Some of Canada's international trade agreements will create exemption for maintaining records
Legislative developments have assisted in giving clarity to the Office of the Superintendent of Financial Institutions (OSFI) Canada’s expectations relating to its Guideline E-4: Foreign Entities Operating in Canada on a Branch Basis, published in July.
The updated guidance, which is expected to be complied with by January 2022, clarifies where foreign insurance company branches may store required records, Rick Da Costa, a partner in the insurance and reinsurance group of Cassels Brock & Blackwell LLP in Toronto, told Canadian Lawyer.
It also shows a new focus on not just the branch’s chief agent in Canada but on all the persons responsible for the branch’s management, he says.
Branch management is expected to update the records regarding their business in Canada, as required by the Bank Act (BA) or by the Insurance Companies Act (ICA), and to ensure that these records are accurate and sufficiently detailed for certain specified purposes.
Branches covered under the BA must keep copies of the records either at the authorized foreign bank’s principal office in Canada, or anywhere else in Canada that the principal officer considers fit, Guideline E-4 provides, while branches under the ICA should keep copies at the chief agency of the foreign company in Canada.
Certain branches under the BA and the ICA are exempt from the requirement to keep copies of the records at the aforementioned locations, and should instead give the OSFI immediate, direct, complete and ongoing access to the records stored outside Canada.
Many branches are expected to benefit from this exemption, which will give them an opportunity to leverage their international group IT platforms to attain cost savings, said a post authored by Da Costa alongside Gordon Goodman, partner in the insurance and reinsurance group at Cassels, and Cecile McKenzie, associate in the firm’s banking and specialty finance group.
The new s. 647(4) of the ICA clarifies which of Canada’s international trade agreements would trigger the exemption, the post said. The section provides that the requirement for branches to maintain records in Canada is inapplicable, subject to the superintendent’s discretionary power under s. 268(1.1), to the following:
- branches of a foreign company incorporated or formed otherwise in a country that is a party to a trade agreement listed in Schedule IV of the BA;
- branches of a foreign company that is a subsidiary of a regulated foreign entity, which is defined as an entity that is formed in a country or territory subject to a trade agreement listed under Schedule IV and that is subject to regulation in that country or territory.
Schedule IV of the BA lists the international trade agreements that would make the exemption apply, which according to the post are the following:
- Canada-Chile Free Trade Agreement Implementation Act
- Canada–Peru Free Trade Agreement Implementation Act
- Canada–Colombia Free Trade Agreement Implementation Act
- Canada–Panama Economic Growth and Prosperity Act
- Canada–Honduras Economic Growth and Prosperity Act
- Canada–Korea Economic Growth and Prosperity Act
- Canada–European Union Comprehensive Economic and Trade Agreement Implementation Act
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation Act
- Canada–United States–Mexico Agreement Implementation Act
- Canada–United Kingdom Trade Continuity Agreement Implementation Act
The OSFI has said that records need not be maintained in any of the countries party to these listed trade agreements, when such an exemption applies, an article by Cassels said. The Office, in response to a request for clarity on data processing and on retaining records particularly relating to cloud computing, did not offer any additional direction, the article noted.
“Assumingly, this is meant to revert the question of how to engage cloud computing and cloud storage networks back to Branches, as OSFI entrusts these entities with the ability to use their own judgement to guide their continued compliance with the relevant legislation and guidance.”
