Incorporating banks and federally regulated credit unions requires the approval of the Minister of Finance and the Office of the Superintendent of Financial Institutions (OSFI), as regulated by Part III—Incorporation and Continuance of the Bank Act. This post will look at this section of the Bank Act in-depth, relying on commentary from The 2023 Annotated Bank Act (Thomson Reuters, 2022) to assist in understanding the nuances of this process.
First, incorporating a bank in Canada requires issuing letters patent by the Minister of Finance. Described in Part I—Interpretation and Application, letters patent “in respect of an instrument authorized to be issued under this Act, means letters patent in a form approved by the Superintendent.” However, the Minister may also issue letters patent for various purposes.
The application for incorporation is to be filed with the Superintendent, and the OSFI has created the Guide for Incorporating Banks and Federally Regulated Trust and Loan Companies to assist in this process. However, the final decision on whether a bank can be incorporated or not rests with the minister, who considers many things, such as whether an applicant is “fit and proper” to own a bank, and if the incorporation is in the best interests of the financial system in Canada. The application fee is $32,000, and banks cannot carry on business—even if they have the letters patent—until it has obtained an order to commence and carry on business from the Superintendent.
This process is much the same for federally regulated credit unions. However, they have the additional requirement that applications must have at least five persons—of which a majority must be natural persons. Additionally, they must satisfy the minister’s considerations and show that the institution will be organized and operate on a cooperative basis.
Both credit unions and banks must be members of the Canadian Payments Association (CPA), which provides institution numbers for processing cheques and electronic payment transactions. Though banks are automatically members of the CPA, they must register once incorporated, and if they intend to accept retail deposits, they must also be a member of the Canada Deposit Insurance Corporation (CDIC) for insuring deposits.
Part III goes on to explore the issue of Continuance, a process through which, for instance, provincial credit unions can apply to become part of the federal credit union system, or bank holding companies can apply to become banks. To apply for a letters patent continuing the corporation as a bank under the Act requires a payment of $32,000 and is up to the discretion of the minister, as is the case with letters patent of incorporation.
To read more about how banks and federally regulated credit unions come into being, read the commentary for Part III—Incorporation and Continuance of the Bank Act in The 2023 Annotated Bank Act (Thomson Reuters, 2022).