We talked about the "prudential exception" here, here, and here, and then just recently here. In the last link, I mentioned that I had a short article coming out arguing for revised language for this exception. But the CETA negotiators beat me to it. Here's what they have come up with:
ARTICLE 15: PRUDENTIAL CARVE-OUT
1. Nothing in this Agreement shall prevent a Party from adopting or maintaining reasonable measures for prudential reasons, including:
(a) the protection of investors, depositors, policy-holders or persons to whom a fiduciary duty is owed by a Financial Institution, or cross-border financial service supplier or financial service supplier;
(b) the maintenance of the safety, soundness, integrity or financial responsibility of a financial Institution, cross-border financial service supplier or financial service supplier; or
(c) ensuring the integrity and stability of a Party's financial system.
2. Without prejudice to other means of prudential regulation of cross-border trade in financial services, a Party may require the registration of cross-border financial service suppliers of the other Party and of financial instruments.
3. Subject to Article X (National Treatment) and Article Y (Most Favoured Nation Treatment), a Party may, for prudential reasons, prohibit a particular financial service or activity. Such a prohibition may not apply to all financial services or to a complete financial services sub-sector, such as banking.
That's from page 264 of the text. For those concerned with policy space, is it any better than the existing provision used in the GATS and elsewhere? Note that the problematic second sentence is not in there. The main constraint seems to be that measures must be "reasonable." How constraining will that be in practice?
But there's more. On page 277, there's an "Understanding between Canada and the EU Guidance on the application of Article 15.1 (Prudential Carve-out) and Article 20 (Investment Disputes in Financial Services)." Among other things, it establishes certain "high level principles" to be applied in this context, such as:
4. (a) Except as provided in paragraph (b), a measure is deemed to meet the requirements of Article 15.1 where it:
(i) has a prudential objective; and
(ii) is not so severe in light of its purpose that it is manifestly disproportionate to the attainment of its objective.
(b) A measure that otherwise meets the requirements of paragraph (a) does not meet the
requirements of Article 15.1 where it is a disguised restriction on foreign investment or an
arbitrary or unjustifiable discrimination between investors in like situations.
5. Provided that a measure is not applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination between investors in like situations, or a disguised
restriction on foreign investment, that measure is deemed to meet the requirements of Article
15.1 where that measure is:
- In line with our common international prudential commitments; or
- In pursuance of the resolution of a financial institution that is no longer viable or likely to be no longer viable;
- In pursuance of the recovery of a financial institution or the management of a financial institution under stress; or
- In pursuance of the preservation or the restoration of financial stability, in response to a system-wide financial crisis.
How exactly, as an interpretive matter, do these "high level principles" interact with the general legal obligations? In their efforts to clarify, the drafters have added some new layers of complexity.
Todd Tucker has additional thoughts here.