Bill C-38

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First Reading

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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.
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.
Transitional	483. Nothing in this Part requires
	(a) the termination of a loan made before June 25, 1999;
	(b) the termination of a loan made after that date as a result of a commitment made before that date;
	(c) the disposal of an investment made before that date; or
	(d) the disposal of an investment made after that date as a result of a commitment made before that date.
	But if the loan or investment would be precluded or limited by this Part, the amount of the loan or investment may not, except as provided in subsections 471(2), 472(3) and 473(3), be increased after that date.
Saving	484. A loan or investment referred to in section 483 is deemed not to be prohibited by the provisions of this Part.
	122. Subsection 487(2) of the Act is amended by striking out the word ``or'' at the end of paragraph (b) and by adding the following after paragraph (c):
	(d) transactions approved by the Minister under subsection 678(1) of this Act or subsection 715(1) of the Insurance Companies Act; or
	(e) if a bank is controlled by a widely held bank holding company or a widely held insurance holding company, transactions approved by the Superintendent that are entered as part of, or in the course of, a restructuring of the holding company or of any entity controlled by it.
	123. The Act is amended by adding the following after section 488:
Deeming	488.1 For the purposes of this Part, a transaction between a bank and another person is deemed to be a transaction with a related party of the bank if the proceeds of the transaction are transferred to or used for the benefit of a related party of the bank or if the transaction otherwise benefits a related party of the bank.
	124. The Act is amended by adding the following after section 495:
Transactions with holding companies	495.1 (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.
Policies and procedures	(2) The bank shall adhere to policies and procedures established under subsection 195(3) when entering into the transaction.
Restriction	495.2 (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.
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.
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.
Assets transactions	495.3 (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 twelve months ending immediately before the acquisition or transfer; and
	C is five per cent, or the percentage that may be prescribed, of the value of the total assets of the bank, as shown in the last annual statement of the bank prepared before the acquisition or transfer.
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.
Exception	(3) The approval of the Superintendent is not required if
	(a) the bank sells assets under a sale agreement that is approved by the Minister under section 236;
	(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; or
	(c) the transaction has been approved by the Minister under subsection 678(1) of this Act or subsection 715(1) of the Insurance Companies Act.
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.
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.
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.
	125. Paragraph 501(2)(b) of the Act is replaced by the following:
	(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 each party to the transaction 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.
	126. Section 506 of the Act is replaced by the following:
Order to void contract or to grant other remedy	506. (1) If a bank enters into a transaction that it is prohibited from entering into by this Part, the bank or the Superintendent may apply to a court for an order setting aside the transaction or for any other appropriate remedy, including an order directing that the related party of the bank involved in the transaction account to the bank for any profit or gain realized or that any director or senior officer of the bank who authorized the transaction compensate the bank for any loss or damage incurred by the bank.
Time limit	(2) An application under subsection (1) in respect of a particular transaction may only be made within the period of three months following the day the notice referred to in section 505 in respect of the transaction is given to the Superintendent or, if no such notice is given, the day the Superintendent becomes aware of the transaction.
Certificate	(3) For the purposes of subsection (2), a document purporting to have been issued by the Superintendent, certifying the day on which the Superintendent became aware of the transaction, shall, in the absence of evidence to the contrary, be received in evidence as conclusive proof of that fact without proof of the signature or of the official character of the person appearing to have signed the document and without further proof.
1991, c. 47, par. 756(1)(b); 1994, c. 47, s. 26; 1997, c. 15, ss. 76 to 85; 1999, c. 28, ss. 27 to 34, c. 31, s. 15(F)	127. Part XII of the Act is replaced by the following:
	PART XII
	FOREIGN BANKS
	Interpretation and Application
Definitions	507. (1) In this Part,
``Canadian financial entity'' « entité financière canadienne »	``Canadian financial entity'' means a Canadian entity, other than a prescribed Canadian entity or a Canadian entity referred to in any of paragraphs 468(1)(a) to (i), that
	(a) engages in any activity that a bank is permitted to engage in under section 409, including an activity referred to in the definition ``specialized financing entity'' in this subsection,
	(b) engages in any activity referred to in the definitions ``mutual fund entity'' and ``mutual fund distribution entity'' in this subsection,
	(c) engages in a prescribed activity, under prescribed terms and conditions, if any are prescribed,
	(d) engages in any activity referred to in paragraph 518(5)(d) on the conditions referred to in that paragraph, except an activity excluded by the regulations as not being a financial activity,
	(e) engages in any activity referred to in paragraphs (a) to (d) as an agent for another entity referred to in any of those paragraphs, or
	(f) acquires or holds control of, or a substantial investment in, an entity referred to in any of paragraphs (a) to (e);
``entity associated with a foreign bank'' « entité liée à une banque étrangère »	``entity associated with a foreign bank'' means an entity associated with a foreign bank within the meaning of subsection (2);
``factoring entity'' « entité s'occupant d'affactu- rage »	``factoring entity'' means a Canadian entity that is a factoring entity as defined in the regulations;
``finance entity'' « entité s'occupant de financement »	``finance entity'' means a Canadian entity that is a finance entity as defined in the regulations;
``financial leasing entity'' « entité s'occupant de crédit-bail »	``financial leasing entity'' means a Canadian entity that is a financial leasing entity as defined for the purposes of Part IX;
``foreign cooperative credit society'' « société coopérative de crédit étrangère »	``foreign cooperative credit society'' means an entity that is incorporated or formed, and regulated, by or under the laws of a country other than Canada and that, outside Canada, is engaged in the business of a cooperative credit society;
``foreign insurance company'' « société d'assurances étrangère »	``foreign insurance company'' means a foreign company as defined in subsection 2(1) of the Insurance Companies Act;
``foreign securities dealer'' « courtier de valeurs mobilières étranger »	``foreign securities dealer'' means an entity that is incorporated or formed, and regulated, by or under the laws of a country other than Canada and that, outside Canada, is engaged in the business of dealing in securities;
``mutual fund distribution entity'' « courtier de fonds mutuels »	``mutual fund distribution entity'' means a Canadian entity that is a mutual fund distribution entity as defined in the regulations;
``mutual fund entity'' « entité s'occupant de fonds mutuels »	``mutual fund entity'' means a Canadian entity that is a mutual fund entity as defined in the regulations;
``non-bank affiliate of a foreign bank'' « établisseme nt affilié à une banque étrangère »	``non-bank affiliate of a foreign bank'' means a Canadian entity - other than a bank - in which a foreign bank or an entity associated with a foreign bank holds a substantial investment, or that is controlled by a foreign bank or an entity associated with a foreign bank, but a Canadian entity is not a non-bank affiliate of a foreign bank by reason only that a bank that is a subsidiary of the foreign bank or the entity associated with a foreign bank controls or has a substantial investment in the Canadian entity;
``permitted entity'' « entité admissible »	``permitted entity'' means
	(a) an entity in which a bank is permitted to acquire a substantial investment under section 468,
	(b) an entity in which a foreign bank or an entity associated with a foreign bank is permitted to acquire a substantial investment under paragraph 516(1)(b) or section 518, other than under subsection 518(17), or
	(c) a prescribed entity;
``real property brokerage entity'' « courtier immobilier »	``real property brokerage entity'' means a Canadian entity that is a real property brokerage entity as defined in the regulations;
``representa- tive office'' « bureau de représenta- tion »	``representative office'' means an office established to represent a foreign bank in Canada that is not subject to the direction of, or management by, an entity incorporated or formed by or under an Act of Parliament or of the legislature of a province, and the personnel of which are employed directly or indirectly by the foreign bank;
``specialized financing entity'' « entité s'occupant de financement spécial »	``specialized financing entity'' means a Canadian entity that is a specialized financing entity as defined in the regulations.
When entity associated with foreign bank	(2) For the purposes of this Part,
	(a) an entity is associated with a foreign bank if
	(i) the entity controls, or is controlled by, the foreign bank,
	(ii) the entity and the foreign bank are controlled by the same person,

Bill C-38

PART XII

FOREIGN BANKS

Interpretation and Application