Office of the Superintendent of Financial Institutions
This Guideline builds upon the following:
Self-dealing regime: The objective of the legislated self-dealing
regime is to preclude transactions that could inappropriately benefit
persons with influence over a federally regulated financial institutionFootnote 1 (FRFI). Concerns fall into two
that certain transactions result in owners and other related partiesFootnote 2 drawing inappropriate benefits that
could have a detrimental impact on the solvency of an FRFI, and
the perception that owners and other related parties drew
inappropriate benefits from certain transactions because of their
position of influence.
Consequently, subject to a number of specific exceptions in the FRFI
legislation and regulations, FRFIs cannot directly or indirectly enter
into a transaction with a related partyFootnote 3.
(For example, the FRFI legislation specifically permits an FRFI to make a
loan to a related party if the loan is fully secured by securities of or
guaranteed by the Government of Canada or the government of a provinceFootnote 4. Because the legislation specifically
permits this transaction, this Guideline has no application in regard to
This Guideline deals with the exceptions to this general prohibition on
related party transactions when measured by criteria that have been
established by an FRFI’s Conduct Review Committee (CRC) and approved in
writing by the SuperintendentFootnote 5.
Given that nominal or immaterial transactions are an exception to the
general prohibition on related party transactions, the criteria set out in
this Guideline should be interpreted restrictively.
This Guideline establishes criteria that the Superintendent considers
appropriate for FRFIs to use in determining whether a transaction with a
related party is nominal or immaterial. If the FRFI’s CRC has established
criteria at least as stringent as those set out in the Table of
Nominal/Immaterial Value Transactions in Part III of this Guideline,
these criteria will be deemed to have been approved by the Superintendent.
If an FRFI’s CRC would like to establish other materiality criteria,
OSFI will assess these individually. OSFI will require supporting
information as described in the OSFI’s Transaction Instruction on Related
Party Transactions of Nominal Value.
This Guideline also applies to the exception that permits FRFIs to
enter into certain transactions with a “narrow group” of related parties
that includes a director or senior officer of the FRFI or a spouse,
common-law partner or child who is less than eighteen years of age of the
director or senior officer or any entity controlled by a director or
senior officer of the FRFI or a spouse, common-law partner or child who is
less than eighteen years of age of the director or senior officer provided
that the person or the entity is a related party only
because of that connectionFootnote 6. The
legislation requires board approval to exceed legislated aggregate
exposure limits to this “narrow group”Footnote 7;
however, the legislation does not require nominal or immaterial
transactions to be included in the calculation of the aggregate exposure
to the “narrow group” when measured by criteria established by the FRFI’s
CRC and approved in writing by the SuperintendentFootnote 8.
In this context, transactions that are nominal or immaterial according to
criteria established by the FRFI’s CRC in accordance with this Guideline
will be excluded from the aggregate exposure to the “narrow group”
OSFI believes that virtually any act or agreement in which more than
one person is concerned, and through which relations between the persons
are altered, is a transaction. OSFI considers a series of payments related
to the same commitment to be one transaction, and not separate
transactions. For example, the acquisition or disposition of a $10 million
asset that is spread over 20 payments of $500,000 constitutes a $10
million transaction. OSFI does not subscribe to the view that these are 20
individual transactions for the purposes of this Guideline. Further, OSFI
believes that all transactions should be valued on a "gross" basis. OSFI
considers it inappropriate for an FRFI to measure a transaction against
materiality criteria based on the transaction's "net" impact. Accordingly,
for example, the sale of a $10 million building to a related party for
consideration of another building valued at $9.9 million and cash of
$100,000 constitutes a $10 million transaction. OSFI does not subscribe to
the view that these transactions have no net impact on the FRFI and hence,
are immaterial to it.
For the purposes of the Table of Nominal/Immaterial Value
Transactions in Part III of this Guideline:
The Table of Nominal/Immaterial Value Transactions in Part III
of this Guideline divides related party transactions into 6 categories
based on the nature of the transaction and the degree of associated risk.
Transactions at or under the "transaction threshold" are nominal or
immaterial and are not included in calculating the "aggregate threshold".
Transactions over the "transaction threshold" are nominal or immaterial
until the total value of all such transactions exceeds the "aggregate
No transaction over the “transaction threshold” may be entered into
that would cause the “aggregate threshold” to be exceeded.
In assessing whether the value of a transaction is immaterial or
nominal to the FRFI, the FRFI must assess the value of the transaction as
if it had been carried out on market terms and conditions.
Canadian banks, trust and loan
companies, life insurance companies, property and casualty insurance
companies, and cooperative credit associations incorporated or formed
under an Act of Parliament
Return to footnote 1 referrer
Parts XI of the Bank Act
(BA), the Trust and Loan Companies Act (TLCA) and the Insurance
Companies Act (ICA) and Part XII of the Cooperative Credit
Associations Act (CCAA) define who are related parties of FRFIs, and
set out rules for undertaking transactions with related parties.
Return to footnote 2 referrer
The legislative summary in this
Guideline is not intended to be a substitute for provisions of the
legislation. The reader is advised to refer to the provisions of the
legislation and not to rely solely on the interpretation of those
provisions contained in this Guideline.
Return to footnote 3 referrer
Subsections 491(a) of the BA,
479(a) of the TLCA, 525(a) of the ICA and 415(a) of the CCAA.
Return to footnote 4 referrer
The permission for nominal or
immaterial value transactions is found in section 490 of the BA, section
478 of the TLCA, section 522 of the ICA and section 414 of the
CCAA. Furthermore, these nominal or immaterial criteria are used for the
purposes of the exception set out at subsections 496(1) of the BA, 484(1)
of the TLCA, 529(1) of the ICA and 420(1) of the CCAA
Return to footnote 5 referrer
The permission is found in
subsections 496(1) of the BA, 484(1) of the TLCA, 529(1) of the
ICA and 420(1) of the CCAA. This narrow group may be larger if the
Superintendent has designated a related party or if a person is deemed to
be a related party by virtue of the legislation - subsections 486(3) and
(5) of the BA, 474 (3) and (5) of the TLCA, 518(3) and (5) of the
ICA and 410(3) and (5) of the CCAA.
Return to footnote 6 referrer
The limit is found in sections
497 of the BA, 485 of the TLCA, 530 of the ICA and 421 of the
Return to footnote 7 referrer
The limit is found in subsections
497(3) of the BA, 485(3) of the TLCA, 530(3) of the ICA and
421(3) of the CCAA.
Return to footnote 8 referrer