Office of the Superintendent of Financial Institutions
In order to provide more clarity with respect to requirements
relating to the operation of foreign life insurance branches in
Canada, in 1992 the Office of the Superintendent of Financial Institutions
(OSFI) issued Guideline E-4, Role of the Canadian Chief Agent
and Record Keeping Requirements.
In 1999, the Bank Act (BA) was amended to permit foreign
banks to also operate in Canada on a branch basis. While OSFI has
issued a number of documents related to foreign bank branches (FBBs),
including the Guide to Foreign Bank Branching, it has not
issued a formal guideline with respect to the role of the principal
officer or record keeping requirements.
A number of factors, including the growing prevalence of foreign
bank branches led OSFI to review its current guidance for branches.
The review considered the merits of expanding application of the
Guideline to all foreign financial institution branches (FFIBs)
and the need for amendments in light of the introduction of OSFI’s
Supervisory Framework and other new guidelines that apply to FFIBs.
Guideline E-4 does not reflect a number of legislative and regulatory
changes that have occurred since the Guideline was originally released:
Based on the foregoing, the objectives of revising Guideline E-4
In the short term, this option would not present incremental costs
to either OSFI or to FFIBs, and could be seen as minimizing regulatory
However, this option would perpetuate an unlevel playing field
because the current Guideline does not apply to P&C and fraternal
branches or to FBBs. As such, these entities may not be fully aware
of OSFI’s expectations. This can pose problems for OSFI’s supervision
of foreign branches, especially if the level of involvement and
responsibility demonstrated by CAs and POs is inadequate. Without
further guidance, some FFIBs may be exposed to increased risks due
to insufficient or inappropriate policies and procedures. OSFI would
also face increased risks should FFIBs experience difficulties.
This option would involve applying OSFI resources to revise Guideline
E-4 to expand its application beyond Life branches to include P&C
and fraternal branches and FBBs. This would ensure that all types
of entities are subject to similar and transparent expectations.
Unlike Option 1, OSFI would incur costs related to revising Guideline
E-4, including the consultative process. However, these costs should
be relatively small. The revised Guideline would also provide consistent
expectations against which all FFIBs can be assessed by OSFI. Finally,
revising the guideline would demonstrate that OSFI is proactively
ensuring that its guidance remains up-to-date and consistent with
its risk based Supervisory Framework.
This option could pose higher incremental costs to FFIBs as more
FFIBs would likely be required to enhance their policies and procedures.
However, FFIBs will benefit from clearer and more consistent expectations.
In particular, by upgrading policies and procedures, FFIBs exposure
to operational and legal/compliance risks should be reduced. In
addition, many CA/POs have expressed a desire for additional guidance
with respect to their role in managing the operations of FFIBs.
This option would allow for clear recognition of the operational
differences between the insurance and banking sectors, which would
facilitate CAs and POs use of the guideline. Slightly more OSFI
resources would be required than under Option 2. Other costs and
benefits of this option would be similar to those outlined in Option
OSFI consulted internally to obtain input from many areas of the
organization. OSFI also conducted pre-consultations on preliminary
drafts of the guideline with CA/POs from a representative sample
of FFIBs, a number of external lawyers, and the industry associations.
The comments submitted suggested a strong preference for separate
guidelines in order to recognize the differences between the industry
sectors. Separate draft guidelines for comment were posted to OSFI’s
website in July 2005. The final version of the guidelines include
minor changes as a result of the comments received.
OSFI believes that the most appropriate method of addressing the
issues noted above would be through Option 3, i.e., replacing the
current guideline with two separate guidelines for CAs of insurance
and fraternal branches and POs of bank branches respectively. Although
this option requires a marginal increase in resources versus option
2, OSFI believes that the more targeted nature of separate guidelines
would be beneficial to both the industry and OSFI alike.