1. CETA and Financial Services Patrick Leblond CETA Conference Faculty of Law, McGill University October 31, 2014

2. © Patrick Leblond – CETA Conference 2014 2 Introduction CETA contains a whole chapter devoted to financial services It was apparently one of the last parts of the agreement to be settled –Prudential carve-out was the issue The provisions are mostly aligned with the GATS and NAFTA –But a bit different for prudential carve-out

3. © Patrick Leblond – CETA Conference 2014 Financial Services in CETA Cross-border trade in financial services –National treatment –MFN treatment –Market access Effective and transparent regulation Access to payment and clearing systems Prudential carve-out Financial Services Committee Dispute settlement ISDS 3

4. © Patrick Leblond – CETA Conference 2014 What does it mean? Cross-border selling of financial services in the other party’s jurisdiction (mode 1) –E.g., loans, deposits, insurance Travel to the other party’s jurisdiction to obtain financial services (mode 2) –E.g., financial advice Set up operations in the other party’s jurisdiction (e.g., branch, subsidiary) (mode 3) Cross-border movement of natural persons as financial service suppliers (mode 4) 4

5. © Patrick Leblond – CETA Conference 2014 Implications for selling financial services in Canada Wide ownership remains –No one shareholder can own more than 20% of outstanding voting shares (30% non-voting) if equity is more than $12 billion An acquisition of 10% or more of assets needs the approval of the finance minister if equity is $2 billion or more If equity is less than $12 billion, then shareholding can be higher –No longer tied to foreign ownership (since 1995 as a result of GATS) Branches by foreign entities are limited to deposits of $150,000 or more 5

6. © Patrick Leblond – CETA Conference 2014 Prudential Carve-out (1) The issue: can prudential regulation be weakened because of ISDS? –Financial institutions can challenge the “fair and equitable treatment” by the financial regulator What will be the meaning of “reasonable measures for prudential reasons” (Article 15.1 of the FS chapter)? –How useful are the “high-level principles” in the in the Annex providing “guidance” on Article 15.1 (an innovation)? If regulation is in line with international standards under the FSB, then it should be okay 6

7. © Patrick Leblond – CETA Conference 2014 Prudential Carve-out (2) Financial Services Committee to act as a “filter mechanism” –Respondent “may” refer to the FSC –If the FSC decides that the prudential carve-out (PCO) applies, then that’s the end of the process –If the PCO does not apply or only in part, then it proceeds to the tribunal –If no agreement at the FSC, then it goes to the Trade Committee before going to the tribunal Alleged compromise: the EU originally wanted the traditional approach (i.e. leave it to the independent tribunal) while Canada wanted only FSC to decide 7

8. © Patrick Leblond – CETA Conference 2014 TTIP and Financial Services Both sides want greater market access but they disagree on regulatory cooperation: at the international level or within TTIP? –EU wants to protect the position of European banks in the US Threatened to remove financial services altogether –US is not interested in harmonization No regulatory cooperation in CETA –But the stakes are not as high! 8

9. © Patrick Leblond – CETA Conference 2014 Conclusions How will CETA affect the financial services sector in Canada and the EU? –Impact will probably be marginal –Barriers to trade and market access are not high to begin with because of commitments under the GATS In Canada, lack of internal free trade for some financial services represents an obstacle for EU suppliers –E.g., insurance, securities brokerage, personal financial advice 9

10. © Patrick Leblond – CETA Conference 2014 10 THANK YOU!