Substantial Investments* Requiring Superintendent Approval – Permitted Entites

Document Properties

  • Type of Publication: Transaction Instructions
  • Revised: May 2016
  • Index DA No: 13
  • Category: Deemed Approval

*As defined in section 10 of the BA, the TLCA and the ICA and section 12 of the CCAA.

Legislative Authorities

Information Requirements

The applicant is generally expected to provide:

1. the name of the entity or proposed entity in respect of which approval is requested under the Legislative Authorities;

2. a description of the transaction, including:

  1. the rationale for the transaction,
  2. the amount and type of consideration, including the terms of payment,
  3. the details of the ownership interests proposed to be acquired by the applicant, including the number and percentage of each type of ownership interest to be acquired, and whether the applicant will also control the entity, and
  4. where the ownership interests are acquired from a person other than the entity itself, the name of that person and, if applicable, a description of the nature of the applicant's affiliation with that person;

3. a detailed description of each of the entity's business activities, and:

  1. if the applicant is of the view that the entity is a "regulated entity"Footnote 1, an analysis in support of the applicant's view,
  2. where the entity is not a "regulated entity", a detailed analysis setting out why each of its business activities are authorizedFootnote 2 and not restrictedFootnote 3, and
  3. in all cases, a detailed analysis setting out why the applicant is required to seek an approval;

4. where the applicant will not acquire control of the entity, a confirmation that:

  1. the Minority Investment Regulations allow the applicant to acquire or increase the substantial investment in the entity, together with an analysis in support of this confirmation, or
  2. the acquisition is not required to be made in compliance with the Minority Investment Regulations, together with an analysis in support of this confirmation;Footnote 4

5. details regarding the level of internal approval required with regard to the transaction (e.g., board of directors, board committee or senior management), based on the applicant's policies, as well as evidence that the transaction was approved at the appropriate level (e.g., relevant excerpts from the minutes of the meeting during which the transaction was approved);

6. the entity's most recent annual financial statements, together with the report of the auditor thereon (where available), and the entity's most recent interim financial statements;

7. where the entity is a "regulated entity":

  1. the identity of its primary regulator,
  2. the name and contact information of a regulatory contact person,
  3. details regarding whether approval from the entity's primary regulator is required to enter into the transaction or whether the entity's primary regulator must be notified about the transaction, and where any of these requirements apply, confirmation that they have been met,
  4. details of the framework that the entity must abide by when making investments, where the applicant will acquire control of the entity,
  5. copies of the balance sheet, income statement and capital ratios of the entity for the past 3 years, and
  6. a copy of the most recent examination report with regard to the entity by its primary regulator or, if such report cannot be provided, any views that such regulator may provide regarding the entity;

8. if applicable, a description of the applicant's proposed changes to the entity's board of directors, senior management and business activities;

9. an analysis of the effect of the transaction on the financial position and risk profile of the applicant, including:

  • details regarding the projected changes to the applicant's balance sheet – where the transaction is material to the applicant, these details are expected to be in the form of a comparative pro forma balance sheet (pre- and post-transaction) including relevant assumptions,
  • details regarding the projected changes to the applicant's capital position – where the transaction is material to the applicant, these details are expected to be in the form of a comparative pro forma capital position (pre- and post-transaction) that confirms compliance with the applicant's internal targetFootnote 5 and with OSFI's requirements applicable to the applicant, together with relevant assumptions and a breakdown of:
    • in the case of a deposit-taking institution, all elements used to calculate:
      1. the capital ratios, in accordance with the Capital Adequacy Requirements Guideline,
      2. the leverage ratio, in accordance with the Leverage Requirements Guideline, and
      3. the liquidity coverage ratio, in accordance with the Liquidity Adequacy Requirements Guideline,
    • in the case of a life insurance company, all elements used to calculate the Minimum Continuing Capital and Surplus Requirements, or
    • in the case of a property and casualty insurance company, all elements of the Minimum Capital Test,
  • if the transaction is material to the applicant or will present a material change in the business strategy of the applicant:
    1. in the case of a deposit-taking institution, a revised internal solvency assessment process document (e.g., Internal Capital Adequacy Assessment Process),
    2. in the case of an insurance company, a revised scenario stress testing report (e.g., Dynamic Capital Adequacy Testing),
    3. three years of financial projections with respect to the applicant, including income statement, balance sheet, capital ratios and key assumptionsFootnote 6,
    4. where applicable, a revised business plan for the applicant,
    5. an integration plan for the acquisition, including any changes the applicant proposes to make to its policies and procedures, and
    6. where the applicant has a recovery plan, a description of the material revisions that it will make to the plan as a result of the transaction, including the timelines outlining when the revisions will be made, and
  • a confirmation that, following the transaction, the applicant will be in compliance with its relevant policies including those related to liquidity, capital management, risk management and investments.

Administrative Guidance

1. There may be cases where an applicant that seeks the Minister's or Superintendent's approval to acquire control of an entity (the TopCo Acquisition) will, as a result of the TopCo Acquisition, also acquire control of, or acquire or increase a substantial investment in, another entity (the BottomCo Acquisition) for which the Superintendent's approval is also required. If the applicant obtains the TopCo Acquisition approval, the statutes deem the applicant to have obtained the BottomCo Acquisition approval so long as, prior to obtaining the TopCo Acquisition approval, the applicant discloses in writing to the Minister or the Superintendent, as applicable, the BottomCo Acquisition.Footnote 7

Where an applicant seeks to use this deemed approval feature, the applicant is generally expected to provide, along with its application for the TopCo Acquisition approval, the information listed in items 1, 3, 4, 6, 7 and 8 of the Information Requirements above with respect to the BottomCo Acquisition.

2. For additional guidance regarding the substantial investment regime, including with regard to "permitted entities", please refer to Advisory 2015-01 – Substantial Investments.

3. Where an applicant acquires control of a permitted entity, the applicant must generally obtain from the entity an undertaking to provide the Superintendent with reasonable access to the records of the entity.Footnote 8

4. The Superintendent may consider whether the proposed transaction would hinder the effective implementation of corrective measures in the future, and may request information to that effect.

5. Applicants are reminded about the protocol for the initial submission of documents in support of requests for approval.

6. Requests for approval(s) addressed in this document are not subject to a service charge.Footnote 9

The information requirements and administrative guidance are intended to satisfy typical applications. They have been derived from OSFI's experience in assessing applications. Applicants who provide all information and material requested can generally expect a more timely assessment of their applications. As appropriate to the circumstances, OSFI may request additional information, take into account other matters, impose terms and conditions, or require undertakings.

Footnotes

Footnote 1

An entity is a "regulated entity" if it is listed in subsections 468(1) or 930(1) of the BA, 453(1) of the TLCA, 495(1) or 971(1) of the ICA, or 390(1) of the CCAA, as the case may be.

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Footnote 2

Business activities that are authorized are listed in subsections 468(2) or 930(2) of the BA, 453(2) of the TLCA, 495(2) or (4) or 971(2) of the ICA, and 390(2) of the CCAA, as the case may be.

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Footnote 3

Business activities that are restricted are listed in subsections 468(3) or 930(3) of the BA, 453(3) of the TLCA, 495(3) or (5) or 971(3) of the ICA, and 390(3) of the CCAA, as the case may be.

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Footnote 4

See subsections 468(4) and (8), or 930(4) and (8), of the BA, 453(4) and (8) of the TLCA, 495(6) and (10), or 971(4) and (8), of the ICA, and 390(4) and (8) of the CCAA, as the case may be.

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Footnote 5

Where the applicant's internal target will be revised as a result of the transaction, the reference to "internal target" above, in the immediately post-transaction context, is to the revised target.

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Footnote 6

To the extent this information is not already provided under an information requirement referred to above.

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Footnote 7

See sections 469 and 931 of the BA, 496 and 972 of the ICA, 454 of the TLCA, and 391 of the CCAA, as the case may be.  Note that these deeming provisions do not apply where the TopCo Acquisition requires the Superintendent's approval and the BottomCo Acquisition requires the Minister's approval.

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Footnote 8

See subsections 470(4) and 932(4) of the BA, 497(4) and 973(4) of the ICA, 455(4) of the TLCA, and 392(4) of the CCAA, as the case may be.

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Footnote 9

Please see Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations 2002.

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