Office of the Superintendent of Financial Institutions
Draft Guideline E-6 – Materiality Criteria for Related Party
Transactions establishes criteria for determining whether a
transaction with a related party is nominal or immaterial for the purposes
of the legislation governing federally regulated financial institutions
The revisions to the Guideline are intended to achieve three objectives:
provide additional clarity where necessary.
reflect legislative changes to the self-dealing regime
that have occurred since the original guidelines were issued. For
example, the removal of categories that apply to legislatively
permitted transactions. Under the current regime, materiality criteria
are only needed to allow for some prohibited transactions to be
conducted when they are immaterial to the FRFI. Therefore, some
categories listed in the original E-6 guidelines are no longer
consolidate and harmonize the three separate FRFI
sector guidelines into one in support of OSFI’s commitment to
providing a level playing field for all sectors.
Reference should be made to the Guideline Impact Analysis Statement
for a more detailed discussion of these objectives.
In addition to the implementation of this Guideline, OSFI intends to
propose a regulation that will prescribe as permitted transactions the
following two transaction categoriesFootnote 1:
Where the related party transaction consists of:
Taking a security interest in Actively Traded securities of a related
party provided that, in the event of default, the FRFI’s recourse is not
limited to the Securities.
The regulation would provide more formal clarity and transparency
regarding transactions that would be exempt from the self-dealing regime.
The more formal legal drafting used in the regulations to describe the
permitted transactions will likely differ from the Guideline, but the
substance will not change and there will be no practical impact on
institutions subject to the Guideline. OSFI will consult with the industry
on the proposed draft regulation.
OSFI expects the materiality criteria in the revised Guideline to be
implemented within one year of the effective date of the proposed
regulation. Companies that chose to establish their own materiality
criteria instead of adopting the criteria in the Guideline are expected to
seek the Superintendent's written approval of their criteria prior to the
effective date of the Guideline. In reviewing these requests, OSFI will
require supporting information as described in the OSFI document entitled
Transaction instruction of applications subject to deemed approval
process found on OSFI’s Web site at http://www.osfi-bsif.gc.ca/eng/documents/guidance/docs/trans20.pdf.
We would appreciate receiving comments on this draft Guideline or the
proposed Regulations by October 15, 2008. Please forward any comments you
have to Laural Ross, Director, Special Projects, Legislation and
Approvals, at 613-990-6972, by facsimile at 613-998-6716 or by email at firstname.lastname@example.org.
The regulation making authority
is Bank Act section 500, Insurance Companies Act of Canada
section 533, Trust and Loan Companies Act section 488 and
Cooperative Credit Associations Act section 424.
Return to footnote 1 referrer
"Actively Traded Securities"
refers to a Security that trades on a recognized stock exchange,
commodities exchange or over-the-counter market for which the market value
is readily ascertainable. However, a Security acquired through a private
placement or public offering where there is not a significant public float
does not meet the conditions of actively traded.
Return to footnote 2 referrer