Bill C-38

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First Reading

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	Subsidiaries and Equity Investments
Permitted investments	468. (1) Subject to subsections (4) to (6) and Part XI, a bank may acquire control of, or acquire or increase a substantial investment in
	(a) a bank;
	(b) a bank holding company;
	(c) a body corporate to which the Trust and Loan Companies Act applies;
	(d) an association to which the Cooperative Credit Associations Act applies;
	(e) an insurance company or a fraternal benefit society incorporated or formed by or under the Insurance Companies Act;
	(f) an insurance holding company;
	(g) a trust, loan or insurance corporation incorporated or formed by or under an Act of the legislature of a province;
	(h) a cooperative credit society incorporated or formed, and regulated, by or under an Act of the legislature of a province;
	(i) an entity that is incorporated or formed by or under an Act of Parliament or of the legislature of a province and that is primarily engaged in dealing in securities; or
	(j) an entity that is incorporated or formed, and regulated, otherwise than by or under an Act of Parliament or of the legislature of a province and that is primarily engaged outside Canada in a business that, if carried on in Canada, would be the business of banking, the business of a cooperative credit society, the business of insurance, the business of providing fiduciary services or the business of dealing in securities.
Permitted investments	(2) Subject to subsections (3) to (6) and Part XI, a bank may acquire control of, or acquire or increase a substantial investment in, an entity, other than an entity referred to in any of paragraphs (1)(a) to (j), whose business is limited to one or more of the following:
	(a) engaging in any financial service activity that a bank is permitted to engage in under any of paragraphs 409(2)(a) to (d) or any other activity that a bank is permitted to engage in under section 410 or 411;
	(b) acquiring or holding shares of, or ownership interests in, entities in which a bank is permitted under this Part to hold or acquire;
	(c) engaging in the provision of any services exclusively to any or all of the following, so long as the entity is providing those services to the bank or any member of the bank's group, namely,
	(i) the bank,
	(ii) any member of the bank's group,
	(iii) any entity that is primarily engaged in the business of providing financial services,
	(iv) any permitted entity in which an entity referred to in subparagraph (iii) has a substantial investment, or
	(v) any prescribed person, if it is doing so under prescribed terms and conditions, if any are prescribed;
	(d) engaging in any activity that a bank is permitted to engage in, other than an activity referred to in paragraph (a) or (e), that relates to
	(i) the promotion, sale, delivery or distribution of a financial product or financial service that is provided by the bank or any member of the bank's group, or
	(ii) if a significant portion of the business of the entity involves an activity referred to in subparagraph (i), the promotion, sale, delivery or distribution of a financial product or financial service that is provided by any other entity that is primarily engaged in the business of providing financial services;
	(e) engaging in the activities referred to in the definition ``mutual fund entity'', ``mutual fund distribution entity'' or ``real property brokerage entity'' in subsection 464(1); and
	(f) engaging in prescribed activities, under prescribed terms and conditions, if any are prescribed.
Restriction	(3) A bank may not acquire control of, or acquire or increase a substantial investment in, an entity whose business includes any activity referred to in any of paragraphs (2)(a) to (e) if the entity engages in the business of accepting deposit liabilities or if the activities of the entity include
	(a) activities that a bank is not permitted to engage in under any of sections 412, 415, 417 and 418;
	(b) activities that a bank is not permitted to engage in under section 416 if the entity engages in the activities of a finance entity or of any other entity as may be prescribed;
	(c) acquiring control of or acquiring or holding a substantial investment in an entity that a bank is not permitted to control or in which a bank is not permitted to have a substantial investment, except as may be permitted under paragraph 466(3)(b) or (c) or subsection 466(4); or
	(d) any prescribed activity.
Control	(4) Subject to subsection (8) and the regulations, a bank may not acquire control of, or acquire or increase a substantial investment in,
	(a) an entity referred to in paragraph (1)(a) or (b), unless
	(i) the bank controls, within the meaning of paragraphs 3(1)(a) and (d), the entity or would thereby acquire control, within the meaning of those paragraphs, of the entity, or
	(ii) the bank is permitted by regulations made under paragraph 474(a) to acquire or increase the substantial investment;
	(b) an entity referred to in any of paragraphs (1)(c) to (j) or an entity that is primarily engaged in acquiring or holding shares or other ownership interests in entities in which a bank is permitted under this Part to hold or acquire, unless
	(i) the bank controls, within the meaning of paragraph 3(1)(d), the entity, or would thereby acquire control, within the meaning of that paragraph, of the entity, or
	(ii) the bank is permitted by regulations made under paragraph 474(a) to acquire or increase the substantial investment; or
	(c) an entity whose business includes one or more of the activities referred to in paragraph (2)(a) and that engages, as part of its business, in any financial intermediary activity that exposes the entity to material market or credit risk, including a finance entity, a factoring entity, a financial leasing entity and a specialized financing entity, unless
	(i) the bank controls, within the meaning of paragraph 3(1)(d), the entity, or would thereby acquire control, within the meaning of that paragraph, of the entity, or
	(ii) the bank is permitted by regulations made under paragraph 474(a) to acquire or increase the substantial investment.
Minister's approval	(5) Subject to the regulations, a bank may not, without the prior written approval of the Minister,
	(a) acquire control of an entity referred to in any of paragraphs (1)(g) to (i) from a person who is not a member of the bank's group;
	(b) acquire control of an entity referred to in paragraph (1)(j) or (4)(c), other than an entity whose activities are limited to the activities of one or more of the following entities, if the control is acquired from an entity referred to in any of paragraphs (1)(a) to (f) that is not a member of the bank's group:
	(i) a factoring entity,
	(ii) a financial leasing entity, or
	(iii) a specialized financing entity;
	(c) acquire control of, or acquire or increase a substantial investment in, an entity whose business includes one or more of the activities referred to in paragraph (2)(d);
	(d) acquire control of, or acquire or increase a substantial investment in, an entity that engages in an activity described in paragraph 410(1)(c) or (c.1); or
	(e) acquire control of, or acquire or increase a substantial investment in, an entity engaging in an activity prescribed for the purposes of paragraph (2)(f).
Superinten- dent's approval	(6) Subject to subsection (7) and the regulations, a bank may not acquire control of, or acquire or increase a substantial investment in, an entity referred to in any of paragraphs (1)(g) to (j) or (4)(c) unless the bank obtains the approval of the Superintendent.
Exception	(7) Subsection (6) does not apply in respect of a particular transaction if the Minister has approved the transaction under subsection (5) or is deemed to have approved it under subsection 469(1).
Control not required	(8) A bank need not control an entity referred to in paragraph (1)(j), or an entity that is incorporated or formed otherwise than by or under an Act of Parliament or of the legislature of a province, if the laws or customary business practices of the country under the laws of which the entity was incorporated or formed do not permit the bank to control the entity.
Giving up control prohibited	(9) A bank that controls, within the meaning of paragraphs 3(1)(a) and (d), an entity referred to in paragraph (1)(a) or (b) may not give up control, within the meaning of paragraph 3(1)(a) or (d), of the entity while continuing to control, within the meaning of the other paragraph, the entity.
Prohibition on giving up control in fact	(10) A bank that, under paragraph (4)(b) or (c), controls an entity may not, without the prior written approval of the Minister, give up control, within the meaning of paragraph 3(1)(d), of the entity while it continues to control the entity.
Giving up control	(11) A bank that, under subsection (4), controls an entity may give up control of the entity while keeping a substantial investment in the entity if
	(a) the bank is permitted to do so by regulations made under paragraph 474(c); and
	(b) the bank has the prior written approval of the Superintendent.
Subsections do not apply	(12) If a bank controls, within the meaning of paragraph 3(1)(a), an entity, subsections (5) and (6) do not apply in respect of any subsequent increases by the bank of its substantial investment in the entity so long as the bank continues to control the entity.
Approval for indirect investments	469. (1) If a bank obtains the approval of the Minister under subsection 468(5) to acquire control of, or to acquire or increase a substantial investment in, an entity and, through that acquisition or increase, the bank indirectly acquires control of, or acquires or increases a substantial investment in, another entity that would require the approval of the Minister under subsection 468(5) or the Superintendent under subsection 468(6) and that indirect acquisition or increase is disclosed to the Minister in writing before the approval is obtained, the bank is deemed to have obtained the approval of the Minister or the Superintendent for that indirect acquisition or increase.
Approval for indirect investments	(2) If a bank obtains the approval of the Superintendent under subsection 468(6) to acquire control of, or to acquire or increase a substantial investment in, an entity and, through that acquisition or increase the bank indirectly acquires control of, or acquires or increases a substantial investment in, another entity that would require the approval of the Superintendent under that subsection and that indirect acquisition or increase is disclosed to the Superintendent in writing before the approval is obtained, the bank is deemed to have obtained the approval of the Superintendent for that indirect acquisition or increase.
Undertakings	470. (1) If a bank controls a permitted entity, other than an entity referred to in any of paragraphs 468(1)(a) to (f), the bank shall provide the Superintendent with any undertakings that the Superintendent may require regarding
	(a) the activities of the entity; and
	(b) access to information about the entity.
Undertakings	(2) If a bank acquires control of an entity referred to in any of paragraphs 468(1)(g) to (j), the bank shall provide the Superintendent with any undertakings concerning the entity that the Superintendent may require.
Agreements with other jurisdictions	(3) The Superintendent may enter into an agreement with the appropriate official or public body responsible for the supervision of an entity referred to in any of paragraphs 468(1)(g) to (j) in each province or in any other jurisdiction concerning any matters referred to in paragraphs (1)(a) and (b) or any other matter the Superintendent considers appropriate.
Access to records	(4) Despite any other provision of this Part, a bank shall not control a permitted entity, other than an entity referred to in any of paragraphs 468(1)(a) to (f), unless the bank obtains from the permitted entity an undertaking to provide the Superintendent with reasonable access to the records of the permitted entity in the course of the acquisition of control or within a reasonable time after control is acquired.
	Exceptions and Exclusions
Temporary investments in entity	471. (1) Subject to subsection (4), a bank may, by way of a temporary investment, acquire control of, or acquire or increase a substantial investment in, an entity but, within two years, or any other period that may be specified or approved by the Superintendent, after acquiring control or after acquiring or increasing the substantial investment, as the case may be, it shall do all things necessary to ensure that it no longer controls the entity or has a substantial investment in the entity.
Transitional	(2) Despite subsection (1), if a bank that was in existence immediately before June 1, 1992 had an investment in an entity on September 27, 1990 that is a substantial investment within the meaning of section 10 and the bank subsequently increases that substantial investment by way of a temporary investment, the bank shall, within two years, or any other period that is specified or approved by the Superintendent, after increasing the substantial investment, do all things necessary to ensure that its substantial investment in the entity is no greater than it was on September 27, 1990.
Extension	(3) The Superintendent may, in the case of any particular bank that makes an application under this subsection, extend the period of two years, or the other period specified or approved by the Superintendent, that is referred to in subsection (1) or (2) for any further period or periods, and on any terms and conditions, that the Superintendent considers necessary.
Temporary investment	(4) If a bank, by way of temporary investment, acquires control of, or acquires or increases a substantial investment in, an entity for which the approval of the Minister under subsection 468(5) is required, the bank must, within 90 days after acquiring control or after acquiring or increasing the substantial investment,
	(a) apply to the Minister for approval to retain control of the entity or to continue to hold the substantial investment in the entity for a period specified by the Minister or for an indeterminate period on any terms and conditions that the Minister considers appropriate; or
	(b) do all things necessary to ensure that, on the expiry of the 90 days, it no longer controls the entity or does not have a substantial investment in the entity.
Indetermi- nate extension	(5) If a bank, by way of temporary investment, acquires control of, or acquires or increases a substantial investment in, an entity for which the approval of the Superintendent under subsection 468(6) is required, the Superintendent may, in the case of any particular bank that makes an application under this subsection, permit the bank to retain control of the entity or to continue to hold the substantial investment in the entity for an indeterminate period, on any terms and conditions that the Superintendent considers necessary.
Loan workouts	472. (1) Despite anything in this Part, if a bank or any of its subsidiaries has made a loan to an entity and, under the terms of the agreement between the bank, or any of its subsidiaries, and the entity with respect to the loan and any other documents governing the terms of the loan, a default has occurred, the bank may acquire
	(a) if the entity is a body corporate, all or any of the shares of the body corporate;
	(b) if the entity is an unincorporated entity, all or any of the ownership interests in the entity;
	(c) all or any of the shares or all or any of the ownership interests in any entity that is an affiliate of the entity; or
	(d) all or any of the shares of a body corporate that is primarily engaged in holding shares of, ownership interests in or assets acquired from the entity or any of its affiliates.
Obligation of bank	(2) If a bank acquires shares or ownership interests in an entity under subsection (1), the bank shall, within five years after acquiring them, do all things necessary to ensure that the bank does not control the entity or have a substantial investment in the entity.
Transitional	(3) Despite subsection (1), if a bank that was in existence immediately before June 1, 1992 had an investment in an entity on September 27, 1990 that is a substantial investment within the meaning of section 10 and the bank later increases that substantial investment by way of an investment made under subsection (1), the bank shall, within five years after increasing the substantial investment, do all things necessary to ensure that its substantial investment in the entity is no greater than it was on September 27, 1990.
Extension	(4) The Superintendent may, in the case of any particular bank that makes an application under this subsection, extend the period referred to in subsection (2) or (3) for any further period or periods, and on any terms and conditions, that the Superintendent considers necessary.
Exception - entities controlled by foreign governments	(5) Despite anything in this Part, if a bank has made a loan to, or holds a debt obligation of, the government of a foreign country or an entity controlled by the government of a foreign country and, under the terms of the agreement between the bank and that government or the entity, as the case may be, and any other documents governing the terms of the loan or debt obligation, a default has occurred, the bank may acquire all or any of the shares of, or ownership interests in, that entity or in any other entity designated by that government, if the acquisition is part of a debt restructuring program of that government.
Time for holding shares	(6) If a bank acquires any shares or ownership interests under subsection (5), the bank may, on any terms and conditions that the Superintendent considers appropriate, hold those shares or ownership interests for an indeterminate period or for any other period that the Superintendent may specify.

Bill C-38

Subsidiaries and Equity Investments

Exceptions and Exclusions