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Cross-Border Securitization Transactions between Canada and the U.S. Key Legal Considerations

In this series of blogs, we will explore some key legal considerations relating to cross-border securitization transactions.

See Chinese version below [中文版参阅下文] 

Introduction

The Structured Finance Group at McCarthy Tétrault LLP is pleased to present Cross-Border Securitization Transactions between Canada and the U.S. – Key Legal Considerations.

In recent years, there has been a significant increase in the volume of cross-border securitization transactions between Canada and the U.S., with market participants now regularly pursuing cross-border securitization transactions in a wide range of contexts. A Canadian originator may choose to sell receivables to a U.S. special purpose vehicle (“SPV”) as part of a global trade receivables securitization program, for example, or a Canadian issuer may choose to offer asset-backed securities to U.S. investors as a complement to an offering in Canada.

Although the variety of cross-border securitization transactions is practically unlimited, there are a number of legal considerations that are common throughout these different transactions. This article highlights some of the main principles of Canadian law that U.S. legal practitioners should bear in mind when working on cross-border securitization transactions between Canada and the U.S. This article is not intended to be exhaustive of all relevant legal considerations, and U.S. legal practitioners are encouraged to seek assistance from qualified Canadian counsel when engaging in such transactions.

Licensing Considerations 

In all cross-border securitization transactions, it is critical to consider whether any relevant U.S. entities are subject to licensing requirements in Canada. This is particularly true where the relevant U.S. entities are foreign banks (or foreign bank affiliates). Under the Bank Act (Canada) (the “Bank Act”), foreign bank entities are generally prohibited from conducting banking activities in Canada, unless they are licensed to carry out such activities, or their activities do not rise to the level of “carrying on business in Canada”.

Unfortunately, the Bank Act does not include a definition of the phrase “carrying on business in Canada”, but the Office of Superintendent of Financial Institutions (“OSFI”), which is the regulator of foreign and domestic banks in Canada, has provided some guidance on the meaning of this phrase. OSFI has indicated that whether a particular activity constitutes “carrying on business in Canada” requires a contextual analysis of the facts. A single fact or consideration may not be dispositive of the issue. OSFI has noted that the following facts are relevant in conducting this analysis: (i) whether the foreign bank has an office or employees in Canada; (ii) whether the foreign bank makes trips to Canada for purposes of underwriting existing or potential credit risk; (iii) whether the foreign bank forms contracts and carries out negotiations in Canada; and (iv) whether the foreign bank realizes on security in Canada.

Generally speaking, as long as a foreign bank follows a code of conduct that requires it to conduct its banking activities outside of Canada, then those activities will not rise to the level of “carrying on business in Canada”. This is commonly referred to as “suitcase banking”.  The essence of the code of conduct is limiting, to the greatest extent possible, a foreign bank’s physical presence in Canada. In our experience, foreign banks that are involved in cross-border securitization transactions are often able to structure their activities in a manner that does not rise to the level of “carrying on business in Canada”, and thus they are generally not exposed to any licensing requirements under the Bank Act.

In addition to banking, other types of business activities carried on by U.S. entities in Canada may be subject to licensing requirements under specific federal or provincial legislation. For example, residential mortgage servicing and collection activities are regulated under consumer protection legislation in effect in certain of the provinces of Canada.

It is important to consider whether any special licensing requirements exist in the early stages of planning a cross-border securitization transaction, as these licensing requirements can have a significant impact on the transaction structure and timeline.

加拿大和美国之间的跨境证券化交易 - 重要的法律问题

在本系列博客中,我们将探讨与跨境证券化交易相关的一些关键法律考虑因素。

导言

麦启泰律师事务所的结构性融资业务组很高兴地向读者介绍有关加拿大和美国之间的跨境证券化交易 —— 重要的法律考虑因素。

近年来,加拿大和美国之间的跨境证券化交易数量显著增加,市场参与者现在经常在各种情况下进行跨境证券化交易。例如,加拿大发起人可以选择将应收账款出售给美国特殊目的公司("SPV"),作为全球应收账款证券化计划的一部分,或者加拿大发行人可以选择向美国投资者提供资产抵押证券作为对加拿大发行的补充。

尽管跨境证券化交易的种类几乎是层出不穷,但在这些不同的交易中存在许多常见的法律考量。本文重点介绍了美国法律从业者在处理加拿大和美国之间的跨境证券化交易时应牢记的加拿大法律的一些主要原则。本文并非覆盖所有相关的法律考虑,鼓励美国法律从业者在进行此类交易时向有资质的加拿大律师寻求助。

许可考量

在所有跨境证券化交易中,考虑任何相关美国实体是否需要遵守加拿大的许可要求至关重要。如果相关的美国实体是外国银行(或外国银行附属机构)尤其要注意。根据(加拿大)《银行法》(简称“《银行法》”)规定,外国银行实体通常被禁止在加拿大开展银行活动,除非它们获得开展此类活动的许可证,或者其活动不上升到“在加拿大开展业务”的水准。

遗憾的是,《银行法》并未对“在加拿大开展业务”一词给予定义,但作为加拿大境内和外资银行监管机构的金融机构监管办公室 (“OSFI”) 而言,就这一短语的含义提供了一些指导。 OSFI 指出,某项活动是否构成“在加拿大开展业务”,需要对事实进行背景分析。 单一的事实或考虑可能无法给予断定。 OSFI 指出,进行此分析有以下事实考量: (i) 外国银行是否在加拿大设有办事处或员工; (ii) 外国银行是否前往加拿大承销现有或潜在的信贷风险; (iii) 外国银行是否在加拿大签订合同并进行谈判;以及 (iv) 外国银行在是否加拿大通过以资抵债取得债务人有效资产的处置权。

一般来说,只要一家外国银行遵循行为准则,只在加拿大境外开展银行业务,那么这些活动就不会上升到“在加拿大开展业务”的程度。 这通常被称为“开展业务银行业务”。行为准则的本质是在最大程度上限制外国银行在加拿大的实体存在。根据我们的经验,参与跨境证券化交易的外国银行通常能够以不上升到“在加拿大开展业务”的方式来安排其活动,因此它们通常不会受到任何风险的影响。《银行法》下的许可要求。

除银行业务外,美国实体在加拿大开展的其他类型的业务活动可能需要遵守特定联邦或省级立法的许可要求。例如,住宅抵押贷款服务和催收活动受加拿大某些省份有效的消费者保护立法监管。

在规划跨境证券化交易的早期阶段,考虑是否存在任何特殊许可要求非常重要,因为这些许可要求会对交易结构和时间表产生重大影响。

 

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