Canada, but in all cases, the participating representatives of the foreign bank would be outside Canada. Furthermore, the foreign bank would not promote in Canada the card program and all of the decisions relating to the card program, including credit granting decisions, as well as the administration of the program, would be made outside Canada. The foreign bank proposed to enter into an arrangement with a third party Canadian credit card issuer under which the card issuer would facilitate the processing, clearing and settlement of card transactions. As a part of this arrangement, the foreign bank proposed to make deposits in accounts with the card issuer to settle its payment obligations arising from the card transactions. The foreign bank also proposed to use these accounts to receive card payments from its Canadian affiliates. In addition, the foreign bank proposed to arrange occasional visits to Canada by its representatives to explain the features of the Program to employees of the Canadian affiliates.

THE KEY ISSUE

The Bank Act (Canada) provides that an foreign bank shall not, by itself or through a nominee or an agent, engage in or carry on any business in Canada except as permitted by Part XII of the Act. The key issue was whether the foreign bank could conduct the proposed activities without seeking approval under Part XII of the Act.

DISCUSSION

OSFI applied the traditional "doing business" test to the proposed card activities and considered the following factors to be relevant to its decision:

(1) where the elements leading to the formation of the agreements would take place; (2) where the operations would be carried out; (3) where the services would be delivered and paid; (4) where the program would be marketed; and (5) the relationship between the activities in Canada and outside Canada.

OSFI concluded that the undertaking of the activities in Canada noted above in support of the card program, would not cause the foreign bank to engage in or carry on business in Canada. The services of the Canadian card issuer in respect of the foreign bank, including the provision of accounts by the card issuer, as well as the foreign bank's occasional customer support visits, would merely be more efficient ways for the foreign bank to fulfill obligations that it undertook from outside Canada. Given that none of the activities in Canada would be separate profit-making activities of the foreign bank, OSFI stated that there was no need to examine whether the Canadian card issuer was acting as an agent or nominee of the foreign bank. Accordingly, in our view, this ruling provides more scope for foreign banks that may wish to use an agent or nominee in Canada for a business conducted ostensibly from outside of Canada.

More than one-third of all rulings issued by OSFI relate to the interpretation of Part XII of the Bank Act (Canada). In the past several years OSFI has ruled on foreign note programs, portfolio management services, foreign remittance activities, asset management services, credit card referral arrangements, and mortgage loan administration services. That so many ruling have been requested is perhaps not surprising given the global reach of an increasing number of international financial institutions and the focus of OSFI in ensuring an appropriate level of domestic presence to the extent that foreign banks are engaged in the provision of financial services in Canada. In considering whether any particular foreign bank program or activities are consistent with the requirements of Part XII of the Act, OSFI balances a number of factors, including, consumer convenience, the protection of creditors, the maintenance of a level playing field with domestic institutions and the Canadian financial system's safety and soundness.

While the recent global financial turmoil has dampened interest in the expansion of financial services providers into a number of markets, the recognized stability of the Canadian financial system and the encouraging financial performance of the Canadian economy make Canada a logical destination for an increasing number of international financial institutions. The flexible approach shown by OSFI in the current instance should be a further encouragement for other international financial institutions to bring their innovations in financial services to the Canadian market.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Osler, Hoskin & Harcourt LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Osler, Hoskin & Harcourt LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions