On August 11, 2017, the Office of the Superintendent of Financial Institutions (“OSFI”) announced that it has suspended the compliance requirements on an interpretive advisory released in June 2017 that prohibits non-bank financial institutions, from using the words “bank”, “banker” and “banking”. Compliance with the advisory is suspended while input is sought in accordance with a consultation paper that was released by the Department of Finance on August 11, 2017.
The consultation paper is part of the second phase of the Department of Finance’s broader review of Canada’s federal financial sector framework. According to the consultation paper, one item that will be reviewed is the limitations the Bank Act currently imposes on the use of banking terminology by prudentially regulated financial institutions, (meaning provincial credit unions and trust and loan companies). This review comes at least in part due to the concerns of provincial credit unions. The paper acknowledges the concerns of provincial credit unions that they would be competitively disadvantaged by an inability to use banking-related terms to describe their business activities. The consultation paper also highlights a continued need to place limits on the use of these terms; it states there is a need to ensure members of the public are protected and that the public must not be given the mistaken impression that they are dealing with a bank in circumstances when they are not.
The release of the consultation paper comes at a good time for credit unions. The Bank Act’s restrictions on the use of the terms “bank”, “banker” and “banking” have been around for a long time; however, historically the restrictions have not been enforced against credit unions. Thus, certain banking terminology has become an integral part of the terminology surrounding performing financial transactions at credit unions. Compliance with OSFI’s recent interpretation advisory would have a major impact on provincial credit unions, who would be required to adopt new terminology, alter their websites, and in many cases change their slogans and physical signage.
It remains to be seen how the Bank Act will change as a result of this consultation paper, if at all. However, change to the legislative regime that loosens the restrictions on use of the terms “bank” and “banking” may be an ideal solution for provincial credit unions, and not an unrealistic one. The Department of Finance and OSFI’s concern over the use of banking terminology stems from the aim of protecting the public. Provincial credit unions are already subject to stringent regulation and must include the words “credit union” in their name. Thus, there are already comprehensive measures in place to protect the public and avoid confusion over the type of financial institution with which a customer is dealing. This is bolstered by the fact that federally incorporated credit unions are free to use banking terminology, as they are deemed to be banks under the Bank Act.
Although the OSFI advisory’s interpretation of the current legislation is likely technically correct, there is a strong argument that provincial credit unions should have been specifically exempted from the advisory in the first place, and should be exempted going forward.
It will be interesting to see the Department of Finance’s ultimate recommendations for the financial sector, as it will likely receive varied submissions from interested parties and lobbies advocating for and against change. Equally interesting will be how OSFI decides to proceed based on the Department of Finance’s final report. For now, though, the OSFI advisory remains in place, but suspension of the compliance portion means that credit unions have a reprieve from the impending requirement to make costly alterations and reinvent the vocabulary describing their businesses.
Interested parties can read the Department of Finance’s consultation document on their website, and can submit comments until September 29, 2017.