CGI's board must be smiling over today's article in the Globe - sure makes the Interac move look more and more golden.
Incidentally, I didn't know how big the Republic Bank of until I saw page 2 of last week's Barron magazine. Wow!
Saturday, September 27, 1997
Door opens to foreign banks
New consumer protection rules proposed, along with capital requirements for non-Canadians to
set up branches and offices
By ALAN TOULIN
Ottawa Bureau Chief The Financial Post
The federal government proposed a broad set of new rules Friday to regulate cross-border
trade in financial services.
In a discussion paper, the Finance Department said it wants foreign financial institutions
offering loans or other banking services in Canada to be subject to consumer protection
regulations.
These rules would cover services sold by telephone, mail or advertisement, or sold on the
Internet from a foreign base.
In outlining options for regulating this trade, Finance indicated Canada may need to devise
appropriate rules. It also suggested foreign firms meet specific standards of disclosure so
consumers can be informed before doing business with foreign entities.
These proposals on the consumer front are part of a larger set of guidelines Finance published
Friday to solicit comment from foreign and domestic bankers on how foreign banks should be
treated under Canadian law.
The discussion paper will lead to legislative initiatives later this year, Finance said.
There are 42 foreign bank subsidiaries in Canada, making up 10% of the domestic banking
sector. There are also unregulated near-banks from offshore, selling services that range from
corporate lending to leasing.
The discussion paper sets out some principles Finance will use in drafting new legislation for
foreign banks.
Ottawa will let them to set up direct branches in Canada. That means U.S. and other foreign
banks can have offices in Canada without having to establish separate subsidiary companies.
Currently, foreign banks have to enter Canada as subsidiaries with their own capital base.
Established foreign banks have been pressing Ottawa for direct branch operations, arguing that will give them flexibility and let
them increase their lending capacity based on the capital of the parent bank.
A foreign bank will be allowed to operate one branch in Canada, but each branch can have several offices across the country.
Business would be conducted as it is by Canadian banks, except branches would not be allowed to take retail deposits.
The discussion paper defines a retail deposit as anything under $150,000.
A foreign branch would have to deposit $10 million or 5% of its liabilities in Canada, whichever is greater, with a Canadian
financial institution. Finance says this will be a capital equivalency rule to protect clients in the event of failures.
As well as having branches, foreign banks could continue to operate as they have been, as subsidiaries that engage in retail
banking.
Financial institutions wanting to operate near-banks for car leasing, or to sell securities or mortgages, will have to choose
between being a regulated institution, with branches and foreign subsidiaries, or stick to near-bank unregulated businesses.
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