The Office of the Superintendent of Financial Institutions (OSFI) has proposed revisions to Guideline A-10, the “Foreign Bank Branch Deposit Requirement”, (the Guideline), formerly known as the Capital Equivalency Deposit.  The revisions to the Guidelines address regulatory standards for authorized foreign banks’ minimum deposit to be held in trust.

The revisions include changes to the Guideline “to reflect current practices.”  A simplification of the Guideline will provide users with greater certainty and clarity of meeting OSFI’s requirements.  The second key adjustment is to the current foreign bank branches (FBB) deposit ratio calculation. Specifically, the adjustment will no longer consider off-balance sheet liabilities and will now include accrued expenses.  The current deposit ratio calculation requires a percentage of liabilities to be factored in, and the proposed changes will likely reduce the total liabilities listed by FBBs.

Also, OSFI has issued a draft of the Guideline on OSFI’s expectations for minimum deposits to be held in trust, which authorized foreign banks must maintain in respect of their business in Canada. Under subsection 534(3) of the Bank Act, every FBB must deposit unencumbered assets with an approved financial institution in Canada (the Depository) before the Superintendent will issue an Order to Commence and Carry on Business. This deposit is called a FBB Deposit (FBBD) and subsequent to the making of the Order to Commence and Carry on Business by the Superintendent, the FBB must maintain the required FBBD at all times.

Certain high-level aspects of the draft Guideline are as follows:

• Lending branches must maintain an FBBD of $100,000, and full service branches must maintain the greater of $5 million and five per cent of the liabilities of the authorized foreign bank in respect of its business in Canada.
• An application by a foreign bank to establish an FBB must contain a statement identifying the proposed Depository and the general terms and conditions of the deposit agreement.
• The assets forming the FBBD must be unencumbered and may not be used for securities lending purposes.  Where the FBB seeks to withdraw assets, the prior approval of the Superintendent is generally required unless the assets are being replaced with pre-approved assets.
• Depositories are required to provide monthly reporting statements to FBBs impacting the FBBD, including a list of liabilities as recorded by full-service branches.

The Guideline was last updated in 2002, and the revisions to the Guideline seek to ensure that OSFI’s objectives are in line with the Bank Act.  OSFI has invited comments on the Guideline until July 30, 2019.  The final Guideline is expected to be published on January 1, 2020.

The author would like to thank Vahini Sathiamoorthy, summer law student, for her contribution to this article.