D. Permitted Investments

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 165-167

Page 165

Historically, banks have been prohibited from engaging in financial services offered by other financial institutions in the financial services sector and have also been prohibited from owning shares in other corporations in excess of 10 percent of the voting shares of any class of shares. The policy reason was to ensure that excessive economic power was not concentrated in the banking sector. However, in 1991, the Bank Act was amended to permit banks to have substantial investments in certain specific entities, which in turn offer various financial services to the public that banks are prohibited from offering directly

Page 166

themselves. After these amendments, the largest banks in Canada acquired substantial investments in trust companies and stock brokerages, as well as in other companies as permitted by the Act. After the 2001 amendments to the Act permitting bank holding companies to own substantial investments in various financial institutions, including banks, the corporate structures of the major banks were reorganized again into the financial groups that presently exist. Thus, it may be said that banks are also engaged indirectly in, or are closely associated with, various other types of financial services historically prohibited to them. The statutory provisions regulating these activities, set out in Part IX of the Act, are complex and beyond the scope of this text. However, a brief overview of the main provisions should suffice here.

Banks are permitted to acquire control in a substantial investment only in certain expressly permitted entities, including a bank, a bank holding company, a trust and loan company, an insurance company, an insurance holding company, a securities company, or a cooperative credit society,¹¹⁴as well as certain other entities such as those involved in providing services exclusively to the bank or any member of the bank’s group.¹¹⁵

The Act makes provision for a number of restrictions on such acquisitions, of which the most important is the restriction on purchasing entities that engage in accepting deposit liabilities if their other activities include activities in which banks are not permitted to engage in directly such as fiduciary or insurance activities.¹¹⁶

Banks require approvals from both the Minister of Finance and the Superintendent of Financial Institutions for certain acquisitions such as trust, loan or insurance companies,¹¹⁷but are permitted to acquire a substantial investment...