The application process for establishing a federal trust and loan company in Canada involves two steps:
(A) obtaining Letters Patent of Incorporation, and
(B) obtaining an Order to Commence and Carry on Business.
The application process is quite extensive, and the Office of the Superintendent of Financial Institutions (OSFI) will evaluate a proposed incorporation against the criteria in its Instruction Guide for Incorporating Federally Regulated Trust and Loan Companies. The following is a brief description of steps involved in the application process.
(A) Letters Patent of Incorporation from the Minister of Finance
Obtaining Letters Patent of Incorporation (Letters Patent) for a new federal trust and loan company (Newco) requires the following tasks to be completed:
a) Meet with OSFI. An initial meeting or discussion between representatives of the entity applying for approval to establish Newco (the applicant) and OSFI is required in order to generally discuss plans to incorporate Newco.
b) Prepare draft application for Letters Patent. After meeting with OSFI, the applicant submits a draft application for Letters Patent (a Draft Application) to OSFI in accordance with extensive information requirements set out in OSFI guidance materials. The Draft Application must include the following information:
i) securities law filings and other information regarding the ultimate controlling shareholder;
ii) a detailed three-year business plan for Newco, containing pro-forma financial statements;
iii) information on each proposed senior officer and director of Newco;
iv) a description of the major risk management and control processes and policies for Newco;
v) a description of the internal audit and compliance management processes to be instituted at Newco; and
vi) a description of Newco’s planned computer systems, including a business continuity plan.
OSFI will review the draft application only after Newco has submitted a notice of intention to apply for Letters Patents in the Canada Gazette and may contact the applicant to discuss the completeness of the application, its status and any outstanding issues. If necessary, OSFI may request additional information to complete the application assessment.
c) Submit application fee. The regulatory fee for an application for Letters Patent is C$32,000.
d) Publish notice of intention to apply for Letters Patent and allow for any objections. A notice, satisfactory to OSFI, of the intention to apply to the Minister of Finance (Minister) for Letters Patent must be published in the Canada Gazette and in a newspaper of general circulation at or near the proposed head office of Newco once a week for four consecutive weeks. The notice should identify all significant shareholders and principal promoters.
e) Submit formal application. At this point, a formal application for Letters Patent is submitted to OSFI. This formal application includes a resolution of the board of directors of the applicant authorizing the submission of the application. It is noteworthy that a “Support Principle” acknowledgement letter will be required from the applicant, indicating that it will support the operations and capital needs of Newco.
On receipt of the Letters Patent, the applicant can incorporate a trust and loan company, although it may not carry on any business until the Superintendent of Financial Institutions (the Superintendent) has issued an Order to Commence and Carry on Business.
(B) Superintendent’s Order to Commence and Carry on Business
After the Minister issues Letters Patent, Newco must do the following to obtain an Order from the Superintendent:
a) Hold shareholder and director meetings. Newco must hold a first meeting of its shareholders and a first meeting of its directors to institute various policies and procedures, and it must provide certified minutes of those meetings to OSFI. The policies to be approved include those dealing with the following:
ii) capital management;
iii) code of conduct;
iv) compliance management;
v) conflict of interest;
vi) disclosure of information to customers and customer complaint handling;
vii) investment and lending;
x) responsible persons assessment; and
xi) systems and resumption.
b) Confirm deposit of required capital. The applicant must provide confirmation, on behalf of Newco, of a minimum deposit of C$5 million of paid-in capital, or such other amount as may be specified by OSFI.
OSFI will arrange for an onsite review before the Superintendent issues an Order, to assess the control process and management systems of Newco. OSFI places a great deal of weight on its thorough onsite review, with a goal of ensuring that Newco is well-prepared to do business immediately upon the issuance of an Order.
The Superintendent may not make an Order more than one year after the day on which the trust and loan company came into existence. Newco will be required to publish a notice announcing the making of the Order once in a newspaper in general circulation at or near its head office.
In addition to obtaining an Order, trust and loan companies should approach provincial regulators to determine licensing and filing requirements in each of the provinces and/or territories in which they wish to transact business. Applications for each such license carry specific fees payable to the relevant provincial regulator. Usually the process for making such applications begins shortly after obtaining Letters Patent, but provincial licences will be issued only following receipt of an Order.
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