Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptions from the dealer registration and prospectus requirements provided to permit U.S. banks 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 am., ss. 74(1), 25, 53.

March 3, 2009

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

BANK OF MONTREAL (BMO), HARRIS N.A. (HNA)

AND THE HARRIS BANK N.A. (THBNA)

(together, the Filers)

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the Registration Requirements (as defined below) and the Prospectus Requirement (as defined below) of the Legislation (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 Filers have 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);

"BMO Affiliates" means the affiliates of BMO set out in Appendix A attached to this Decision;

"Deposits" means the United States dollar deposit-taking accounts and services offered by HNA and THBNA to Canadian residents, including retail savings accounts, retail chequing accounts, individual retirement accounts (similar to RRSP accounts), certificates of deposit (similar to guaranteed investment certificates), business savings accounts, business chequing accounts and business certificates of deposit;

"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 section 53 of the OSA, and the equivalent provisions in the legislation of the 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;

"Registration Requirements" means the provisions of section 25 of the OSA, and the equivalent provisions in the legislation of the Jurisdictions, that prohibit a person or company from trading in a security, acting as an underwriter or acting as an adviser, in each case as defined in the OSA, unless the person or company satisfies the applicable requirements of section 25 of the OSA.

Representations

This decision is based on the following facts represented by the Filers:

1. BMO is a Canadian chartered bank that is listed in Schedule I to the Bank Act.

2. Each of HNA and THBNA is a United States national bank chartered under the United States National Bank Act. Each of HNA and THBNA is an indirect wholly-owned subsidiary of BMO.

3. HNA carries on the business of banking in the United States and is a national bank with trust powers. Its principal place of business is Chicago, Illinois.

4. THBNA carries on the business of banking in the United States and is a national bank with trust powers. Its principal place of business is Scottsdale, Arizona.

5. Neither HNA nor THBNA is a bank for purposes of the Bank Act and the Deposits are therefore securities for purposes of the Legislation.

6. Each of HNA and THBNA would like to offer Deposits to Canadian residents, including those Canadian residents that have been referred to it or introduced to it by BMO or a BMO Affiliate (collectively, the Canadian Clients). The offer and sale of Deposits to Canadian Clients would constitute a distribution of securities, making each of HNA and THBNA subject to the Registration Requirements and the Prospectus Requirement. In addition, the referral or introductory activities of BMO or a BMO Affiliate may constitute an act in furtherance of a trade in such securities.

7. BMO and the BMO Affiliates would refer some of its customers that indicate that they would like to have United States dollar deposits to one of HNA or THBNA. In the case of certain customers and to the extent permitted by the Bank Act, BMO and the BMO Affiliates may take a more proactive role between HNA or THBNA and its customer.

8. Customers interested in the Deposits would be provided with marketing material that describes the services that HNA or THBNA, as the case may be, provides in the United States or would be referred to HNA or THBNA, as the case may be.

9. BMO or a BMO Affiliate, HNA and THBNA, may pay and/or receive a fee in connection with the referral or introductory services described herein (the Referral Arrangement). Payments arising from the Referral Arrangements, if any, would be consistent with existing bank practices and policies associated with intercompany services. In addition, each Canadian Client that is the subject of a Referral Arrangement would be informed, prior to opening an account or making an initial Deposit, of the Referral Arrangement, including the method of calculating the fees arising from the Referral Arrangement.

10. Although neither HNA nor THBNA is a bank for purposes of the Bank Act, each of HNA and THBNA is a United States national bank under Title 12 of the United States Code and is subject to the regulation, examination and supervision of its chartering agency, the OCC, as well as the FRB.

11. Each of the OCC and the FRB are regulatory authorities created under the federal laws of the United States. 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 HNA's and THBNA'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.

12. Each of HNA and THBNA must file reports with the OCC and the FRB concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions.

13. The Deposits held by either HNA or THBNA are protected by FDIC insurance up to the applicable coverage limits under the FDIC rules, based on ownership categories. The FDIC is an independent United Stated government agency that was created by the United States Congress in 1933 to protect against the loss of insured deposits if a bank fails. FDIC insurance is backed by the full faith and credit of the United States government. HNA, THBNA and other United States federally insured depository institutions are required to pay premiums for this deposit insurance.

14. Each of HNA and THBNA is subject to a comprehensive scheme of regulation and supervision that is comparable to the regulatory framework within which Schedule I and Schedule II banks pursuant to the Bank Act are required to conduct their businesses and the supervisory responsibilities of OSFI.

15. The issuance of the Deposits by HNA or THBNA to Canadian Clients will not contravene any Canadian federal or provincial deposit-taking legislation or any provision of the Bank Act.

16. The Deposits that are purchased by Canadian Clients will be subject to the same regulation and oversight by the OCC and the FRB as Deposits that are purchased by residents of the United States.

17. Deposits purchased by Canadian Clients will remain throughout the term of such Deposits fully entitled to the benefits of applicable FDIC deposit insurance coverage as if such Deposits had been made by residents of the United States.

18. Other than in compliance with Canadian securities laws, neither HNA nor THBNA will trade in any securities other than Deposits with or on behalf of persons or companies who are resident in Canada.

19. The Deposits will be offered in compliance with the banking regulations governing HNA or THBNA, as the case may be, in the United States.

20. Except as otherwise disclosed to the principal regulator, no Filer is in default of securities legislation in any Jurisdiction.

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) each of HNA and THBNA continues to be subject to regulation, examination and supervision by the OCC and/or the FRB;

(b) the Deposits 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 Deposit;

(c) details of the FDIC insurance coverage in respect of the Deposits are disclosed to each prospective holder of a Deposit prior to trading any Deposit with the prospective holder; and

(d) each Canadian Client that is the subject of a Referral Arrangement is informed, prior to opening an account or making an initial Deposit, of the Referral Arrangement, including the method of calculating the fees arising from the Referral Arrangement, in connection with the Deposit.

"Paulette L. Kennedy"
Commissioner
Ontario Securities Commission
 
"Margot C. Howard"
Commissioner
Ontario Securities Commission

 

APPENDIX A

LIST OF BMO AFFILIATES

BMO Affiliates means:

BMO Nesbitt Burns Inc.
BMO Nesbitt Burns Ltée/Ltd
BMO Harris Investment Management Inc.
BMO Nesbitt Burns Securities Ltd.
BMO Trust Company
BMO Investorline Inc.
BMO Capital Markets Corp.
Harris Investment Management Inc.
Harris Investor Services Inc.
HIM Monegy, Inc.
Jones Heward Investment Counsel Inc.