From time to time the Office of the Superintendent of Financial Institutions (Canada) issues rulings on how it applies or interprets provisions of the federal financial institutions legislation, regulations or guidelines. Recently, OSFI published a ruling on whether the undertaking of certain activities in Canada in support of a foreign bank’s credit card program would cause the foreign bank to engage in or carry on, directly or through a nominee or agent, business in Canada for the purposes of Part XII of the Bank Act (Canada). The ruling provides further clarity on what a foreign bank may do in Canada without establishing a branch or subsidiary.


The ruling dealt with a foreign bank that was proposing to offer Canadian dollar corporate credit cards to the Canadian affiliates of its U.S. corporate clients. It was understood that the foreign bank did not have a office or other establishment in Canada and that it would, from outside Canada, negotiate, execute and deliver the credit card agreements. It was noted that in certain cases representatives of a Canadian affiliate would participate in the negotiations from Canada, but in all cases, the participating representatives of the foreign bank would be outside Canada. Furthermore, the foreign bank would not promote in Canada the card program and all of the decisions relating to the card program, including credit granting decisions, as well as the administration of the program, would be made outside Canada. The foreign bank proposed to enter into an arrangement with a third party Canadian credit card issuer under which the card issuer would facilitate the processing, clearing and settlement of card transactions. As a part of this arrangement, the foreign bank proposed to make deposits in accounts with the card issuer to settle its payment obligations arising from the card transactions. The foreign bank also proposed to use these accounts to receive card payments from its Canadian affiliates. In addition, the foreign bank proposed to arrange occasional visits to Canada by its representatives to explain the features of the Program to employees of the Canadian affiliates.


The Bank Act (Canada) provides that an foreign bank shall not, by itself or through a nominee or an agent, engage in or carry on any business in Canada except as permitted by Part XII of the Act. The key issue was whether the foreign bank could conduct the proposed activities without seeking approval under Part XII of the Act.


OSFI applied the traditional “doing business” test to the proposed card activities and considered the following factors to be relevant to its decision: (1) where the elements leading to the formation of the agreements would take place; (2) where the operations would be carried out; (3) where the services would be delivered and paid; (4) where the program would be marketed; and (5) the relationship between the activities in Canada and outside Canada.

OSFI concluded that the undertaking of the activities in Canada noted above in support of the card program, would not cause the foreign bank to engage in or carry on business in Canada. The services of the Canadian card issuer in respect of the foreign bank, including the provision of accounts by the card issuer, as well as the foreign bank’s occasional customer support visits, would merely be more efficient ways for the foreign bank to fulfill obligations that it undertook from outside Canada. Given that none of the activities in Canada would be separate profit-making activities of the foreign bank, OSFI stated that there was no need to examine whether the Canadian card issuer was acting as an agent or nominee of the foreign bank. Accordingly, in our view, this ruling provides more scope for foreign banks that may wish to use an agent or nominee in Canada for a business conducted ostensibly from outside of Canada.

More than one-third of all rulings issued by OSFI relate to the interpretation of Part XII of the Bank Act (Canada). In the past several years OSFI has ruled on foreign note programs, portfolio management services, foreign remittance activities, asset management services, credit card referral arrangements, and mortgage loan administration services. That so many ruling have been requested is perhaps not surprising given the global reach of an increasing number of international financial institutions and the focus of OSFI in ensuring an appropriate level of domestic presence to the extent that foreign banks are engaged in the provision of financial services in Canada. In considering whether any particular foreign bank program or activities are consistent with the requirements of Part XII of the Act, OSFI balances a number of factors, including, consumer convenience, the protection of creditors, the maintenance of a level playing field with domestic institutions and the Canadian financial system’s safety and soundness.

While the recent global financial turmoil has dampened interest in the expansion of financial services providers into a number of markets, the recognized stability of the Canadian financial system and the encouraging financial performance of the Canadian economy make Canada a logical destination for an increasing number of international financial institutions. The flexible approach shown by OSFI in the current instance should be a further encouragement for other international financial institutions to bring their innovations in financial services to the Canadian market.