Office of the Superintendent of Financial Institutions
The Office of the Superintendent of Financial Institutions (OSFI) is responsible for administering a number of federal statutes, including the statutes applicable to the regulation of banks (the Bank Act (BA)) and federal trust and loan companies (the Trust and Loan Companies Act (TLCA)). As part of the regulatory process, OSFI assesses applications for continuance and makes recommendations to the Minister of Finance (the Minister), who has the ultimate responsibility for approving the continuance of a body corporate as a federally regulated financial institution (a FRFI) under the BA or TLCA.
This Guide sets out the two phases of the process to continue as a FRFI under the BA or TLCA along with the information that an applicantFootnote 1 is generally expected to submit in support of the requisite application to the Minister seeking the issuance of letters patent of continuance (Letters Patent) continuing the body corporate as a FRFI.
This Guide also sets out the various prudential, regulatory and legislative criteria and information requirements relative to the application for continuance as a FRFI.
One of the primary objectives of this Guide is to promote awareness and enhance the transparency of the assessment criteria and processes for continuance as a FRFI. In this regard, prospective applicants should note that continuance as a FRFI is generally intended for entities currently engaged in business activities.
OSFI will generally evaluate a proposed continuance against the criteria in this Guide; however, as the particular circumstances and facts of each application are different, this Guide should not be viewed as an exhaustive set of criteria and information requirements.Footnote 2 OSFI officers from the Regulatory Affairs Division and Deposit-Taking Supervision Sector jointly review and assess each application for continuance as a FRFI.
This Guide does not apply to:
Prospective applicants are encouraged to contact OSFI for further information regarding the establishment, incorporation or continuance of these entities.
There are two primary approvals related to an application to continue a body corporate as a FRFI in Canada: (i) the issuance of Letters Patent by the MinisterFootnote 5; and (ii) the making of an order to commence and carry on business (Order) by the Superintendent of Financial Institutions (the Superintendent).Footnote 6
The application process to continue a body corporate as a FRFI in Canada is comprised of two phases related to the approvals noted above, the key elements of which are outlined below. The phased approach is intended to provide applicants with guidance and feedback both at the initial stages of the proposed application and throughout the application process.
While there is no specific time limit on the assessment of applications, OSFI endeavours to complete all application assessments as quickly as possible. The assessment of each application will depend on the specific facts and circumstances, and OSFI will communicate regularly with the applicant throughout this process.
In OSFI's experience, delays in receiving Letters Patent often result from the complexities presented in the application, the provision of incomplete information by the applicant in support of the application, and/or a failure on the part of the applicant to sufficiently address additional information requests from OSFI in a timely manner.
Applicants should also note that the timing in the latter stages of the application process will largely depend on the readiness of the applicant to begin business as a FRFI, as verified during the pre-commencement on-site review(s).
OSFI may terminate its review of an application where, in OSFI's view, based on the quality of the applicant's submissions, and despite significant feedback from OSFI, the applicant is unable to satisfy the information requirements in support of the application. In this regard, applicants should note that they bear the onus of satisfying OSFI's information requirements in a timely, clear and complete manner.
Prior to submitting the formal application, a prospective applicant is requested to contact the Regulatory Affairs Division to schedule an initial in-person meeting with OSFI to discuss the proposed continuance and the application process.Footnote 8 This discussion provides an opportunity for OSFI to provide preliminary feedback regarding any apparent or potential regulatory, prudential or public policy issues.
The initial discussion also provides an opportunity for OSFI to clarify its processes and expectations regarding applications to continue as a FRFI generally, along with any unique considerations that may be applicable to that particular prospective applicant.
To facilitate the initial discussion, a prospective applicant will generally be expected to provide the following written submissions prior to the meeting:
For the purpose of this Guide, any reference to "owner" generally includes:
OSFI will request the following information from a prospective applicant who, after the initial discussion, wishes to proceed with the application. OSFI's primary purpose in reviewing this information is to identify any fundamental issues that should be considered by the prospective applicant before or at the time of its Phase-2 application, including any:
The prospective applicant is generally expected to provide:
The prospective applicant is generally expected to provide a five-year business plan, including:
The prospective applicant is generally expected to provide details regarding its current and proposed, as applicable:
A second in-person meeting with the prospective applicant will be scheduled once OSFI has had an opportunity to consider the information submitted under sections 1.1 to 1.3 above. The purpose of this meeting is for the prospective applicant to demonstrate an understanding of the material risks associated with its business plan and the methods by which it intends to mitigate those risks. Prior to the meeting, OSFI will provide the prospective applicant with an agenda and specific issues that the prospective applicant will be expected to address at the meeting.
Following the business plan discussion with OSFI, the prospective applicant will receive a letter setting out OSFI's views and expectations regarding:
OSFI will also request that the prospective applicant provide an expected date for its submission of a formal application.
Prior to submitting the formal application, the prospective applicant must give notice of its intention to apply for Letters Patent (Notice). The primary purpose of the Notice is to inform the public of the identity of the body corporate making the application and to allow for public comment. The FRFI statutes state that the Notice must be published once a week for four consecutive weeks in the Canada Gazette and in a newspaper in general circulation at or near the place where the head office of the FRFI is to be situated. The FRFI statutes also specify that the Notice must be in a form satisfactory to the Superintendent. As such, a draft copy of the Notice should be provided to OSFI for review prior to publication to avoid the possibility of having to republish the Notice.Footnote 25 In this regard, OSFI's expectation is that the Notice will set out:
The FRFI statutes provide that a person may formally object to the proposed continuance by submitting the objection, in writing, to the Superintendent within 30-days of the last publication of the Notice. Where an objection is submitted, the Superintendent will assess its merits and determine whether a public inquiry into the objection is warranted. The Superintendent must also inform the Minister of the objection and the findings of any such inquiry.
Following the publication of the Notice, the applicant may submit its formal application to OSFI for the issuance of Letters Patent. The information that OSFI generally expects to be submitted in respect of an application for Letters Patent is set out below.
OSFI will review the application and will contact the applicant to discuss its completeness, status, and outstanding issues. This will typically be done through one or more written communications, discussions and/or meetings. Where necessary, OSFI may also request additional information to complete the assessment of the application, which may include additional corroborating information or analysis from third parties. OSFI's assessment will also be informed by its experience of the actual performance of existing FRFIs in similar business lines.
OSFI expects applications to contain all the information requirements set out in sections 2.1 to 2.9 of this Guide. Additionally, if any of the details have changed in respect of the information requirements submitted under sections 1.1 to 1.3 above, the applicant should update and re-submit that information.
In certain circumstances, it may not be feasible for an applicant to provide all the information set out below at the time of the application. Where this is the case, applicants should explain to OSFI which information items will be provided at a later date.
The applicant is generally expected to provide, as applicable:
With respect to the five-year business plan submitted in Phase-1, the applicant is generally expected to provide:
The applicant is generally expected to provide:
The applicant is generally expected to provide:
The applicant is generally expected to provide a detailed description of the internal controls, policies and procedures that it would follow as a FRFI to ensure compliance with:
The applicant is also generally expected to provide:
One or more on-site reviews will be arrangedFootnote 59 prior to OSFI making a recommendation to the Minister in respect of the issuance of Letters Patent and the anticipated areas for review and discussion will be provided by OSFI at that time. The purpose of an on-site review is to determine whether the applicant is sufficiently prepared to commence business operations as a FRFI. It will assess, among other things, the operational readiness and control processes and management systems referred to in sections 2.4, 2.7 and 2.8 of this Guide. An on-site review will also assess whether the applicant is capable of producing the required statutory and supervisory information in an accurate and timely manner at the commencement of operations as a FRFI.
OSFI will provide the applicant with a pre-commencement letter prior to a scheduled on-site review. The letter will request additional information that the applicant is expected to provide sufficiently in advance of the on-site review so that OSFI can consider the submissions prior to the on-site review.
Following an on-site review, OSFI will provide the applicant with a letter setting out any outstanding concerns and OSFI's expectations regarding their resolution.
Before making a recommendation to the Minister in respect of the issuance of Letters Patent, OSFI must be satisfied that the applicant has the necessary systems, management structure, control processes and regulatory compliance management systems in place. All policies and procedures should be finalised and approved prior to the making of the recommendation.
The applicant continues as a FRFI on the date provided in the Letters PatentFootnote 60. The Minister may set out in the Letters Patent any terms and conditions that the Minister considers necessary or appropriate relative to the continuance as a FRFI. The Superintendent may set out in the Order conditions or limitations on the FRFI's business to address supervisory and regulatory concerns. At the same time, the FRFI will also be assigned its authorized leverage ratio.
The FRFI will be required to publish notice of the making of the Order in a newspaper in general circulation in the city where the FRFI's head office is located. OSFI is required to publish a notice of the issuance of the Letters Patent and the making of the Order in the Canada Gazette.Footnote 61OSFI is also required to send a copy of the Letters Patent to the appropriate official or public body in the jurisdiction in which the applicant was authorized to apply for Letters Patent.Footnote 62
This portion of the Guide provides additional guidance to applicants in respect of the eligibility of applicants and owners, the matters for consideration relative to the issuance of Letters Patent and the making of the Order, transitional relief, the factors the Superintendent will take into account in determining OSFI's ability to supervise and regulate a FRFI, and other stakeholders to be considered by the applicant in the context of continuance.
Continuance as a FRFI is generally intended for entities currently engaged in business activities. Where this is not the case, the application should be for the incorporation of a FRFI.Footnote 63
The FRFI statutes provide that Letters Patent will not be issued if the application is made by or on behalf of:
In addition, no person may control or be a major shareholderFootnote 65 of a bank if the person, or any of its affiliates:
OSFI will review the whole application with a view to ascertaining whether the criteria related to the Ministerial approval for the issuance of the Letters Patent have been met.Footnote 67 As the Superintendent makes the Order upon the issuance of Letters Patent,Footnote 68 OSFI must also be satisfied that the applicant is sufficiently prepared to commence business operations as a FRFI prior to recommending that the Minister issue Letters Patent.
OSFI's review will focus on determining whether the following broad considerations have been satisfied:
Applicants should also note that additional information will be requested if the applicant is a subsidiary of a foreign bank or foreign institutionFootnote 70 that is engaged in trust or loan business,Footnote 71 from a non-World Trade Organization (WTO) Member country.
Where certain activities of a FRFI in respect of which Letters Patent were issued will not comply with the BA or TLCA, the Minister may, on the recommendation of the Superintendent, by order grant a temporary permission in respect of these activities. The permission granted may be to:
The applicant should request such an order in its application to continue as a FRFI. The applicant is expected to provide a rationale for the requested order including details regarding the activity for which relief is requested and a plan to come into compliance.
OSFI carries out consolidated supervision of banking organizations to monitor potential contagion risks within the group and to be satisfied that there is comprehensive supervision of the material financial services of the group.
In all applications to continue as a FRFI, the Superintendent will assess OSFI's ability to supervise, examine and regulate the FRFI effectively. This assessment will entail an examination of the corporate structure. Where appropriate, the Superintendent may consider whether the structure would hinder effective implementation of corrective measures in the future.
The Superintendent will generally consider the following factors in assessing the level of risk posed by the corporate structure and its impact on OSFI's ability to effectively supervise and regulate the FRFI:
There are various ways that supervisory concerns arising out of corporate structures could be addressed. One possibility would be to restructure and consolidate (existing and/or planned) financial services activities in or under the FRFI or under a Canadian regulated holding company. Another possibility would be to address such concerns through an undertaking to OSFI that restricts certain activities of the corporate group.
Applicants should note that FRFIs that intend to accept deposits of less than $150,000 (CAD) will be required to be members of the Canada Deposit Insurance Corporation (CDIC).
Applicants are not required to make a separate application to CDIC for retail deposit insurance. OSFI will contact CDIC regarding any application for Letters Patent that includes a proposed retail deposit-taking activity. Pursuant to the Canada Deposit Insurance Corporation Act, upon the making of an Order, CDIC will insure the eligible deposits held by a FRFI unless the Order prohibits the FRFI from accepting deposits in Canada or the Order authorizes the sole acceptance of deposits $150,000 (CAD) and greater.
Applicants should also note that the consumer provisions in the BA and TLCA are administered by the Financial Consumer Agency of Canada (FCAC). OSFI will inform the FCAC of any application for Letters Patent.
Applicants may require membership in the Canadian Payments Association (CPA). Banks are automatically members of the CPA. Once continued, banks must register with the CPA. Trust and loan companies that accept transferable deposits can apply for membership. CPA membership is necessary in order to obtain an institution number for processing cheques and electronic payment transactions.
OSFI will, on request, provide an applicant with an appropriate contact at CDIC, FCAC or CPA.
Trust and loan companies should also approach provincial regulators to determine licensing and filing requirements in each of the provinces and/or territories in which they wish to transact business.
All enquiries regarding continuance as a FRFI should be directed to:
Office of the Superintendent of Financial Institutions
Regulatory Affairs Division
15th Floor, 255 Albert Street
Ottawa, Ontario, Canada, K1A 0H2
For the purpose of this Guide, any reference to applicant is to the body corporate seeking to continue as a FRFI.
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The FRFI legislation provides broad authority to the Minister and the Superintendent of Financial Institutions to take into account all matters that they consider relevant in the circumstances related to the granting of any approval (e.g., section 973.01 of the BA).
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Please refer to the OSFI Guide to Foreign Bank Branching.
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Please refer to the OSFI Guide for Incorporating Banks and Federally Regulated Trust and Loan Companies.
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Letters Patent are issued by the Minister upon recommendation of the Superintendent.
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Please see section 27 of the BA and section 26 of the TLCA, and paragraph II of Administrative Guidance below.
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No application is required in respect of an Order as the Superintendent is required to make the Order upon the issuance of Letters Patent (please see subsection 48(3) of the BA and subsection 52(4) of the TLCA).
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The contact information for OSFI's Legislation and Approvals Division is located on the final page of this Guide.
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Please see section 10 of the BA and TLCA.
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Please see section 39 of the BA, section 37 of the TLCA and paragraph III of Administrative Guidance below.
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Please see paragraph I of Administrative Guidance below.
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Please see section 3 of the BA and TLCA.
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An entity is a "regulated entity" if it is listed in subsections 468(1) of the BA or 453(1) of the TLCA, as the case may be.
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Business activities that are authorized are listed in subsections 468(2) of the BA or 453(2) of the TLCA, as the case may be.
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Business activities that are restricted are generally listed in subsections 468(3) of the BA and 453(3) of the TLCA, as the case may be.
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If the person is a foreign entity, provide a comparison between the accounting standards used to complete the financial statements and International Financial Reporting Standards.
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Please note that "branch" is defined in section 2 of the BA and TLCA.
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Please see OSFI's Capital Adequacy Requirements (CAR) Guideline and Leverage Requirements Guideline. In preparing the pro forma financial statements, note that the initial authorized leverage ratio assigned by OSFI will depend on several factors but will typically fall within the 8 to 12 per cent range. Factors include the nature of the proposed business, the anticipated peer group risk profile, the overall strength of the business plan, the effectiveness of the controls in place, the recent financial performance of the applicant, the financial strength of the owners and the level of initial capitalization. Prospective applicants should discuss with OSFI the initial leverage ratio they intend to use to develop the business plan.
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Where a prospective applicant intends to seek transitional relief (please see paragraph III of Administrative Guidance below), the prospective applicant is generally expected to provide a base case that factors in the requested transitional relief and a base case that does not factor in transitional relief. If this is the case, the information set out in 1.2(i) above should be provided for both base cases.
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Prospective applicants should discuss with OSFI the stress scenario they intend to use. The financial statements are generally expected to address two cases under the stress scenario; one case where the FRFI takes no action and a second case where the FRFI acts to respond to the stress.
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Please see OSFI Guideline B-10 - Outsourcing of Business Activities, Functions and Processes.
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The contingency plan should include options that the prospective applicant would propose to pursue in the event it is unable to execute its business plan as well as the criteria that would be considered in implementing a particular option under the plan.
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Review by OSFI of the draft Notice will ensure that the form and information contained in the Notice provides the necessary information to the public.
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OSFI will discuss with the prospective applicant the owners who should be identified for the purpose of the Notice.
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The applicant should confirm confirm that it has performed the requisite name use analysis. Please see sections 2.9(b) and (c) of this Guide.
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Please note that, in certain circumstances, OSFI may request that the owner provide information that demonstrates that the institution meets the international standards as applied in both its home jurisdiction and in Canada.
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The OSFI Security Information Form(s) must be provided to OSFI in the following two formats: (a) a signed and dated original hard-copy, and (b) an electronic version in Excel format. Once OSFI receives the completed forms, they are then forwarded to the relevant Canadian law enforcement and intelligence agencies to carry out the requisite background and security assessments. Please note that the time required by law enforcement and intelligence agencies to complete these assessments is not within OSFI's control, and the Superintendent will generally not seek the Minister's approval in respect of the Letters Patent until these assessments are completed without issue. As such, applicants are strongly encouraged to remit the completed OSFI Security Information Form(s) at the earliest possible stage in the application.
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Confirmation of authorization to apply for Letters Patent may take the form of an approval by the applicant's regulator or a Minister in the jurisdiction where the applicant is incorporated, or any other form prescribed by the jurisdiction.
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The capital must meet OSFI's Capital Adequacy Requirements (CAR) and Leverage Requirements. OSFI generally expects that the initial amount of capital will be sufficient, at all times, for the FRFI to remain above its internal target risk-based capital ratios and remain above its authorized leverage ratio for the first two years of the FRFI's operations under the base case scenario. However, this expectation may extend out to three years in certain circumstances, including where an applicant proposes to add new line(s) of business other than deposit-taking.
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The financial year-end of a FRFI may be either October 31st or December 31st (please see section 307 of the BA and section 312 of the TLCA).
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Please see OSFI's Corporate Governance Guideline.
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Please see footnote 29.
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Please see section 315 of the BA and section 320 of the TLCA.
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Please see OSFI Guideline B-6 - Liquidity Principles.
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The capital management policy should detail the internal targeted levels of capital and describe on-going monitoring procedures to ensure that the FRFI will meet OSFI's minimum capital requirements.
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The compensation policy is expected to be consistent with Financial Stability Board Principles for Sound Compensation.
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OSFI generally expects operational risk management policies to include policies related to the following: outsourcing risk, business continuity and disaster recovery, privacy risk, information technology, information management and security, physical security, fraud risk and records retention. Please also see OSFI's Supervisory Framework.
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In particular, a FRFI's business continuity plan should ensure that the FRFI has in its possession or can readily access all records necessary to allow it to sustain business operations, meet its regulatory obligations, and provide all information as may be required by OSFI to meet its legislated mandate.
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Relevant financial institution and risk management expertise are key competencies for the Board. There should be reasonable representation of these skills at the Board and Board committee levels.
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The FRFI statutes require that the directors of the FRFI establish audit and conduct review committees (please see subsection 157(2) of the BA and subsection 161(2) of the TLCA).
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The corporate governance practices adopted by a FRFI will likely depend on the nature, scope, complexity, and risk profile of that institution.
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Please see OSFI Guideline E-13 - Regulatory Compliance Management (RCM).
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Please see OSFI Cyber-Security Self-Assessment Guidance.
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The proposed name can be reserved under the FRFI statutes. Please see Index A No. 20 – Name Reservation for information requirements and administrative guidance in relation to name reservation applications.
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OSFI will accept a NUANS corporate name search report, which includes a list of business names and trademarks that sound similar to the name being proposed. If the FRFI would conduct business in the Province of Québec, a search of the Québec Corporations Database at "Registraire des entreprises" is also required.
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If the FRFI will use both an English and French form of the proposed name, a name search report and corresponding analysis must be provided in respect of both forms of that proposed name. Reference should also be made to OSFI Advisory 2002-01-R1 - Corporate Names, Registered Names and Trade Names.
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Please see section 25 of the BA and section 24 of the TLCA.
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The Support Principle that the controlling owner is expected to acknowledge will be provided by OSFI. Where no person will control the FRFI, this acknowledgement will not be required.
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Please see footnote 32.
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The letter of commitment that the applicant is expected to sign will be provided by OSFI.
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Material changes to the business plan may include new product offerings, changes in management structure or growth of the business beyond what was contemplated in the initial business plan submitted in support of the application for Letters Patent.
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Please see section 2 of the BA and TLCA for the definition of "non-WTO Member foreign bank" and "non-WTO member foreign institution" respectively.
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Please see section 24 of the BA and section 23 of the TLCA.
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A wire transfer, cheque or draft should be made payable to the "Receiver General for Canada".
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OSFI would normally schedule an on-site review of the applicant upon receipt of confirmation that the on-site review has been authorized by the jurisdiction of its incorporation or confirmation that no authorization is required by that jurisdiction.
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Please see section 38 of the BA and section 36 of the TLCA for the effects of continuance on the FRFI.
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Please see sections 37 and 56 of the BA and sections 35 and 59 of the TLCA.
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Please see section 37 of the BA and section 35 of the TLCA.
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Please see section 23 of the BA and section 22 of the TLCA.
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A person is a major shareholder of a bank where the person directly or indirectly owns more than 20% of the voting shares, or 30% of the non-voting shares, of the bank.
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Please see sections 378.1 and 378.2 of the BA.
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Please see section 27 of the BA and section 26 of the TLCA.
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Please see subsection 48(3) of the BA and subsection 52(4) of the TLCA.
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Please see section 973.01 of the BA and section 527.3 of the TLCA.
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Please see the definition of "foreign bank" and "foreign institution" in subsection 2(1) of the FRFI statutes.
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Please see section 24 of the BA, section 23 of the TLCA and section 2.9(h) of this Guide.
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Please see section 39 of the BA and section 37 of the TLCA.
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