Written By Simon Grant and Joseph S.L. Viscomi
Companies that provide financial services in Canada, including fintech companies and credit unions, should be aware of a provision in the federal Bank Act that restricts their ability to use words such as "bank", "banker" or "banking" in their name or in advertisements.
The Canadian banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) has observed increasing misuse of these words by non-bank financial service providers. In an advisory OSFI issued last week, OSFI sets out its view of when the use of the words "bank", "banker" or "banking" in the description of corporate relationships or marketing of financial services does not contravene the Bank Act. The advisory takes effect immediately and requires that non-bank entities completely phase out the misuse of these "bank words" on their signage, webpages, radio ads and print in stages over the next two years.
Bank Act Prohibition
The restriction against non-bank entities using banking words existed prior to the advisory. Section 983 of the Bank Act prohibits a non-bank entity from adopting a name that includes the words "bank", "banker" or "banking" to indicate or describe a business in Canada or any part of a business in Canada. A non-bank entity for this purpose would include corporations, federally and provincially regulated trust and loan companies as well as other federal and provincial institutions. Section 983 includes a limited exception to the prohibition for businesses that are not engaged in financial activities such as a "food bank". Under the Bank Act, a person who is found guilty of using bank words in contravention of Section 983 could be liable for fines or even imprisonment, and an entity could be liable for fines of up to $5,000,000.
Effect of New Advisory
The advisory clarifies the meaning of the phrase "to indicate or describe" a business and advises that OSFI may now interpret this phrase more broadly than it has previously as including any use of such bank words "that could reasonably suggest to the public the nature of the entity's business (or any part of its business)". Examples are provided in the advisory of word combinations that may contravene Section 983 including "Co-Operative Banking", "Own your own bank", "Mobile Banking" and "For all your banking needs". The restriction applies to the use of "bank words" in web pages, apps, signage, print, radio or any other medium.
The advisory also provides OSFI's interpretation of the phrase "a business" which has been interpreted as meaning "the carrying on of a serious occupation", indicating that not-for-profit entities would be subject to the restrictions set out under the Section 983.
While the advisory takes effect immediately, OSFI indicates that non-bank financial service providers who have been contravening Section 983 (perhaps without being aware of it) may require time to comply with the restrictions and that certain adjustments may require a longer transition period. As a result, OSFI has issued an implementation timeline based on the medium of the contravening information. Materials contained on websites or other electronic media must be compliant no later than December 31, 2017. Information contained on print materials must be compliant no later than June 30, 2018, and information on physical signage must be compliant no later than June 30, 2019.
OSFI has considered the application of Section 983 previously. In its 2004-08 Ruling issued, OSFI concluded that a not-for-profit entity conducting merchant banking activities would not be permitted to adopt a company name that included the word "bank". More recently, in 2015, OSFI issued a Warning Notice advising the public that an entity conducting business as oneBank/Edgewood Bank of Canada was not a bank, despite its name.