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Bank Act (S.C. 1991, c. 46)

Full Document:  

Act current to 2022-01-12 and last amended on 2021-06-30. Previous Versions

PART XISelf-dealing (continued)

Permitted Related Party Transactions (continued)

Marginal note:Transactions with holding companies

  •  (1) Subject to subsection (2) and sections 495.2 and 495.3, if a widely held bank holding company or a widely held insurance holding company has a significant interest in any class of shares of a bank, the bank may enter into any transaction with the holding company or with any other related party of the bank that is an entity in which the holding company has a substantial investment.

  • Marginal note:Policies and procedures

    (2) The bank shall adhere to policies and procedures established under subsection 195(3) when entering into the transaction.

  • 2001, c. 9, s. 129

Marginal note:Restriction

  •  (1) If a bank enters into a transaction with a related party of the bank with whom the bank may enter into transactions under subsection 495.1(1) and that is not a federal financial institution, the bank shall not directly or indirectly make, take an assignment of or otherwise acquire a loan to the related party, make an acceptance, endorsement or other guarantee on behalf of the related party or make an investment in the securities of the related party if, immediately following the transaction, the aggregate financial exposure, as that expression is defined by the regulations, of the bank would exceed

    • (a) in respect of all transactions of the bank with the related party, the prescribed percentage of the bank’s regulatory capital or, if no percentage is prescribed, five per cent of the bank’s regulatory capital; or

    • (b) in respect of all transactions of the bank with such related parties of the bank, the prescribed percentage of the bank’s regulatory capital or, if no percentage is prescribed, ten per cent of the bank’s regulatory capital.

  • Marginal note:Order

    (2) If the Superintendent is of the opinion that it is necessary for the protection of the interests of the depositors and creditors of a bank, the Superintendent may, by order,

    • (a) reduce the limit in paragraph (1)(a) or (b) that would otherwise apply to the bank; and

    • (b) impose limits on transactions by the bank with related parties with whom the bank may enter into transactions under subsection 495.1(1) that are federal financial institutions.

  • Marginal note:Order

    (3) The Superintendent may, by order, increase the limit in paragraph (1)(a) or (b) that would otherwise apply to a bank on transactions by the bank with related parties that are financial institutions that are regulated in a manner acceptable to the Superintendent.

  • 2001, c. 9, s. 129

Marginal note:Assets transactions

  •  (1) Despite subsection 494(3), a bank shall not, without the approval of the Superintendent and its conduct review committee, directly or indirectly acquire assets from a related party of the bank with whom the bank may enter into transactions under subsection 495.1(1) that is not a federal financial institution, or directly or indirectly transfer assets to such a related party if

    A + B > C

    where

    A
    is the value of the assets;
    B
    is the total value of all assets that the bank directly or indirectly acquired from, or directly or indirectly transferred to, that related party in the 12 months ending immediately before the acquisition or transfer, other than assets acquired by or transferred to the bank under transactions permitted by section 490; and
    C
    is five per cent, or the percentage that may be prescribed, of the total value of the assets of the bank, as shown in the last annual statement of the bank prepared before the acquisition or transfer.
  • Marginal note:Exception

    (2) The prohibition in subsection (1) does not apply in respect of assets purchased or otherwise acquired under subsection 494(1), assets sold under subsection 494(2) or any other assets as may be prescribed.

  • Marginal note:Exception

    (3) The approval of the Superintendent is not required if

    • (a) the bank purchases or sells assets under a sale agreement that is approved by the Minister under section 236; or

    • (b) the bank or its subsidiary acquires shares of, or ownership interests in, an entity for which the approval of the Minister under Part VII or subsection 468(5) is required or the approval of the Superintendent under subsection 468(6) is required.

  • Marginal note:Value of assets

    (4) For the purposes of “A” in subsection (1), the value of the assets is

    • (a) in the case of assets that are acquired, the purchase price of the assets or, if the assets are shares of, or ownership interests in, an entity the assets of which will be included in the annual statement of the bank after the acquisition, the fair market value of the assets; and

    • (b) in the case of assets that are transferred, the book value of the assets as stated in the last annual statement of the bank prepared before the transfer or, if the assets are shares of, or ownership interests in, an entity the assets of which were included in the last annual statement of the bank before the transfer, the value of the assets as stated in the annual statement.

  • Marginal note:Total value of all assets

    (5) For the purposes of subsection (1), the total value of all assets that the bank or any of its subsidiaries has acquired during the period of twelve months referred to in subsection (1) is the purchase price of the assets or, if the assets are shares of, or ownership interests in, an entity the assets of which immediately after the acquisition were included in the annual statement of the bank, the fair market value of the assets of the entity at the date of the acquisition.

  • Marginal note:Total value of all assets

    (6) For the purposes of subsection (1), the total value of all assets that the bank or any of its subsidiaries has transferred during the period of twelve months referred to in subsection (1) is the book value of the assets as stated in the last annual statement of the bank prepared before the transfer or, if the assets are shares of, or ownership interests in, an entity the assets of which were included in the last annual statement of the bank before the transfer, the value of the assets of the entity as stated in the annual statement.

  • 2001, c. 9, s. 129
  • 2007, c. 6, s. 47

Marginal note:Directors and officers and their interests

  •  (1) Subject to subsection (2) and sections 497 and 498, a bank may enter into any transaction with a related party of the bank if the related party is

    • (a) a natural person who is a related party of the bank only because the person is

      • (i) a director or a senior officer of the bank or of an entity that controls the bank, or

      • (ii) the spouse or common-law partner, or a child who is less than eighteen years of age, of a director or senior officer of the bank or of an entity that controls the bank; or

    • (b) an entity that is a related party of the bank only because the entity is controlled by

      • (i) a director or senior officer of the bank or of an entity that controls the bank, or

      • (ii) the spouse or common-law partner, or a child who is less than eighteen years of age, of a director or senior officer referred to in subparagraph (i).

  • Marginal note:Loans to full-time officers

    (2) A bank may, with respect to a related party of the bank referred to in subsection (1) who is a full-time senior officer of the bank, make, take an assignment of or otherwise acquire a loan to the related party only if the aggregate principal amount of all outstanding loans to the related party that are held by the bank and its subsidiaries, together with the principal amount of the proposed loan, does not exceed the greater of twice the annual salary of the related party and $100,000.

  • Marginal note:Exception

    (3) Subsection (2) does not apply in respect of

    • (a) loans referred to in paragraph 491(b), and

    • (b) margin loans referred to in section 498,

    and the amount of any such loans to a related party of a bank shall not be included in determining, for the purposes of subsection (2), the aggregate principal amount of all outstanding loans made by the bank to the related party.

  • Marginal note:Preferred terms — loan to officer

    (4) Notwithstanding section 501, a bank may make a loan, other than a margin loan, to a senior officer of the bank on terms and conditions more favourable to the officer than those offered to the public by the bank if those terms and conditions have been approved by the conduct review committee of the bank.

  • Marginal note:Preferred terms — loan to spouse or common-law partner

    (5) Notwithstanding section 501, a bank may make a loan referred to in paragraph 491(b) to the spouse or common-law partner of a senior officer of the bank on terms and conditions more favourable than those offered to the public by the bank if those terms and conditions have been approved by the conduct review committee of the bank.

  • Marginal note:Preferred terms — other financial services

    (6) Notwithstanding section 501, a bank may offer financial services, other than loans or guarantees, to a senior officer of the bank, or to the spouse or common-law partner, or a child who is less than eighteen years of age, of a senior officer of the bank, on terms and conditions more favourable than those offered to the public by the bank if

    • (a) the financial services are offered by the bank to employees of the bank on those favourable terms and conditions; and

    • (b) the conduct review committee of the bank has approved the practice of making those financial services available on those favourable terms and conditions to senior officers of the bank or to the spouses or common-law partners, or the children under eighteen years of age, of senior officers of the bank.

  • 1991, c. 46, s. 496
  • 1997, c. 15, s. 71
  • 2000, c. 12, ss. 5, 7

Marginal note:Board approval required

  •  (1) Except with the concurrence of at least two thirds of the directors present at a meeting of the board of directors of the bank, a bank shall not, with respect to a related party of the bank referred to in subsection 496(1),

    • (a) make, take an assignment of or otherwise acquire a loan to the related party, including a margin loan referred to in section 498,

    • (b) make a guarantee on behalf of the related party, or

    • (c) make an investment in the securities of the related party

    if, immediately following the transaction, the aggregate of

    • (d) the principal amount of all outstanding loans to the related party that are held by the bank and its subsidiaries, other than

      • (i) loans referred to in paragraph 491(b), and

      • (ii) where the related party is a full-time senior officer of the bank, loans to the related party that are permitted by subsection 496(2),

    • (e) the sum of all outstanding amounts guaranteed by the bank and its subsidiaries on behalf of the related party, and

    • (f) where the related party is an entity, the book value of all investments by the bank and its subsidiaries in the securities of the entity

    would exceed 2 per cent of the regulatory capital of the bank.

  • Marginal note:Limit on transactions with directors, officers and their interests

    (2) A bank shall not, with respect to a related party of the bank referred to in subsection 496(1),

    • (a) make, take an assignment of or otherwise acquire a loan to the related party, including a margin loan referred to in section 498,

    • (b) make a guarantee on behalf of the related party, or

    • (c) make an investment in the securities of the related party

    if, immediately following the transaction, the aggregate of

    • (d) the principal amount of all outstanding loans to all related parties of the bank referred to in subsection 496(1) that are held by the bank and its subsidiaries, other than

      • (i) loans referred to in section 491, and

      • (ii) loans permitted by subsection 496(2),

    • (e) the sum of all outstanding amounts guaranteed by the bank and its subsidiaries on behalf of all related parties of the bank referred to in subsection 496(1), and

    • (f) the book value of all investments by the bank and its subsidiaries in the securities of all entities that are related parties of the bank referred to in subsection 496(1)

    would exceed 50 per cent of the regulatory capital of the bank.

  • Marginal note:Exclusion of de minimus transactions

    (3) Loans, guarantees and investments that are referred to in section 490 shall not be included in calculating the aggregate of loans, guarantees and investments referred to in subsections (1) and (2).

  • 1991, c. 46, s. 497
  • 1997, c. 15, s. 72

Marginal note:Margin loans

 The Superintendent may establish terms and conditions with respect to the making by a bank of margin loans to a director or senior officer of the bank.

  • 1991, c. 46, s. 498
  • 1997, c. 15, s. 73

Marginal note:Exemption by order

  •  (1) A bank may enter into a transaction with a related party of the bank if the Superintendent, by order, has exempted the transaction from the provisions of section 489.

  • Marginal note:Conditions for order

    (2) The Superintendent shall not make an order referred to in subsection (1) unless the Superintendent is satisfied that the decision of the bank to enter into the transaction has not been and is not likely to be influenced in any significant way by a related party of the bank and does not involve in any significant way the interests of a related party of the bank.

  • 1991, c. 46, s. 499
  • 1996, c. 6, s. 8

Marginal note:Prescribed transactions

 A bank may enter into a transaction with a related party of the bank if the transaction is a prescribed transaction or one of a class of prescribed transactions.

Restrictions on Permitted Transactions

Marginal note:Market terms and conditions

  •  (1) Except as provided in subsections 496(4) to (6), any transaction entered into with a related party of the bank shall be on terms and conditions that are at least as favourable to the bank as market terms and conditions.

  • Meaning of market terms and conditions

    (2) For the purposes of subsection (1), market terms and conditions means

    • (a) in respect of a service or a loan facility or a deposit facility offered to the public by the bank in the ordinary course of business, terms and conditions that are no more or less favourable than those offered to the public by the bank in the ordinary course of business; and

    • (b) in respect of any other transaction,

      • (i) terms and conditions, including those relating to price, rent or interest rate, that might reasonably be expected to apply in a similar transaction in an open market under conditions requisite to a fair transaction between parties who are at arm’s length and who are acting prudently, knowledgeably and willingly, or

      • (ii) if the transaction is one that would not reasonably be expected to occur in an open market between parties who are at arm’s length, terms and conditions, including those relating to price, rent or interest rate, that would reasonably be expected to provide the bank with fair value, having regard to all the circumstances of the transaction, and that would be consistent with the parties to the transaction acting prudently, knowledgeably and willingly.

  • 1991, c. 46, s. 501
  • 2001, c. 9, s. 130

 [Repealed, 1997, c. 15, s. 74]

Disclosure

Marginal note:Bank obligation

  •  (1) Where, in respect of any proposed transaction permitted by this Part, other than those referred to in section 490, a bank has reason to believe that the other party to the transaction is a related party of the bank, the bank shall take all reasonable steps to obtain from the other party full disclosure, in writing, of any interest or relationship, direct or indirect, that would make the other party a related party of the bank.

  • Marginal note:Reliance on information

    (2) A bank and any person who is a director or an officer, employee or agent of the bank may rely on any information contained in any disclosure received by the bank pursuant to subsection (1) or any information otherwise acquired in respect of any matter that might be the subject of such a disclosure and no action lies against the bank or any such person for anything done or omitted in good faith in reliance on any such information.

 
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