Provincially-regulated credit unions that use “bank words” to describe products or services (such as “online banking”) will be relieved to hear that the Office of the Superintendent of Financial Institutions (OSFI) has “suspended” the compliance expectations set out in the OSFI directive that we reported on in July. That directive set out OSFI’s interpretation of the Bank Act’s prohibition in section 983 against the use of bank words by non-banks, and required that non-banks, such as provincially regulated credit unions and fintech companies, cease using bank words to describe their business on websites or other electronic media by December 31, 2017, on print materials by June 30, 2018, and on physical signs by June 30, 2019.
Those compliance expectations have now been suspended, OSFI announced in a news release of August 11, 2017, pending the outcome of the second-stage consultation paper on the federal financial sector framework that was just released by the Department of Finance. In the consultation paper, the Department of Finance seeks views on several points, one which is whether prudentially-regulated non-bank deposit-taking institutions (such as credit unions) should be given flexibility to use terms such as “bank” or “banking” to describe their services. The Department of Finance has requested that submissions in response to the consultation paper be received by September 29, 2017.
This will be welcome news for credit unions. However, fintechs and other companies should note that the consultation paper does not consider relaxing the prohibition against the use of bank words by entities other than prudentially-regulated deposit-taking institutions. The prohibitions set out in section 983 of the Bank Act against the use of bank words by non-banks remain in effect.