The Northern Trust Company
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptions from applicable registration and prospectus requirements provided to permit a U.S. bank to distribute fixed and variable term deposits issued by the bank's London branch to Canadian residents, including those Canadian residents that have been referred or introduced by the bank's Canadian branch.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 74(1), 53, 25.
March 3, 2025
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 THE NORTHERN TRUST COMPANY (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) for exemptions from the dealer registration requirement and prospectus requirement in respect of the fixed and variable term deposits to be distributed by the Filer through London Branch (as defined below) with Canadian Residents (as defined below) and from the dealer registration requirement in respect of the Marketing and Administrative Activities (as defined below) of the Filer through the Canada Branch (as defined below) with Canadian Residents in connection with the fixed and variable term deposits (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 subsection 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);
Canadian Residents means institutional investors that are resident in Canada and that are "accredited investors", as such term is defined in section 1.1 of National Instrument 45-106 -- Prospectus Exemptions and, in the case of persons resident in Ontario, section 73.3(1) of the Securities Act (Ontario);
FCA means the Financial Conduct Authority of the United Kingdom;
FDIC means the United States Federal Deposit Insurance Corporation;
FRB means the United States Board of Governors of the Federal Reserve System;
FSCS means the Financial Services Compensation Scheme;
IDFPR means the Illinois Department of Financial and Professional Regulation, Division of Banking;
OSFI means the Office of the Superintendent of Financial Institutions; and
PRA means the Prudential Regulation Authority of the United Kingdom.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a bank chartered under the laws of the state of Illinois and is subject to regulation, examination and supervision by the IDFPR. The Filer is also a member of the U.S. Federal Reserve System and subject to regulation, examination and supervision by the FRB. The head office of the Filer is located in Chicago, Illinois.
2. The Filer carries on its banking business in the United States and in certain non-U.S. jurisdictions, including Canada and the United Kingdom, through bank branches authorized under applicable regulatory regimes in those jurisdictions.
3. The Filer's London branch is authorized and regulated by the PRA and regulated by the FCA (the London Branch). The London Branch's head office is located at 50 Bank Street, Canary Wharf, London, E14 5NT, United Kingdom.
4. The Filer's Canadian branch, The Northern Trust Company, Canada Branch, is an authorized Schedule III bank under the Bank Act (the Canada Branch). The Canada Branch's principal office is located at 145 King Street West, Suite 1910, Toronto, Ontario M5H 1J8.
5. The Canada Branch provides asset servicing solutions to public pension funds, corporate pension plans, multi-employer pension plans, family offices, endowments & foundations, insurance and fund managers. The asset servicing solutions include trust and custody services. Examples of such services include settlement, derivatives processing, reporting and valuation, performance analytics, securities lending, and acting as an institutional transfer agency. As part of the services offered, the Canada Branch provides deposit-taking activities to its Canadian clients.
6. Other than activities carried on by the Canada Branch and limited foreign exchange trading activity with institutional clients carried on by the Filer, the Filer does not currently provide any services in any province or territory of Canada, but it proposes to offer, through the London Branch, fixed or variable term deposits (the Deposits) to Canadian Residents and related administrative services in connection with the offering and accepting Deposits to Canadian Residents.
7. The Filer is an Illinois chartered bank and subject to regulation, examination and supervision by the FRB, its primary federal regulator, and IDFPR. The Filer is also subject to regulation by the FDIC and subject to supervision and examination by the FDIC in its capacity as the backup supervisor for FDIC-insured institutions, such as the Filer. Each of the FRB and the FDIC is a regulatory authority created under the federal laws of the United States, and the IDFPR is a regulatory authority created under the state laws of Illinois.
8. The FRB and IDFPR have each been granted extensive authority to assist it with the fulfillment of its supervisory and enforcement obligations. The FRB and IDFPR exercise such authority for the purpose of conducting periodic examinations of the Filer's compliance with various regulatory requirements, including capital requirements, and to establish policies and other guidance respecting the classification of assets and the establishment of loan loss reserves for regulatory purposes. In addition, the FDIC reviews and assesses the Filer's resolution plan required pursuant to FDIC regulations.
9. The Canada Branch is a Schedule III Bank under the Bank Act and is authorized as a full-service foreign bank branch. As a result, the Canada Branch is subject to extensive governance expectations and regulatory oversight by, in particular, OSFI.
10. The London Branch has been authorized and regulated by the PRA and regulated by the FCA to conduct deposit-taking activities in the United Kingdom since December 1, 2001 only from eligible counterparties and professional clients, which does not include retail clients. The PRA and FCA exercise broad supervisory and disciplinary powers that include the power to revoke temporarily or permanently authorization to conduct a regulated business upon breach of the relevant regulations, impose capital requirements, suspend registered employees, and impose censures and fines on both regulated businesses and their regulated employees.
11. The London Branch is subject to continual, ongoing bank supervision, examination and audits by the PRA, including the PRA's capital adequacy and large exposure requirements. The London Branch is required to maintain capital resources which are commensurate with the nature and scale of business and with the risks that are inherent in the business, which must not be less than €5 million. The London Branch is required to prepare and file with the PRA prescribed consolidated capital adequacy information on a semi-annual basis and annual audited financial statements within 3 months of its financial year end. In addition, the London Branch is required to report quarterly any exposures in excess of its Large Exposure Capital Base (LECB) to the PRA. Any potential exposure greater than 25% of LECB or above £130 million, must be reported without delay to the PRA which may, where the circumstances warrant it, allow a limited period of time in which to comply with the limit.
12. In addition, the London Branch is required to comply with FCA supervision and record-keeping requirements to ensure that the London Branch maintains adequate books and records, including accounting records, in respect of all aspects of the London Branch's business including any off-balance sheet or agency/arranger business.
13. The Filer and its branches are regulated on a consolidated basis by the FRB and, accordingly, the London Branch is regulated by the PRA and FCA and indirectly by the FRB as a result of being a branch of the Filer.
14. As a result, the Filer is subject to a comprehensive scheme of regulation and supervision in the United States which the Filer 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, and the London Branch is subject to a comprehensive scheme of regulation and supervision in the United Kingdom which the Filer believes is comparable to the regulatory framework governing Schedule III banks pursuant to the Bank Act and the supervisory responsibilities of OSFI.
15. In addition, the UK has, through the FCA, established the FSCS to compensate customers of insolvent authorized banks. The FSCS provides compensation to the customers of a bank that is authorized to accept deposits by the PRA and FCA if and when the bank becomes insolvent. In order to qualify for such compensation, a customer must meet Financial Services Compensation Scheme Limited eligibility requirements, which generally require the customer to be a private individual or a prescribed form of small business. The FSCS protects up to £85,000 per eligible customer, across all accounts held within the bank or banking group.
16. The London Branch would solicit Deposits from Canadian Residents.
17. Canada Branch employees may take clerical steps to facilitate the Deposits in the United Kingdom by Canadian Residents (the Administrative Activities) which would be operational and administrative in nature, including providing Canadian Residents who wish to purchase a Deposit with the applicable account document or referring them to the London Branch sales team and by arranging contracts between clients of the Canada Branch and appropriate personnel at the London Branch. In addition, the Canada Branch employees may market the Deposits by referring to the availability of the Deposits to Canadian Residents in conversations, at conferences on inquiry, in RFP responses if prompted by a potential client (the Marketing Activities, together with the Administrative Activities, the Marketing and Administrative Activities). No referral fee or other compensation will be paid to the Canada Branch or its employees in connection with referring a Canadian Resident to the London Branch.
18. Deposits with the London Branch may be characterized as "securities" under the Legislation because the Canada Branch, but not the Filer itself nor the London Branch or other branches of the Filer, is authorized as a Schedule III bank. As a result, exemptions under the Legislation in respect of deposits of a Schedule III bank are not available to the Filer or the London Branch in these circumstances.
19. The offering of Deposits by the London Branch would constitute a "distribution" within the meaning of the Legislation. As such, the London Branch would be required to conduct the offering and sale of Deposits in accordance with the registration and prospectus requirements contained in the Legislation.
20. As the definition of "trades" includes any act in furtherance of a trade in a security, the Marketing and Administrative Activities may constitute a "trade", which would subject the Filer, through its Canada Branch, to the registration requirements contained in the Legislation.
21. The Deposits are, and will be, issued in compliance with the applicable laws of the United Kingdom, including applicable anti-money laundering and consumer protection legislation.
22. The issuance of Deposits by the London Branch to Canadian Residents will not contravene any federal or provincial deposit-taking legislation or any provisions of the Bank Act.
23. Any Canadian Resident who wishes to purchase Deposits from the London Branch will be required to satisfy legal client identification and anti-money laundering requirements in force in the United Kingdom.
24. Deposits purchased by Canadian Residents will remain throughout the term of such Deposits fully entitled to the benefits of the FSCS as if such Deposits had been made by residents of the United Kingdom.
25. Deposits of the London Branch that are purchased by Canadian Residents will be subject to the same regulation and oversight by the FCA as Deposits of the London Branch that are purchased by residents of the United Kingdom.
26. Other than in compliance with Canadian securities laws, the London Branch will not trade in any securities other than the Deposits with or on behalf of persons or companies who are resident in Canada. Without limiting the foregoing, in respect of OTC derivatives transactions, the Filer will comply with any applicable OTC derivatives-specific rules and instruments in effect in the provinces and territories of Canada, including: (i) the derivatives trade reporting rules (including, OSC Rule 91-507 -- Derivatives: Trade Reporting); (ii) the fee rule (OSC Rule 13-502 -- Fees), specifically part 6 "Derivatives Participation Fees"; (iii) the derivatives business conduct rule (National Instrument 93-101 -- Derivatives: Business Conduct); (iv) the mandatory clearing rule (National Instrument 94-101 -- Mandatory Central Counterparty Clearing of Derivatives); and (v) the segregation and portability rule (National Instrument 94-102 -- Derivatives: Customer Clearing and Protection of Customer Collateral).
27. None of the Filer, the Canada Branch or the London Branch are 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) the Filer continues to be subject to regulation, examination and supervision by the IDFPR and the FRB;
(b) the Canada Branch continues to be subject to regulation, examination and supervision by OSFI;
(c) the Marketing and Administrative Activities of Canada Branch in connection with the offering and acceptance of the Deposits are activities not prohibited by its governing legislation;
(d) the London Branch continues to be subject to regulation, examination and supervision by the PRA and FCA;
(e) holders of Deposits issued by the London Branch are entitled to the benefits of the FSCS, as applicable, whether or not the holders thereof are residents of the UK; and
(f) details of the FSCS are disclosed to each prospective holder of a Deposit before any Deposits are issued to the holder by the London Branch.
OSC File #: 2024/0065