In this series of blogs, we will explore some key legal considerations relating to cross-border securitization transactions.
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The Structured Finance Group at McCarthy Tétrault LLP is pleased to present Cross-Border Securitization Transactions between Canada and the U.S. – Key Legal Considerations.
In recent years, there has been a significant increase in the volume of cross-border securitization transactions between Canada and the U.S., with market participants now regularly pursuing cross-border securitization transactions in a wide range of contexts. A Canadian originator may choose to sell receivables to a U.S. special purpose vehicle ("SPV") as part of a global trade receivables securitization program, for example, or a Canadian issuer may choose to offer asset-backed securities to U.S. investors as a complement to an offering in Canada.
Although the variety of cross-border securitization transactions is practically unlimited, there are a number of legal considerations that are common throughout these different transactions. This article highlights some of the main principles of Canadian law that U.S. legal practitioners should bear in mind when working on cross-border securitization transactions between Canada and the U.S. This article is not intended to be exhaustive of all relevant legal considerations, and U.S. legal practitioners are encouraged to seek assistance from qualified Canadian counsel when engaging in such transactions.
In all cross-border securitization transactions, it is critical to consider whether any relevant U.S. entities are subject to licensing requirements in Canada. This is particularly true where the relevant U.S. entities are foreign banks (or foreign bank affiliates). Under the Bank Act (Canada) (the "Bank Act"), foreign bank entities are generally prohibited from conducting banking activities in Canada, unless they are licensed to carry out such activities, or their activities do not rise to the level of "carrying on business in Canada".
Unfortunately, the Bank Act does not include a definition of the phrase "carrying on business in Canada", but the Office of Superintendent of Financial Institutions ("OSFI"), which is the regulator of foreign and domestic banks in Canada, has provided some guidance on the meaning of this phrase. OSFI has indicated that whether a particular activity constitutes "carrying on business in Canada" requires a contextual analysis of the facts. A single fact or consideration may not be dispositive of the issue. OSFI has noted that the following facts are relevant in conducting this analysis: (i) whether the foreign bank has an office or employees in Canada; (ii) whether the foreign bank makes trips to Canada for purposes of underwriting existing or potential credit risk; (iii) whether the foreign bank forms contracts and carries out negotiations in Canada; and (iv) whether the foreign bank realizes on security in Canada.
Generally speaking, as long as a foreign bank follows a code of conduct that requires it to conduct its banking activities outside of Canada, then those activities will not rise to the level of "carrying on business in Canada". This is commonly referred to as "suitcase banking". The essence of the code of conduct is limiting, to the greatest extent possible, a foreign bank's physical presence in Canada. In our experience, foreign banks that are involved in cross-border securitization transactions are often able to structure their activities in a manner that does not rise to the level of "carrying on business in Canada", and thus they are generally not exposed to any licensing requirements under the Bank Act.
In addition to banking, other types of business activities carried on by U.S. entities in Canada may be subject to licensing requirements under specific federal or provincial legislation. For example, residential mortgage servicing and collection activities are regulated under consumer protection legislation in effect in certain of the provinces of Canada.
It is important to consider whether any special licensing requirements exist in the early stages of planning a cross-border securitization transaction, as these licensing requirements can have a significant impact on the transaction structure and timeline.
加拿大和美国之间的跨境证券化交易 - 重要的法律问题
麦启泰律师事务所的结构性融资业务组很高兴地向读者介绍有关 加拿大和美国之间的跨境证券化交易 —— 重要的法律考虑因素。
遗憾的是，《银行法》并未对"在加拿大开展业务"一词给予定义，但作为加拿大境内和外资银行监管机构的金融机构监管办公室 ("OSFI") 而言，就这一短语的含义提供了一些指导。 OSFI 指出，某项活动是否构成"在加拿大开展业务"，需要对事实进行背景分析。 单一的事实或考虑可能无法给予断定。 OSFI 指出，进行此分析有以下事实考量： (i) 外国银行是否在加拿大设有办事处或员工； (ii) 外国银行是否前往加拿大承销现有或潜在的信贷风险； (iii) 外国银行是否在加拿大签订合同并进行谈判；以及 (iv) 外国银行在是否加拿大通过以资抵债取得债务人有效资产的处置权。
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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.