The Bank Act (Canada) (the "Act") and a
number of other federal statutes relating to financial institutions
must, by law, be reviewed every five years. The most recent review
process has culminated in Bill S-5 (the Bill) which is entitled the
Financial System Review Act (the FSRA).The Bill had first
reading in the Senate on November 23, 2011, and requires second and
third readings in the Senate, first through third readings in the
House of Commons and then Royal Assent before the FSRA can come
Bank Act Security and the Impact of Recent
Part VIII of the Act provides banks listed under Schedules I and
II of the Act, and authorized foreign banks, the right to advance
funds on the security of certain collateral listed in section 427
of the Act.
Last year the Supreme Court of Canada (SCC) issued twodecisions in which it determined that an
unperfected Personal Property Security Act (PPSA) security
interest had priority over a subsequent but perfected security
interest under section 427 of the Act. The result of these SCC
decisions undermined the utility of the Act security and has
resulted in its non-use by Canadian banks.
The Bill includes proposed amendments to the Act security regime
addressing the priority of the Act security in light of these SCC
decisions. In summary, the Act, when amended, will include a
statement that security properly taken under the Act has priority
over a PPSA security interest (or any other security interest) that
was unperfected at the time the Act security was taken except if
the relevant bank, when it acquires the Act security, has knowledge
of such unperfected security interest. It remains to be seen
whether Canadian banks are satisfied with the legal effect of such
proposed amendments such that Act security will once again be
Kashif Zaman is a partner in the firm's
Financial Institutions Group.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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