CONFIDENTIAL DAFFE/MAI(97)1/REV2
VII. FINANCIAL SERVICES(1),(2)
PRUDENTIAL MEASURES
1. Notwithstanding any other provisions of the Agreement, a Contracting Party shall not be
prevented from taking prudential measures with respect to financial services, including measures for the
protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by an
enterprise providing financial services. or to ensure the integrity and stability of its financial system.
2. Where such measures do not conform with the provisions of the Agreement, they shall not be
used as a means of avoiding the Contracting Party's commitments or obligations under the Agreement.
RECOGNITION ARRANGEMENTS
1. A Contracting Party may recognise prudential measures of any other Contracting Party or
non-Contracting Party in determining how the Contracting Party's measures relating to financial services
shall be applied. Such recognition, which may be achieved through harmonization or otherwise, may be
bused on an agreement or arrangement with the other Contracting Party or non-Contracting Party
concerned or may be accorded autonomously.
2. A Contracting Party that is a party to such an agreement or arrangement referred to in paragraph 1, whether future or existing, shall afford adequate opportunity for other interested Contracting Parties to negotiate their accession to such agreements or arrangements, or to negotiate comparable ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation of such regulation, and, if appropriate, procedures concerning the sharing of information between the parties to the agreement or arrangement. Where a Contracting Party accords recognition autonomously, it shall afford adequate opportunity for any other Contracting Party to demonstrate that such circumstances exist.
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AUTHORISATION PROCEDURES
1. Each Contracting Party's regulatory authorities shall make available to interested persons their
requirements for completing applications relating to an investment in, or the operations of, a financial
services enterprise.
2. On the request of an applicant, the regulatory authority shall inform the applicant of the status of
its application. If such authority requires additional information from the applicant, it shall notify the
applicant without undue delay.
3. A regulatory authority shall make an administrative decision on a completed application of an
investor in a financial services enterprise or a financial services enterprise that is an investment of an
investor of another Contracting Party within [120][180] days, and shall promptly notify the applicant of
the decision. An application shall not be considered complete until [all relevant hearings are held and] all
necessary information is received. Where it is not practicable for a decision to be made within [120][180]
days, the regulatory authority shall notify the applicant without undue delay and shall endeavour to make
the decision within a reasonable time thereafter.
TRANSPARENCY(3)
Nothing in this Agreement requires a Contracting Party to furnish or allow access to:
a) information related to the financial affairs and accounts of individual customers of
financial services enterprises; or
b) any confidential or proprietary information, the disclosure of which would impede law
enforcement or otherwise be contrary to the public interest or prejudice legitimate
commercial interests of particular enterprises.
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CONFIDENTIAL DAF]:E/\lAI(97)1/REV2
INFORMATION TRANSFER AND DATA PROCESSING
1. No Contracting Party shall take measures that prevent transfers of information or the processing
of financial information outside the. territory of a Contracting Party, including transfers of data by
electronic means, where such transfer of information or processing of financial information is:
a) necessary for the conduct of the ordinary business of a financial services enterprise located
in a Contracting Party that is the investment of an investor of another Contracting Party; or
b) in connection with the purchase or sale by a financial services enterprise located in a
Contracting Party that is the investment of an investor of another Contracting Party of:
i) financial data processing services; or
ii) financial information, including information provided to or by third parties. -'
2. Nothing in paragraph 1:
a) affects the financial service enterprise's obligation to comply with any record keeping and
reporting requirements; or
b) restricts the right of a Contracting Party to protect privacy, including the protection of
personal data and the confidentiality of individual records and accounts, so long as such
right is not used to circumvent the provisions of the Agreement.
MEMBERSHIP OF SELF-REGULATORY BODIES AND ASSOCIATIONS
When membership or participation in, or access to, any self-regulatory body, securities or futures
exchange or market, clearing agency, or any other organization or association is required by a Contracting
Party in order for investments of investors of any other Contracting Party in a financial services enterprise
established in the territory of the Contracting Party to provide financial services on an equal basis with
financial services enterprises of the Contracting Party, or when the Contracting Party provides directly or
indirectly such entities, privileges or advantages in providing financial services, the Contracting Party
shall ensure that such entities accord national treatment to such investments.
PAYMENTS AND CLEARING SYSTEMS/LENDER OF LAST RESORT(4)
1. Under terms and conditions that accord national treatment, each Contracting Party shall grant to
financial services enterprises that are investments of investors of any other Contracting Party established in
its territory access to payment and clearing systems operated by public entities, and to official funding and
refinancing facilities available in the normal course of ordinary business.
2. The provisions of this Agreement are not intended to confer access to the Contracting Party's
lender of last resort facilities.
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CONFIDENTIAL DAFFE/MAI(97) 1/REV2
DISPUTE SETTLEMENT
DETERMINATION OF CERTAIN FINANCIAL SERVICES ISSUES IN INVESTOR TO STATE
PROCEEDINGS
The following text was considered in informal consultations on financial matters(5):
"1. Where an investor of a Contracting Party submits a claim under Article D (Investor-State
Procedures) against another Contracting Party and the disputing Contracting Party invokes Article xx
(Prudential Measures) [Article xx (Temporary Safeguards)] [Article xx (Role of Monetary Authorities)], on
request of the disputing Contracting Party, the Tribunal shall refer the matter in writing to [the authority
responsible for financial services in each of] the Contracting Parties involved in the dispute for a decision.
The Tribunal may not proceed pending receipt of a decision or report under this Article.
2. In a referral pursuant to paragraph l, the [authorities referred to in paragraph 1] [Contracting
Parties] shall consult with each other to decide the issue of whether and to what extent Article xx (Prudential
Measures) [Article xx (Temporary Safeguards)] [Article xx (Role of Monetary Authorities)l, is a valid
defence to the claim of the investor. The [authorities] [Contracting Parties] shall transmit a copy of their
decision to the Tribunal [and to the Parties Group]. The decision shall be binding on the Tribunal.
3. Where the [authorities] [Contacting Parties] have not decided the issue within 60 days of the
receipt of the referral under paragraph 1, the disputing Contracting Party or the Contracting Party of the
investor may request the establishment of an arbitral panel under Article xx (Request for a State to State
Arbitral Tribunal) to determine whether, and to what extent, Article xx (Prudential Measures) [Article xx
(Temporary Safeguards)1 [Article xx (Role of Monetary Authorities)l, is a valid defence to the claim of the
investor. The Tribunal shall be constituted in accordance with [Article xx (see section A above on
Composition of Dispute Settlement Panels in Financial Services Disputes)l. Further to Article xx (heal
Report), the panel shall transmit its final report to the [authorities] [Contracting Parties] and to the Investor-
State Tribunal. The report shall be binding on the Tribunal.
4. Where no request for the establishment of a State to State Tribunal pursuant to paragraph 3 has
been made within 10 days of the expiration of the 60-day period referred to in paragraph 3, the Investor-
State Tribunal may proceed to decide the matter."
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COMPOSITION OF DISPUTE SETTLEMENT PANELS IN FINANCIAL SERVICES DISPUTES
The following proposals for text were considered in informal consultations on financial matters:
Proposal 1
"Panels for disputes on prudential issues and other financial matters shall have the necessary
expertise relevant to the specific financial services under
dispute."
Proposal 2
"Selection of the Panel
1. Where a Party claims that a dispute involves financial [services] matters, Articles C.2 and D.7 as
applicable (Panel Formation) shall apply, except that:
(a) where the disputing Parties so agree, the tribunal panel shall be composed entirely of
panellists meeting the qualifications in paragraph 2; and
(b) where the disputing Parties do not agree that the panel be composed in accordance with (a),
(i) each disputing Party may select panellists meeting the qualifications set out in
paragraph 2, or in Article C.2.c or D.7.c as applicable (Qualifications of Panellists), and
(ii) if the Party complained against invokes Article xx (Prudential Measures) [Article xx
(Temporary Safeguards)] [Article xx (Role of Monetary Authorities)l, the chair of the
panel shall meet the qualifications set out in paragraph 2.
2. Financial services experts shall:
(a)have expertise or experience in financial services law or practice, which may include the
regulation of financial institutions;
(b) be chosen strictly on the basis of objectivity, reliability and sound judgement; and
(c) be independent of, and not be affiliated with or take instructions from, any Party."
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CONFIDENTIAL DAFFE/MAI(97) 1/REV2
DEFINITION OF FINANCIAL SERVICES
Financial services include all insurance and insurance-related services, and all banking and other
financial services (excluding insurance). Financial services include the following activities:
Insurance and insurance-related services
(i) Direct insurance (including co-insurance):
(A) life
(B) non-life
(ii) Reinsurance and retrocession;
(iii) Insurance intermediation, such as brokerage and agency;
(iv) Services auxiliary to insurance, such as consultancy, actuarial, risk assessment and claim
settlement services.
Banking and other financial services (excluding insurance)
(v)Acceptance of deposits and other repayable funds from the public;
(vi) Lending of all types, including consumer credit, mortgage credit, factoring and financing
of commercial transaction;
(vii) Financial leasing;
(viii) All payment and money transmission services, including credit, charge and debit cards,
travellers cheques and bankers drafts;
(ix) Guarantees and commitments;
(x)Trading for own account or for account of customers, whether on an exchange, in an
over-the-counter market or otherwise, the following:
(A) money market instruments (including cheques, bills, certificates of deposits);
(B) foreign exchange;
(C) derivative products including, but not limited to, futures and options;
(D) exchange rate and interest rate instruments, including products such as swaps, forward
rate agreements;
(E) transferable securities;
(F) other negotiable instruments and financial assets, including bullion.
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CONFIDENTIAL DAFFE/MAI(97) 1/REV2
(xi) Participation in issues of all kinds of securities, including underwriting and placement as
agent (whether publicly or privately) and provision of services related to such issues;
(xii) Money braking;
(xiii) Asset management. such as cash or portfolio management, all forms of collective
investment management. pension fund management, custodial, depository and trust
services;
(xiv) Settlement and clearing services for financial assets, including securities, derivative
products, and other negotiable instruments;
(xv) Provision and transfer of financial information, and financial data processing and related
software by suppliers of other financial services;
(xvi) Advisory, intermediation and other auxiliary financial services on all the activities listed in subparagraphs (v) through (xv), including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy.
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1. EG5 agreed that the financial services sector, which is highly regulated for prudential reasons, is unique in some respects and to some extent calls for specific treatment. However, a number of delegations considered that the general provisions of the MAI are sufficient to meet the needs of the financial services sector in a number of potential areas. In some cases, proposals for text on financial services were considered to have more general application in the MAI. It was suggested that such text could be useful in the development of general disciplines in the MAI
2. The Negotiating Group discussed financial services issues at its April 1997 meeting. Proposed text below on prudential measures and the definition of financial services were agreed. The Chairman found that there was broad support, but not consensus, for proposed text on recognition arrangements, authorization procedures, transparency, information transfer and data processing, and membership of self-regulatory bodies. The Negotiating Group invited Drafting Group No. 3 to consider the possibility of developing comparable provisions for the MAI as a whole. Proposed texts on payments and clearing systems/lender of last resort and dispute settlement have not yet been discussed by the Negotiating Group. Placement of financial services texts is to be decided. See also Commentary.
3. The text proposed here by EG5 is additional to the text of the General Transparency provision (see
Section III, Treatment of Investors and Investments).
4. These matters need further work with a view to finalizing text. See also Commentary.
5. An alternative text has also been proposed, under which a special panel of financial experts, consisting of
10 or perhaps 15 members, would decide by consensus or consensus minus one whether a Contracting
Party, in the case of a prudential measure, temporary safeguard or action taken in pursuit of monetary or
exchange rate policy, has acted in accordance with the MAI [DAFFE/MAI/RD(97)25].