On June 28, 2021, Canada's Office of the Superintendent of Financial Institutions released the final version of  Guideline E-4 on Foreign Entities Operating in Canada on a Branch Basis. The Guideline replaces outdated Guidelines  E-4A (insurance) and  E-4B (banking) and takes effect in July 2021, although there is a 6-month compliance transition period, ending in January 2022.

Changes from the Draft Guideline

The finalized Guideline incorporates a number of changes from the October 27, 2020 draft, including several substantive amendments in response to public comments:

  • While Canadian branches must still document any arrangements they have with their home offices to perform "material functions" on the branch's behalf, the Guideline no longer requires that this take the form of a service level agreement - as we noted in our earlier post, a branch and its home office are the same legal entity and thus cannot contract with one another.
  • Related to the above, transfers of funds between a Canadian branch and its home office will now require 10 business days' notice to OSFI rather than the 30 that had been proposed. While clear documentation of such transfers is required, OSFI's approval is not required.
  • With respect to record-keeping, the final version includes a new footnote clarifying that the requirement that records be "updated and accurate as at the end of each business day" is not breached when the records include accounting figures that are customarily calculated less frequently (e.g. on a monthly or quarterly basis).
  • The finalized Guideline states that, as electronic records of reinsurance arrangements or files on more complex activities may not be sufficient for OSFI's review, a branch may be required to make available an executed copy of such documents upon OSFI's request.
  • Finally, OSFI notes in its response to comments that the foreign entity can determine the composition of the management of the Canadian branch and that OSFI's expectations with respect to the roles of Chief Agent (or Principal Officer, in the banking context) are unchanged. It also clarifies that, while branch management is collectively expected to have sufficient knowledge of all applicable Canadian legislation, regulations, guidelines, etc., there are no specific expectations for individuals.

OSFI also noted in its response to comments that Guideline B-10 on outsourcing continues to apply, although it is under review. In addition, it declined to revisit Guideline E-4's expectations regarding location of records, which some commenters had criticized as inflexible and outdated, reiterating that Guideline E-4 reflects OSFI's legal interpretation of the current legislative requirements. A number of other concerns raised by commenters relating to a lack of specifics in the Guidelines (e.g. the absence of definitions of terms such as "material" and "materiality") met with the response that the Guidelines are intended to be "principles-based" and context-specific.

For a broader overview of Guideline E-4, see our previous update on the October 2020 draft, bearing in mind the changes and clarifications discussed above.

Next Steps

In connection with the release of the finalized Guideline, OSFI has also reissued, and posted on its website, other guidance documents with references removed to any requirements of Chief Agents or Principal Officers. As noted above, the requirements in the new Guideline E-4 will be enforceable as of January 2022, when the 6-month transition period ends. Canadian branches that had been waiting for the finalized version of the Guideline before taking concrete steps should now implement their plans, reflecting any adjustments required as a result of the changes described above.

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