The amendments to the Bank Act that restrict the use of the words “bank”, “banker” and “banking” (Bank Words) by non-bank entities were recently proclaimed into force and the Office of the Superintendent of Financial Institutions Canada (OSFI) has released the timelines for non-bank entities to comply with the restrictions.
On June 21, 2018, the Budget Implementation Act, 2018, No.1 (Act), received royal assent. Although only some of the provisions of the Act were proclaimed in force on that day, the in-force provisions include amendments to the Bank Act restrictions on the use of Bank Words by non-banks. Non-bank entities that do not fall within an exemption should ensure they comply with the restrictions within the timelines set by OSFI in its August 14, 2018 notice.
The new amendments were introduced following a consultation process undertaken after OSFI issued Advisory 2017-01 (Advisory) on June 30, 2017. The Advisory set out how OSFI interpreted and administered the restrictions on the use of the Bank Words and the particular exception to those restrictions that applies where the use of the Bank Words is not in relation to a financial services business For more information, see our July 2017 Blakes Bulletin: OSFI Cracks Down on the Use of the Words “Bank”, “Banker” and “Banking”. In a separate notice, OSFI set out timelines for compliance.
On August 11, 2017, the Department of Finance issued a consultation paper seeking views on whether prudentially regulated non-bank deposit-taking institutions should be afforded more flexibility with respect to the use of the Bank Words. For more information, see our August 2017 Blakes Bulletin: Back to the Future: Finance Canada Releases Second Consultation on Financial Sector Legislation. In particular, provincial credit unions were of the view that they would be placed at a competitive disadvantage if they were unable to use the Bank Words to describe their activities. Accordingly, OSFI suspended its compliance expectations pending the outcome of the consultation process.
BANK WORDS RESTRICTIONS
Section 983 of the Bank Act outlines two restrictions on the use of the Bank Words:
- Name Restriction: A non-bank entity may not acquire, adopt or retain a name, a domain name or an identifying mark that contains the Bank Words to indicate or describe a business in Canada or any part of a business in Canada.
- Business Description Restriction: A non-bank person (including an individual) may not use the Bank Words to indicate or describe a business in Canada or any part of a business in Canada, including any of its products or services or the means by which any of those products or services may be obtained. The same restriction applies to any non-bank person who, in respect of their own business, causes or authorizes another person to use the Bank Words to indicate or describe that business in Canada or any part of that business in Canada.
The amendments to the Bank Act exempt the following entities (each an exempt entity) from the Business Description Restriction, under certain circumstances:
- Corporations to which the federal Trust and Loan Companies Act applies
- Trust or loan corporations incorporated or formed by (or under) a provincial act
- Provincial credit unions
- Caisses populaires, centrals and federations
- ATB Financial
- Prescribed entities
Exempt entities may use the Bank Words to indicate or describe their business, including any of their products or services or the means by which any of those products or services may be obtained. The circumstances under which the exemptions apply are:
- Subject to the regulations, the exempt entity must disclose:
- The type of entity that it is (for example, that it is a local cooperative credit society)
- Its primary jurisdiction of regulation (for example, Ontario)
- Whether it participates in a deposit insurance system in Canada and if yes, the name of that system (for example, the Deposit Insurance Corporation of Ontario).
- The exempt entity must disclose any other prescribed information and comply with any other prescribed requirements or conditions.
As regulations have not yet been published, we do not know whether any additional entities will be prescribed for this purpose or if the exempt entities will need to meet any additional requirements or conditions, including any additional disclosure requirements. We also do not know whether any regulations will acknowledge the impracticality of some of these requirements (for example, where a Bank Word is used by an exempt entity on a billboard or other large physical signage).
UPDATED OSFI COMPLIANCE EXPECTATIONS
On August 14, 2018, OSFI re-instated the Advisory and stated that it now expects compliance with the Bank Words restrictions within the following timeframes:
- By August 31, 2019, for domain names and information contained on websites, other electronic media and in print materials.
- By August 31, 2020, for information contained on physical signage.
New impermissible uses by exempt entities prior to these dates are not prohibited by OSFI’s compliance expectations.
For further information, please contact:
Dawn Jetten 416-863-2956
Katie Patterson 416-863-2659
or any other member of our Financial Services Regulatory group.
Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.
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