Globalive chairman Anthony Lacavera, right, with John Webster, a banking executive taking over as chairman for Wealth One Bank after Globalive led a consortium that acquired a 65-per-cent stake in the business.Duane Cole/The Globe and Mail
John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Advocates for more competition in Canadian banking won a victory last week. Ottawa abstained from its customary death sentence for small, troubled banks and offered Wealth One Bank of Canada a second chance. It approved a Globalive consortium bid of $58-million for a 65-per-cent stake in the institution and let it live to finance another day.
Founded in 2016, the bank’s primary business is collecting deposits using high-interest accounts as a Schedule 1 bank with Canadian Deposit Insurance Coverage and financing uninsured retail mortgage loans on residential real estate through its two-branch operation in Vancouver and Toronto. With about $516-million in assets, the bank has yet to turn a profit.
Despite its simple business model, Wealth One Bank has been in the crosshairs of Canada’s Department of Finance since late 2022 when then finance minister, Chrystia Freeland, sent a letter to Wealth One officials flagging money laundering and foreign interference concerns.
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An investigation by Canada’s Financial Transactions and Reports Analysis Centre, that led to a $676,500 penalty in February, 2023, found that Wealth One failed to “develop compliance policies and procedures related to ministerial directives” and to “submit suspicious transaction reports where there were reasonable grounds to suspect that transactions were related to a money laundering offence.” These are material administrative failings.
Two months later, Ms. Freeland used powers under the Bank Act to instruct three Wealth One directors to sell their shares and management to sever all ties with them.
If that was not enough, Ottawa told Wealth One to vet all employees on national security grounds, move its Toronto head office to a new secure location, conduct security sweeps on corporate property for surveillance equipment, appoint a third-party independent monitor, employ two new compliance officers who possess national security clearances to oversee revamped anti-money laundering and anti-terrorist financing controls and to ensure bank employees take advanced compliance training on Canadian AML and ATF rules.
Recall, this is a two-branch bank operation with a relatively small number of customers that butters its bread on margins made between what it pays for deposits and the interest rate it collects from borrowers.
The regulatory precedent in Canada when dealing with small banks with material compliance issues (be they regulatory or financial) is to dispatch them into the smothering arms of a larger, trusted bank in a deal that ensures the compliance problem goes away.
This precedent began in late-19th century Canada and was last seen when the Mercantile Bank of Canada had a shotgun wedding with National Bank of Canada in 1986 at the behest of the Finance Department. The rationale behind this approach is simple risk management. Reduce risk to the financial system and the demand on government resources to monitor a dysfunctional bank.
But Finance did not do that in the case of Wealth One. Instead, it and Canada’s bank supervisor, The Office of the Superintendent of Financial Institutions, seem to have tipped their hats to continuing demands for more competition in Canadian banking by keeping it around.
Who they approved to take over Wealth One, an innovative investment firm that builds and scales businesses, Globalive, suggests Ottawa would like to see Wealth One rebuilt as an entrepreneurial incumbent.
Globalive chairman Anthony Lacavera developed his regulatory literacy at the helm of Wind Mobile, a Canadian wireless carrier he founded in 2008. On its corporate website, Globalive boasts that it backs “high-trust people solving hard problems in regulated overlooked spaces.”
Wealth One is “a hard problem,” but Canadian banking and Wealth One’s place in it is anything but overlooked. In the months and years to come, OSFI will be watching Wealth One as will the independent monitor that Finance has imposed on it.
When asked by The Globe and Mail what he sees in Wealth One’s future, Mr. Lacavera said, “We are going to do exactly what the business does today, just more of it.” A margin play on the difference between rents paid for deposits and residential mortgage borrowing rates in an increasingly troubled Canadian real estate market is unlikely to impress Finance or OSFI.
Wealth One received a reprieve from what in Canada would normally carry a bank death penalty from regulators. For the new owners of Wealth One to succeed, doing more of what the bank is doing is unlikely to cut it. Ottawa took a chance on the bank seeking more than that. The new Wealth One must prove it can consistently meet its regulatory obligations and offer Canadians one more safe alternative to the big banks.