Canada: OSFI Clamps Down On Use Of Bank Words By Non-Banks

On June 30, 2017, the Office of the Superintendent of Financial Institutions (OSFI) issued the Advisory on Restrictions on the use of the words "bank", "banker" and "banking" setting out how OSFI interprets and administers the Bank Act restrictions on the use of these words, and the exception to these restrictions where the use of the words is not in relation to a financial services business.

The context of this Advisory is OSFI's observation of an increased use of these words by non-bank financial service providers. A disconnect has emerged between the exclusive federal jurisdiction over banks and the reality that certain entities that are not banks are providing banking services. The Advisory is OSFI's attempt to assert that jurisdiction, and the restrictions in the Advisory amount to significant constraints on non-bank entities that carry on banking activities. This will be of significant concern to provincial credit unions and unregulated businesses in the financial services space (e.g., FinTech businesses).

OSFI expects non-banks to comply with the Advisory by the following dates:

• December 31, 2017 - For information contained on websites or other electronic mediums.
• June 30, 2018 - For information contained in print materials.
• June 30, 2019 - For information contained on physical signage.

The Advisory uses the defined term "Bank Words", which includes the words "bank", "banker" and "banking", either alone or in combination with other words, including (a) any of those words in any language, and (b) any word or words, in any language, that are equivalent to any of those words. The Advisory states that this includes words not found in dictionaries, and that compound words and contractions containing parts that resemble, in writing or phonetically, any of the words "bank", "banker" or "banking" are Bank Words (e.g., "banc", "mybank" and "bancorp").

Restrictions on the use of the Bank Words

Section 983 of the Bank Act restricts non-bank entities (i.e., entities that are not Canadian banks) from acquiring, adopting or retaining a name that includes the Bank Words to indicate or describe a business in Canada or any part of a business in Canada. OSFI is of the view that this restriction applies to both corporate and trade names. Section 983 also restricts non-bank persons (i.e., persons that are non-Canadian banks, including non-bank entities) from using the Bank Words to indicate or describe a business in Canada or any part of a business in Canada.

The Advisory describes what, in OSFI's view, it means for Bank Words to "indicate or describe" a non-bank person's business (or any part of its business). The applicable test refers to the use of such words that "could reasonably suggest to the public the nature of the entity's business". While the application of this test is not entirely clear in all cases, the Advisory sets out a long list of names and phrases that OSFI views as prohibited by section 983:

The Advisory also states that OSFI views the term "business" as meaning the carrying on of a serious occupation, and that as a result, not-for-profit entities may be subject to the restrictions in section 983.

Non-financial Exception to the Name Restriction and the Business Description

One of the exceptions to the restrictions in section 983 is "in relation to a business that is not engaged in financial activities, unless the business is carried out by a prescribed entity".

The Advisory states that OSFI's view that a non-bank person may resort to this exception if the use of the Bank Words is not in relation to any part of the person's financial activity business, but in no case may a prescribed entity resort to this exception. Under the Use of the Word "Bank" by Non-financial Businesses (Excluded Entities) Regulations, a prescribed entity includes an entity in which a Canadian bank has a substantial investment, and a provincially or federally regulated financial institution. The Advisory gives some examples of names that are permitted under the exception (e.g., "Food Bank" is permitted for an entity whose business is to collect and stock food, and give it to persons in need, but a prescribed person whose sole business is genetics-based research and development, could not adopt the trade name "Gene Bank").

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