Chapter 3 (g) : Financial Services


Improvements Implemented Since Last IAP

Current Entry Requirements

Further Improvements Planned


Operational Requirements




In October 2002 the Government asked the House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce to provide their views on the major considerations that should be borne in mind by the Minister in determining whether a bank merger proposal is in the public interest. During the course of the hearings of the two committees, witnesses addressed the public interest factors, as well as other broader issues, and the committees’ reports have provided valuable advice to the Government in respect of those issues.

The government released a response to the reports of these committees, which can be found at:



The Canadian regulatory regime for financial services is open and transparent with no federal-level restrictions on foreign ownership.


In Canada there are three classes of banks, based on size of equity, for the purposes of determining ownership restrictions: small (less than Can$1 billion), medium (Can$1billion-Can$5 billion) and large (greater than Can$5 billion).  Large banks must remain widely held (investor, whether Canadian or foreign, may own up to 20% any class of voting shares and 30% any class non-voting shares). Medium size banks are allowed to be closely held, but must have a public float of 35% of voting shares. Small banks may be wholly owned by a single shareholder.


The widely held rule means that, in practice, control of a large Canadian bank cannot be acquired by a single entity. 


Life insurance and non-life businesses must be carried on in separate companies.


Public consultations regarding merger policy and the other broader issues raised during the public hearings will continue throughout 2003.  Revised merger review guidelines and government policy on the other broader issues will be released in June 2004.  Applications for mergers between large institutions will only be accepted as of October 1, 2004, three months after the revised guidelines have been released.  Further information can be found on the Department of Finance website at:


Licensing and

Qualification Requirements of Service Providers





For information on federal licensing and qualification requirements of service providers, please refer to the web-sites for the Office of the Superintendent of Financial Institutions at:

and the Department of Finance at:



Foreign Entry





The foreign bank entry framework offers regulated foreign banks considerable flexibility to provide financial services in Canada.  They may choose to do so through Canadian financial institutions (subsidiaries), regulated foreign bank branches, or unregulated financial services entities.  As well, a foreign bank may establish more than one bank or more than one branch in Canada.  They are allowed to own both wholesale and retail banks and full-service and lending branches.  As well, foreign banks are permitted to own the same range of investments as Canadian banks.


Ministerial approval is required on entry and additional approvals are only required to the same extent they are required for Canadian banks.

The test for determining whether a foreign bank is “regulated” or “near” is set out in federal legislation (the Bank Act, as amended by the FCAC Act). In broad terms, the Act creates three categories of foreign banks.  The first of these is commonly known as a near bank, meaning an entity that falls within the definition of a foreign bank for the purposes of the Bank Act but would not otherwise be considered a regulated bank.  Regarding regulated banks, there are two types: The first is a regulated foreign bank that wishes to carry on commercial activities in Canada.  The second is a regulated foreign bank that wishes to offer financial services in Canada.  Different rules of conduct are provided for each category of foreign bank within the Bank Act.


The foreign bank branching legislation and its related regulations came into force in June 1999.  The foreign bank branching rules do not affect the conditions of operation of a foreign bank subsidiary.  Foreign banks are permitted to establish a bank branch under the Bank Act provided that the foreign bank is sufficiently regulated in its home jurisdiction (i.e., an authorized foreign bank).  The branching regime permits foreign banks to directly undertake lending activities in Canada without establishing a fully-capitalized subsidiary.


Specifically, the rules state that an authorised foreign bank can establish two types of bank branches: (1) a full-service bank branch which cannot accept deposits in amounts less than $150,000 and payable in Canada unless the sum of all deposits below $150,000 amounts to less than one percent of total deposits payable in Canada or the deposits are taken from a sophisticated investor (e.g., Canadian federal or provincial governments, foreign governments, international development banks, financial institutions, certain pension and mutual funds and large businesses); or (2) a lending bank branch which may not take any deposits.  A lending bank branch can only borrow money from financial institutions.  These restrictions are in place so as to minimize the level of regulation imposed on foreign bank branches.


The branching rules are set out under the title of Authorized Foreign Banks in Part XII.1 of the Bank Act.  They are supplemented by regulations and guidelines developed by the Office of the Superintendent of Financial Institutions (OSFI), which can be found on its website (


In the case of both life and non-life insurance services, foreign companies may establish as a subsidiary, a branch, or acquire an existing Canadian enterprise subject to certain restrictions.


A foreign property and casualty insurance company must have assets of at least Can$200 million, with a minimum capital and surplus margin of 20% of assets.  A foreign life insurance company must have assets of Can$1 billion and minimum capital and an appropriate surplus margin of between 5% and 10% of liabilities.  Furthermore, a foreign insurance company wishing to insure risk in Canada must maintain assets vested in trust in a Canadian financial institution.  The applicant must vest in trust assets having a prescribed value as set out in regulations and such other amounts as may be required by OSFI for prudential reasons.  These other amounts are determined on a case-by-case basis.



As part of the Government’s response to issues raised in the aforementioned review of bank merger policies, it is considering other key policy issues relating to the financial sector.  These include limitations on foreign bank branch retail deposit taking.  Specifically, the Government is presently seeking public input on the following questions:

“Is the restriction on foreign banks that choose to operate directly through a branch, rather than a Canadian subsidiary, from taking retail deposits a practical constraint and is it necessary on policy grounds? Should removal of such a condition be done unilaterally or should the Government seek to do it on a reciprocal basis only if other countries have similar rules?”


Discriminatory Treatment/






For a detailed list of market access and national treatment exceptions, including those at the sub-federal level, please refer to Canada's GATS Schedule for Financial Services.  Restrictions to MFN can be found in Canada’s List of Article II (MFN) Exceptions for Financial Services.