Title or working title of the regulatory initiative:
Regulations Amending the Related Party Transactions (Banks) Regulations, Regulations Amending the Related Party Transactions (Insurance Companies) Regulations, Regulations Amending the Related Party Transactions (Trust and Loan Companies) Regulations, and Regulations Amending the Related Party Transactions (Cooperative Credit Associations) Regulations (collectively, the Regulations)
Description of the objective:
Because related parties can exercise influence over a federally-regulated financial institution (a “FRFI”) that they may be related to, the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, and the Trust and Loan Companies Act (the “Acts”) restrict the types of transactions that a FRFI may undertake with its related parties, such as a director.
The Related Party Transactions (Banks) Regulations, the Related Party Transactions (Cooperative Credit Associations) Regulations, the Related Party Transactions (Insurance Companies) Regulations and the Related Party Transactions (Trust and Loan Companies) Regulations (collectively, the “Related Party Transactions Regulations”) allow for some categories of transactions to be undertaken between a FRFI and a related party.
The Related Party Transactions Regulations will be amended to prescribe two additional types of transactions as permitted transactions: (1) transactions related to the acquisition of actively traded securities of a third party from a related party, the disposition of actively traded securities to a related party, and the acquisition of actively traded securities of a related party, and (2) transactions related to the taking of a security interest in securities of a related party if, in the event of default, recourses are not limited to those securities and if it is for the purpose of good risk management.
Additionally, The Regulations Amending the Related Party Transactions (Banks) Regulations and the Regulations Amending the Related Party Transactions (Trust and Loan Companies) Regulations also clarify that the exception that permits a Schedule II bank (foreign bank subsidiary) to enter into related party transactions that form an integral part of banking services offered to customers does not apply in respect of deposits. Deposits with a related party are only permissible if they meet the conditions of any of the self-dealing provisions that expressly deal with deposits.
The Regulations are made pursuant to section 500 of the Bank Act, section 533 of the Insurance Companies Act, section 424 of the Cooperative Credit Associations Act, and section 488of the Trust and Loan Companies Act.
Indication of business impacts:
There are no expected business impacts.
Public consultation opportunities:
On August 11, 2008, OSFI publicly released a Draft Guideline E-6 – Materiality Criteria for Related Party Transactions for consultation. At that time, OSFI also solicited comments on the policy that formed the basis for the Regulations.
Further consultations with the industry associations on a near-final draft of the regulations took place in August of 2010, which resulted in minor comments.
Industry associations were provided with a final version of the regulations in June 2012, which confirmed that OSFI had sufficiently addressed their earlier comments and concerns.
OSFI will conduct a further round of consultation with the industry associations, to ensure that the Regulations are reflective of recent changes in the financial industry including accounting standards and industry practices. OSFI will commence these consultations in 2017-2018.
Interested stakeholders will have a further opportunity to review and comment on the proposed amendments as part of the formal regulation-making process when the regulatory proposal is pre-published in the Canada Gazette, Part I. Pre-publication is planned to occur in 2017-2018.
Departmental contact:
For more information
To learn about upcoming or ongoing consultations on proposed federal regulations, visit the Canada Gazette and Consulting with Canadians websites.