On June 30, 2017, the Office of the Superintendent of Financial Institutions (“OSFI”) issued Advisory 2017-01 (the “Advisory”) providing additional guidance on its interpretation of the limitations in the Bank Act (Canada) (the “Bank Act”) on the uses of the words “bank”, “banker” and “banking” and related exceptions.
Section 983 of the Bank Act provides that, subject to very limited exceptions, a non-bank entity that acquires, adopts or retains a name that includes the word “bank”, “banker” or “banking”, either alone or in combination with other words, to indicate or describe a business in Canada or any part of a business in Canada, without being authorized to do so under the Bank Act or any other Act of Parliament, is guilty of an offence under the Bank Act. The Advisory is intended to provide clarification on OSFI’s interpretation of this Section.
In conjunction with issuing such Advisory, OSFI noted that it “has observed increased use of the words “bank”, “banker” and “banking” by non-bank financial service providers. OSFI is issuing the Advisory to provide clarity regarding its interpretation of the restrictions and the exception mentioned above. The restrictions apply to all non-bank financial service providers, including both federally regulated trust and loan companies and provincially regulated institutions. They also apply to unregulated financial service providers.”
This is not the first time that OSFI has considered Section 983. In 2004, OSFI issued Ruling 2004-8 concluding that a not-for-profit entity that, as part of its investment activities, provides equity and debt financing (“merchant banking activities”), would be precluded by virtue of Section 983 from adopting a name that included the word “ bank” and its French-language equivalent “banque”, and using those words to describe its merchant banking activities. More recently, in March 2015, OSFI issued a Warning Notice in respect of oneBANK/ Edgewood Bank of Canada/ Edgewood Banque du Canada, advising the public that this entity was not a bank, was not regulated by OSFI and had not applied to OSFI to incorporate as a bank or incorporate a bank.
Interpretation of s. 983
The Advisory clarifies OSFI’s views on the meaning of the words “to indicate or describe” in the Section as meaning “that could reasonably suggest to the public the nature of the entity’s business (or any part of its business)”. The Advisory lists specific examples of phrases that, when used in connection with a business or any part of a business in Canada (including in a logo, slogan or advertisement), would be viewed by OSFI as contravening s. 983 when used by a non-exempt entity. These examples are broad and include “…for all your banking needs”, “come do your banking with us”, “bank at your convenience” and “welcome to Canada’s newest online bank”. In addition, advertising under the “banks” heading of a Canadian directory by a non-bank would also contravene the provision. The restrictions apply regardless of the medium being used, including webpages, web addresses, apps, signage, print and radio.
The Advisory also provides further guidance on OSFI’s interpretation of the words “a business” under the Section, which OSFI interprets as meaning “the carrying on of a serious occupation” and including a not-for-profit entity.
Non-Financial Activity Exception to s. 983
One of the exceptions to Section 983 is set out in Section 983.5.1, which provides an exception “if the activity referred to in that subsection is in relation to a business that is not engaged in financial activities unless the business is carried out by a prescribed entity.” Prescribed entities are listed under the Use of the Word “Bank” by Non-financial Businesses (Excluded Entities) Regulations and include for example non-bank provincially and federally regulated financial institutions (credit unions, trust companies, etc.) and foreign banks. As a result, prescribed entities are not permitted to use the word “bank” in relation to a non-financial services business, such as a “gene bank”. Conversely, an entity that is not a prescribed entity, could use the words “food bank” in describing a business that collects and distributes food, but would be prohibited from using the word “bank” to describe a business that includes any financial activities, such as providing financing or carrying out financial transactions.
While the Advisory is effective immediately, OSFI specified that it expects non-banks to ensure that they are in compliance with s. 983 by no later than (i) December 31, 2017 in the case of information contained on websites or other electronic media, (ii) June 30, 2018 for information contained on print materials, and (iii) June 30, 2019 for information contained on physical signage.