Specialized Financing (Banks) Regulations

SOR/2001-428

Registration 4 October, 2001

BANK ACT

Specialized Financing (Banks) Regulations

P.C. 2001-1799 4 October, 2001

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 467^a, 474^a and 978^b of the Bank Act^c, hereby makes the annexed Specialized Financing (Banks) Regulations.

^a S.C. 2001, c. 9, s. 127^b S.C. 2001, c. 9, s. 183^c S.C. 1991, c. 146

SPECIALIZED FINANCING (BANKS) REGULATIONS

INTERPRETATION

Definitions

1. (1) The following definitions apply in these Regulations.

"Act" « Loi »

"Act" means the Bank Act. (Loi)

"book value" « valeur comptable »

"book value", in respect of the shares and ownership interests held by an entity, means the book value reported on the entity's balance sheet on an unconsolidated basis. (valeur comptable)

"specialized financing entity of the bank" « entité de la banque s'occupant de financement spécial »

"specialized financing entity of the bank" means a specialized financing entity that is controlled by the bank or in which the bank holds a substantial investment. (entité de la banque s'occupant de financement spécial)

"subsidiary" « filiale »

"subsidiary", in respect of a bank, does not include a subsidiary that is a specialized financing entity of the bank. (filiale)

Definition of "specialized financing entity"

(2) In these Regulations and for the purpose of the definition "specialized financing entity" in subsection 464(1) of the Act, "specialized financing entity" means an entity that acquires or holds shares of, or ownership interests in, entities that a bank may acquire control of, or hold, acquire or increase a substantial investment in, under subsection 466(4) of the Act.

GENERAL

Application

2. These Regulations apply to specialized financing activities under subsection 466(4) of the Act and to the ownership by a bank of shares of, or ownership interests in, a specialized financing entity under paragraph 468(2)(b) of the Act.

CONDITIONS

Limits on investments

3. A bank shall not, by way of specialized financing activities, acquire control of, or hold, acquire or increase a substantial investment in,

(a) an entity referred to in any of paragraphs 468(1)(a) to (j) of the Act;

(b) an entity that is primarily engaged in the leasing of motor vehicles in Canada for the purpose of extending credit to a customer or financing a customer's acquisition of a motor vehicle;

(c) an entity that is primarily engaged in providing temporary possession of personal property, including motor vehicles, to customers in Canada for a purpose other than to finance the customer's acquisition of the property; or

(d) an entity that acts as an insurance broker or agent in Canada.

Length of investment

4. A bank shall not, by way of specialized financing activities, hold control of, or hold a substantial investment in, an entity for more than 13 consecutive years.

Maximum authorized investment

5. A bank shall not, by way of specialized financing activities, acquire control of, or hold, acquire or increase a substantial investment in, an entity if the aggregate book value of the shares and ownership interests that the bank, any subsidiary of the bank and any specialized financing entity of the bank hold or would hold in the entity is more than $250 million.

Limit of 10% of regulatory capital

6. A bank shall not, by way of specialized financing activities, acquire control of, or hold, acquire or increase a substantial investment in, an entity if the sum of the following exceeds 10% of the bank's regulatory capital:

(a) the aggregate book value of the shares and ownership interests that the bank and its subsidiaries, whether individually or jointly, would acquire in the entity,

(b) the aggregate value of outstanding loans made by the bank and its subsidiaries, whether individually or jointly, to the specialized financing entities of the bank, and

(c) the aggregate book value of the shares and ownership interests held by the bank and its subsidiaries, whether individually or jointly, in the specialized financing entities of the bank, in the entities controlled by the bank by way of specialized financing activities, and in the entities in which the bank holds a substantial investment by way of specialized financing activities.

Limit of 25% of regulatory capital -- investment in a specialized financing entity

7. (1) A bank shall not, by way of specialized financing activities, acquire control of, or hold, acquire or increase a substantial investment in, an entity controlled by a specialized financing entity of the bank or an entity in which the specialized financing entity of the bank holds a substantial investment, if the sum of the following exceeds or would exceed 25% of the bank's regulatory capital:

(a) the aggregate book value of the shares and ownership interests held by the bank and its subsidiaries, whether individually or jointly, in the specialized financing entity of the bank, in the entities controlled by the specialized financing entity of the bank and in the entities in which that specialized financing entity holds a substantial investment, and

(b) the aggregate value of outstanding loans that the bank and its subsidiaries, whether individually or jointly, have made to the specialized financing entity of the bank, to the entities controlled by the specialized financing entity of the bank and to the entities in which that specialized financing entity holds a substantial investment.

Limit of 25% of regulatory capital -- investment in an entity

(2) A bank shall not, by way of specialized financing activities, acquire control of, or hold, acquire or increase a substantial investment in, an entity, other than by way of an investment of a specialized financing entity controlled by the bank, if the sum of the following exceeds 25% of the bank's regulatory capital:

(a) the aggregate book value of the shares and ownership interests that the bank and its subsidiaries, whether individually or jointly, would acquire in the entity,

(b) the aggregate book value of the shares and ownership interests held by the bank and its subsidiaries, whether individually or jointly, in the entities controlled by the bank by way of specialized financing activities and in the entities in which the bank holds a substantial investment by way of specialized financing activities, other than entities that the bank has acquired control of, or a substantial investment in, by way of an investment of a specialized financing entity of the bank, and

(c) the aggregate value of outstanding loans that the bank and its subsidiaries, whether individually or jointly, have made to the entities controlled by the bank by way of specialized financing activities and to the entities in which the bank holds a substantial investment by way of specialized financing activities, other than entities that the bank has acquired control of, or a substantial investment in, by way of an investment of a specialized financing entity of the bank.

ACQUISITION OF SPECIALIZED FINANCING ENTITIES

Definition of "non-controlling interest"

8. (1) In this section, "non-controlling interest" means an equity interest, in a specialized financing entity of the bank controlled by a specialized financing entity, that is held by a person other than the bank or an entity controlled by the bank.

Ownership restrictions

(2) A bank shall not acquire or hold control of, or hold, acquire or increase a substantial investment in, a specialized financing entity if

(a) the value of the outstanding debt obligations, other than those payable to the bank or to entities controlled by the bank, of the specialized financing entity and any specialized financing entity of the bank controlled by the specialized financing entity, as reported on their respective balance sheets on an unconsolidated basis, exceeds twice the value of the sum of the following, namely,

(i) the value of the excess of assets over liabilities of the specialized financing entity as reported on its balance sheet on an unconsolidated basis, and

(ii) the value of the non-controlling interests as reported on the balance sheet of the specialized financing entity on a consolidated basis;

(b) the specialized financing entity controls or holds shares of, or ownership interests in, any of the entities referred to in paragraphs 3(a) to (d);

(c) the aggregate book value of the shares and ownership interests, other than shares or ownership interests held by the specialized financing entity in a specialized financing entity of the bank that it controls, that the bank, the specialized financing entity, the subsidiaries of the bank and the other specialized financing entities of the bank hold, or would hold, in an entity that the specialized financing entity holds control of, or a substantial investment in, is more than $250 million;

(d) the sum of the values under paragraphs 6(a) to (c) exceeds or would exceed 10% of the bank's regulatory capital; or

(e) the sum of the values under paragraphs 7(1)(a) and (b) exceeds or would exceed 25% of the bank's regulatory capital.

13 year limit

(3) A bank shall not hold control of, or a substantial investment in, a specialized financing entity of the bank if either the specialized financing entity of the bank or the specialized financing entity of the bank and one or more of the following entities, one after another, have held control of, or a substantial investment in, an entity, other than an entity described in subsection (4), for more than 13 consecutive years:

(a) the bank; or

(b) any other specialized financing entity of the bank.

Exception

(4) A specialized financing entity of the bank controlled by the specialized financing entity of the bank shall not be considered for the purpose of subsection (3).

Prior periods not included

(5) If a specialized financing entity of the bank held control of, or a substantial investment in, an entity for a period before becoming the specialized financing entity of the bank, that period shall not be considered for the purpose of subsection (3).

Control not required

9. Subsection 468(4) of the Act does not apply to a bank's acquisition or increase of a substantial investment in an entity by way of specialized financing activities in accordance with these Regulations.

Approvals not required

10. Subsections 468(5) and (6) of the Act do not apply to a bank's acquisition of control of, or its acquisition or increase of a substantial investment in, an entity by way of specialized financing activities in accordance with these Regulations.

REPEAL

Repeal

11. The Specialized Financing Corporation (Banks) Regulations¹ are repealed.

¹ SOR/92-357

COMING INTO FORCE

Coming into force

12. These Regulations come into force on the day on which sections 467, 474 and 978 of the Bank Act, as enacted by sections 127 and 183 of the Financial Consumer Agency of Canada Act, chapter 9 of the Statutes of Canada, 2001, come into force.

*[Note: Regulations in force October 24, 2001, see SI/2001-102.]