Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemptions from applicable registration and prospectus requirements provided to permit U.S. bank to offer U.S. dollar deposit accounts and services to Canadian residents, including those Canadian residents that have been referred or introduced by a related Canadian bank. Statutes Cited Securities Act, R.S.O. 1990, c.S.5, as amended ss. 74(1), 25, 53.
November 12, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION
OF ONTARIO (the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
RBC BANK (GEORGIA), N.A. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from (i) the Prospectus Requirement in respect of deposit-taking activities with Canadian residents; and (ii) the Registration Requirements in respect of deposit-taking activities with Canadian residents (collectively, the Exemptions Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
In this decision, the following additional terms have the following meanings:
"Bank Act" means the Bank Act (Canada);
"FDIC" means the United States Federal Deposit Insurance Corporation;
"FRB" means the United States Federal Reserve Board;
"OCC" means the United States Office of the Comptroller of Currency;
"OSA" means the Securities Act (Ontario);
"OSFI" means the Office of the Superintendent of Financial Institutions;
"Prospectus Requirement" means the provision of subsection 53(1) of the OSA, and the equivalent provisions of the securities legislation in the non-principal jurisdictions, that prohibits a person or company from trading in a security unless the person or company satisfies the requirements of section 53 of the OSA;
"RBC" means Royal Bank of Canada;
"RBC Georgia" means RBC Bank (Georgia), N.A.;
"Registration Requirements" means the provisions of section 25 of the OSA, and the equivalent provisions in the securities legislation in the non-principal jurisdictions, that prohibits a person or company from engaging in the business of trading in a security, acting as an underwriter or engaging in the business of advising anyone with respect to investing in, buying or selling securities, in each case as defined in the OSA, unless the person or company satisfies the applicable requirements of section 25 of the OSA (and the equivalent requirements in the securities legislation in the non-principal jurisdictions); and
"US Deposit Accounts" means the United States dollar deposit-taking chequing and savings accounts issued by RBC Georgia.
Representations
This decision is based on the following facts represented by the Filer:
RBC is a Schedule I Bank under the Bank Act.
RBC Georgia is a direct wholly-owned subsidiary of RBC and is a United States national bank chartered by the OCC under the United States National Bank Act.
RBC Georgia is the surviving entity of a merger between RBC Bank Georgia, a Georgia chartered limited purpose credit card bank, and First Gulf Bank, N.A., a national banking association. First Gulf Bank, N.A. was chartered on August 30, 1985, and was acquired by RBC as part of RBC Centura Banks, Inc.’s acquisition of Alabama National BanCorporation in 2008. RBC Bank Georgia was merged with and into First Gulf Bank, N.A. in 2009, with First Gulf Bank, N.A. surviving, being renamed RBC Georgia. From 2009 to 2012, RBC Georgia engaged solely in the offering of credit card products and services primarily for customers of its sister bank, RBC Bank (USA), formerly named RBC Centura Bank. On February 17, 2012, RBC Georgia expanded its business to offer U.S. retail banking products and services to RBC cross-border and U.S. wealth management customers, including the taking of retail bank deposits. RBC Bank (USA) was subsequently sold to The PNC Financial Services Group, Inc. on March 2, 2012. Prior to the sale, RBC Georgia acquired approximately 165,000 US Deposit Accounts from RBC Bank (USA) on February 17, 2012.
RBC Georgia currently carries on the business previously carried on by RBC Bank (USA) and is engaged in the business of banking in the United States and offers retail deposits, and retail credit products and services, including credit card and mortgage lending to Canadian cross-border clients across the United States.
RBC Georgia’s head office is located in Atlanta, Georgia and its management team is located primarily in Raleigh, North Carolina.
As at December 31, 2012, RBC Georgia had assets of approximately US$2.972 billion.
The primary federal regulator of RBC Georgia is the OCC. RBC Georgia is also a member of the US Federal Reserve System and subject to the regulatory oversight of the FRB. Each of the OCC and the FRB is a regulatory authority created under the federal laws of the United States.
RBC Georgia is subject to continual, ongoing bank supervision, examination and audits by the OCC. RBC Georgia must file periodic reports with the OCC and the FRB concerning its activities and financial condition. In addition, RBC Georgia must obtain regulatory approvals from the OCC prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions. The OCC has been granted extensive discretionary authority to assist it with the fulfillment of its supervisory and enforcement obligations. It exercises this authority for the purpose of conducting periodic examinations of RBC Georgia’s compliance with various regulatory requirements, including minimum capital and consumer disclosure requirements, and to establish policies respecting the classification of assets and the establishment of loan loss reserves for regulatory purposes.
As result, RBC Georgia is subject to a comprehensive scheme of regulation and supervision in the United States which it believes is comparable to the regulatory framework governing Schedule I and Schedule II banks pursuant to the Bank Act and the supervisory responsibilities of OSFI.
In addition, deposits held by RBC Georgia are insured by the FDIC under the United States Federal Deposit Insurance Act, as amended, and the regulations promulgated thereunder, for up to US$250,000 at this time per depositer (deposits owned by the same depositer may be combined for purposes of calculating this limit). RBC Georgia and other United States federally insured depository institutions are required to pay premiums for this deposit insurance. The FDIC deposit insurance is guaranteed by the United States Treasury Department.
RBC Georgia would like to offer US Deposit Accounts and related services to Canadian residents (Canadian Customers).
RBC Georgia would market the US Deposit Accounts in the United States. The US Deposit Accounts would be marketed in Canada by RBC to RBC’s Canadian Customers, including through RBC’s Canadian bank branches and through RBC’s internet sites. In addition RBC Georgia may market the US Deposit Accounts in Canada.
In addition, RBC employees may take clerical steps to facilitate the opening of the US Deposit Accounts in the United States by Canadian Customers (the Administrative Activities) which would be operational and administrative in nature, including providing Canadian Customers who wish to open a US Deposit Account with the applicable account document or referring them to the RBC Georgia sales team.
RBC may also, to the extent permitted by the Bank Act, engage in further referral activities or may in the future take a more proactive role in RBC Georgia’s relationship with its customers, and may receive compensation or pay its employees compensation for such activities (Referral Arrangement). Any such compensation arrangements would be consistent with RBC’s then existing bank policies and practices regarding intercompany services. In addition, RBC Georgia or RBC would disclose the Referral Arrangement, including the method of calculating any fees arising from such Referral Arrangement, to the Canadian Customer prior to the opening of a US Deposit Account.
Although RBC Georgia is a direct subsidiary of RBC that is engaged in the business of banking in the United States, it is not a Schedule I, Schedule II or Schedule III bank for purposes of the Bank Act, and the US Deposit Accounts are therefore securities for purposes of the Legislation.
The offering of the US Deposit Accounts by RBC Georgia to Canadian Customers in Canada would constitute a distribution of securities that would be subject to the Prospectus Requirement and would constitute the business of trading in, and advising on, securities and acting as an underwriter, which would cause RBC Georgia to be subject to the Registration Requirements.
The US Deposit Accounts will be issued in compliance with applicable US law, including applicable anti-money laundering and consumer protection legislation.
The US Deposit Accounts will be insured by FDIC for up to the applicable FDIC deposit coverage amount.
The US Deposit Accounts offered to Canadian Customers will not contravene any Canadian federal or provincial deposit-taking legislation or any provision of the Bank Act.
The US Deposit Accounts that are offered to Canadian Customers will be subject to the same regulation and oversight by the OCC and FRB as US Deposit Accounts that are offered to residents of the United States.
Other than in compliance with Canadian securities laws, RBC Georgia will not trade in any securities other than US Deposit Accounts with or on behalf of persons or companies who are resident in Canada.
To the knowledge of the Filer, the Filer has not been in default of securities legislation in any Jurisdiction other than in respect of certain inadvertent activities described in paragraphs 3 and 4, above.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that at the relevant time that such activities are engaged in:
(a) RBC Georgia continues to be subject to regulation, examination and supervision by the OCC and/or the FRB;
(b) the US Deposit Accounts are insured by the FDIC up to the applicable coverage limits under the FDIC rules, regardless of the residence or citizenship of the holder of a US Deposit Account;
(c) the details of the FDIC insurance coverage in respect of the US Deposit Accounts are disclosed to each prospective holder of a US Deposit Account prior to the opening of the US Deposit Account; and
(d) prior to the opening of the US Deposit Account or the making of an initial deposit therein, RBC Georgia or RBC would inform the Canadian Customer of any Referral Arrangements between RBC Georgia and RBC relating to the US Deposit Account, including the method of calculating the fees received by RBC, if any, arising from such Referral Arrangement.
“Deborah Leckman” “James Turner”
Commissioner Vice-Chair
Ontario Securities Commission Ontario Securities Commission