Trump Fact Check on US Banking in Canada: 

This week Trump made an accusation on social media that “Canada doesn’t even allow U.S. Banks to open or do business there.” 

 

US subsidiaries and branches represent half of all foreign bank assets in Canada, once fact checked with the Association representing bankers in Canada.

  

There are 16 US based bank subsidiaries and branches with around $113 billion in assets currently operating in Canada.  These banks specialize in a range of financial services, including corporate and commercial lending, treasury services, credit card products, investment banking and mortgage financing.  They serve cross-border business activities, but also the domestic retail market.

 

Canada’s Federal Bank Act has for years regulated how Canadian and foreign banks operate and conduct business: 

Under the Canadian Bank Act, there are several key provisions that govern how foreign banks, including American banks, can operate in Canada. The rules are designed to ensure that foreign banks comply with Canadian regulations while maintaining the stability of Canada’s financial system. Here’s an overview of the main rules and requirements for American banks (and other foreign banks) to conduct business in Canada: 

1. Establishing a Branch or Subsidiary 

American banks wishing to operate in Canada have two primary options: 

• Branch: An American bank can establish a branch in Canada, but it must comply with Canadian regulations and may need to maintain a certain level of capital in the country. 
• Subsidiary: Alternatively, an American bank can establish a subsidiary that is a separate legal entity incorporated in Canada. This subsidiary must follow all the same regulations as Canadian banks, including capital requirements and supervision by the Office of the Superintendent of Financial Institutions (OSFI). 

2. Licensing and Registration 

American banks wishing to establish a branch or subsidiary in Canada must be granted permission by the Office of the Superintendent of Financial Institutions (OSFI), which regulates the financial industry in Canada. OSFI will assess factors such as the foreign bank’s financial strength and regulatory history to determine eligibility. 

3. Capital Requirements 

Foreign banks that operate branches in Canada must maintain certain capital reserves, which are subject to OSFI’s oversight. The capital requirements are generally aligned with the standards set by the Basel III international banking regulations, which aim to enhance the stability of the global financial system. 

4. Compliance with Canadian Laws 

Foreign banks must comply with Canadian laws, including: 

• Anti-Money Laundering (AML): Foreign banks must comply with Canadian regulations for preventing money laundering and terrorist financing, which are overseen by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). 
• Consumer Protection: Foreign banks must follow Canada’s consumer protection rules, including requirements for clear disclosure of terms and conditions on financial products and services. 
• Privacy Regulations: Foreign banks must adhere to Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA), which governs the collection and use of personal data. 

5. Operational Restrictions 

• Limited Activities: Foreign banks operating in Canada may be restricted to certain activities, such as operating in specific provinces or offering specific types of financial products. For example, they may not be able to offer the same services as domestic banks, like holding deposits from Canadian citizens in some cases. 
• Deposit Insurance: Foreign branches are typically not eligible to participate in Canada’s Canada Deposit Insurance Corporation (CDIC), which insures deposits at Canadian banks. As a result, depositors at a foreign branch may not be covered by deposit insurance. 

6. Supervision and Regulation 

The OSFI supervises all banks operating in Canada, including foreign banks. Foreign branches are subject to the same regulatory supervision as Canadian institutions in many respects, including stress testing, audits, and risk management practices. The Canadian regulatory framework also monitors the foreign parent institution to ensure it is financially sound. 

7. Taxation 

Foreign banks operating in Canada are subject to Canadian tax laws, which may differ from those in their home country. These banks are required to file taxes on any income they earn in Canada, and they may also need to follow specific tax rules regarding cross-border transactions. 

8. Acquisitions and Mergers 

If an American bank seeks to acquire a Canadian bank or merge with one, it must adhere to the Investment Canada Act and receive approval from Canadian authorities. This act evaluates whether the acquisition is likely to result in a "net benefit" to Canada. 

9. Currency and Payments 

Foreign banks that wish to offer services such as foreign exchange or cross-border payments must also comply with Canada’s financial market regulations, including those related to the Bank of Canada and other market participants. They may be subject to additional reporting requirements, especially in cases of large international money transfers. 

Conclusion 

American banks can operate in Canada, but they must comply with a set of regulations designed to protect Canadian consumers, ensure financial stability, and maintain the integrity of Canada’s financial system. These regulations govern the structure of the bank (branch vs. subsidiary), capital requirements, consumer protection, and operational conduct. 

 

The process of entering the Canadian market requires careful adherence to both Canadian federal laws and international banking standards. If an American bank wishes to establish a presence in Canada, it is crucial to work with legal and regulatory experts familiar with both the Canadian Bank Act and the relevant Canadian financial laws.