Office of the Superintendent of Financial Institutions
This guideline describes OSFI’s expectations with respect to the
role of the Principal Officer (PO) of an authorized foreign bank
Footnote 1. The guideline
applies to the Canadian Branch operations of foreign banks. For
the purposes of this guideline, these entities will be referred
to collectively as foreign bank branches (FBBs). It also discusses
OSFI’s expectations with respect to records and documents to be
maintained at branch offices in Canada. The guideline does not address
all legislative and regulatory obligations and requirements; therefore,
POs are expected to refer to relevant provisions in the legislation
and regulations. The guideline should also be read in conjunction
with a number of other guidelines applicable to authorized foreign
including OSFI’s Guide
to Foreign Bank Branching which addresses the process for establishing
a FBB in Canada including the criteria that must be met and the
information that must be submitted as part of the application.
As part of its risk-based supervisory framework, OSFI evaluates
FBBs against the expectations of this guideline and other guidelines
applicable to FBBs.
Authorized foreign banks establishing a branch in Canada are required
to appoint a POFootnote 3.
As noted in the Corporate Governance Guideline,
OSFI looks to the PO to oversee the management of the branch, including
matters of a corporate governance nature that relate to the branch.
As such, OSFI expects that the PO will be accountable for the FBB’s
operations. However, OSFI recognizes the nature, scope, complexity,
and risk profile of FBBs may affect how the PO carries out his or
her role with respect to the expectations set out in this guideline.
It is recognized that the PO may delegate various branch responsibilities
to branch employees. Alternatively, he/she may enter into arrangements
with the home office, another entity within the corporate group,
or a third party. OSFI would expect all situations where the PO
does not have direct responsibility for a significant function (e.g.,
oversight of loan underwriting centralized at the home office) to
be documented either in written mandates/policies or service level
agreements of the FBB. Such arrangements made with the home office,
another entity within the group, or a third party would be considered
outsourcing under OSFI’s Guideline B-10 on Outsourcing
of Business Activities, Functions, and Processes. This
guideline sets out OSFI’s expectations for the management of various
types of outsourcing arrangements, including the areas to be addressed
by a written outsourcing agreement. Guideline B-10 includes specific
expectations for arrangements where the service provider is a related
party of an FBB.
While the PO may not conduct all responsibilities or activities
directly, OSFI expects the PO to retain his or her overall accountability
for the operations of the FBB. Regardless who conducts the various
functions, OSFI expects the PO to:
The PO is expected to ensure that there are robust policies and
procedures Footnote 4
to manage the assets and liabilities recorded on the FBB’s books
and records and related accounts (e.g. deposit, loan, investment,
vested in trust, etc.). With respect to assets and liabilities and
their related cash flows, OSFI expects the PO to be able, on demand,
to provide timely information on their location.
The FBB’s accounts at banks and/or trust companies should only
be accessible with the signature of the PO or his/her formally appointed
The PO should ensure the FBB is in compliance with applicable
legislation and regulations, and is conducting its business and
affairs in a manner that is consistent with applicable OSFI guidelines.
For example, OSFI would expect the PO to have ultimate responsibility
for ensuring the FBB has sufficient assets vested in trust to cover
the capital equivalency deposit and any assets required to be maintained
in Canada pursuant to section 617 of the BA. Additional information
on compliance issues can be found in OSFI’s
Guideline E-13: Legislative Compliance Management.
While the PO may delegate responsibility for day-to-day management
to others, OSFI expects the PO to be in a position to verify the
annual return. Therefore, OSFI would expect the PO to have, or to
ensure the individuals undertaking activities with respect to the
FBB have, a good understanding of applicable legislation, regulations
and guidelines, as well as the activities and related records of
the branch, including its assets, liabilities, revenues and expenses.
OSFI would also expect the PO should be satisfied with any work
performed by others (e.g., home office or another entity within
the group) and should ensure any deficiencies are corrected.
OSFI’s mandate includes the periodic examination of and inquiry
into the business and affairs of each FBBFootnote 5.
FBBs are required to maintain all records at their principal office
In addition, FBBs are required to maintain and process in Canada
information and data relating to the preparation and maintenance
of these records unless they obtain an exemption from the Superintendent.Footnote 7
OSFI’s expectations in evaluating a request for approval to process
records outside Canada are set out in Section VIII of Guideline B-10, Outsourcing of Business Activities,
Functions and Processes Footnote 8.
Furthermore, regardless of whether such an exemption has been obtained,
an FBB will continue to be required to maintain records in Canada
as specified in the Appendix.
Where processing of records related to the FBB’s business occurs
at a location other than the principal office, it is critical that
they are backed up as appropriate and provided to the FBB to ensure
that records maintained in Canada are up to date at the end of each
business day. Footnote 9
While OSFI recognizes some accounting records may only be available
on a monthly or quarterly accounting cycle, this does not override
the foregoing requirement with respect to other records.
OSFI expects records maintained in Canada will be of sufficient
Where sufficient information is not available, OSFI may request
it as necessaryFootnote 10.
The Appendix contains additional guidance with respect to the
type and form of records OSFI expects FBBs to maintain in Canada.
OSFI expects the records maintained by an FBB in Canada would
include a complete set of accounting records, ledgers, journals
and trial balances related to the FBB’s business in Canada, with
sufficient detail to understand and verify the assets, liabilities,
revenue and expenditures recorded in the regulatory returns and
to enable supervisors to assess the risk profile of the FBB. This
would be supported by supervisory access to individuals to whom
the PO may have delegated responsibility within the branch or through
an arrangement with the home office, another entity within the corporate
group, or a third party.
Records in respect of an FBB’s business that should be held pursuant
to paragraph 597(1)(b) and (c) of the BA would include:
In support of the above records, OSFI expects the FBB to maintain
the following records:
Additional records that could enable the PO to fulfill his/her
responsibilities and/or to facilitate the supervisory process of
an FBB would include:
An FBB has the option of preparing and maintaining records in
hard copy or electronically, provided that electronic records can
be reproduced, “in intelligible written form within a reasonable
period of time” Footnote 12.
OSFI would expect to be able to obtain such information without
incurring additional costs and using readily available commercial
applications. For certain types of information, such as detailed
credit files or files on more complex activities, reproduced electronic
records may not be sufficient for OSFI’s review. OSFI may request
that the hard copy, original information be available at the branch
in Canada, as needed. The FBB’s information systems should be capable
of providing appropriate reports having adequate, relevant information
for management decision-making and to provide and maintain an audit
trail to verify regulatory returns.
Pursuant to section 2 of the Bank Act (BA), an authorized
foreign bank means a foreign bank in respect of which an order
under subsection 524(1) of that Act has been made.
Return to footnote 1 referrer
Refer to OSFI’s Internet Web site at http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=526
for other guidelines.
Return to footnote 2 referrer
Pursuant to section 2 of the BA, PO in relation to an authorized
foreign bank means the person appointed under section 536. Pursuant
to subsection 536(1), an authorized foreign bank shall appoint
an employee who is ordinarily resident in Canada to be its PO
for the purposes of Part XII.1 of the BA. Pursuant to subsection
536(2), the authorized foreign bank shall provide the PO with
a power of attorney expressly authorizing the PO to receive
all notices under the laws of Canada from the Minister or Superintendent.
Return to footnote 3 referrer
It is recognized that the home office may have established
some of these policies and procedures. Where this is the case,
OSFI would expect the PO to concur with their appropriateness
and recommend amendments where necessary to suit the FBB's activities.
Return to footnote 4 referrer
Pursuant to section 613 of the BA.
Return to footnote 5 referrer
Pursuant to subsection 597(2) and (3) of the BA, authorized
foreign banks may keep records in Canada at a location other
than the principal office, so long as the Superintendent is
informed of such location.
Return to footnote 6 referrer
Pursuant to subsection 245(1) of the BA.
Return to footnote 7 referrer
See also OSFI’s Transaction Instruction DA No. 10 on “Processing
Information outside Canada” (http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guides/transaction/trans10_e.pdf)
on the OSFI’s Internet Web site.
Return to footnote 8 referrer
Downloading of records to the Canadian operation is only required
when the records have changed from the previous day.
Return to footnote 9 referrer
Section 600 and subsection 605 (1) of the BA.
Return to footnote 10 referrer
OSFI expects that these contracts will bear the signature of
the PO or a person with signing authority at the home office
to bind the FBB. A list of those persons with such signing authority
should be available at the principal office and available to
OSFI on request. Where persons at the home office enter into
contracts on behalf of the FBB, OSFI would expect the PO to
be aware of these contracts and for the FBB to maintain a copy
of these contracts at the principal office in Canada.
Return to footnote 11 referrer
Subsection 597(7) of the BA.
Return to footnote 12 referrer