Currently, a security interest in a deposit account is perfected
by filing a financing statement under the Ontario Personal
Property Security Act ("PPSA").
This can create a challenge for lenders and swap counterparties as
there is no way to take priority over creditors with pre-existing
registrations without asking those creditors for releases or
estoppels. This in turn may create significant delay for those
lenders and swap counterparties who need to take security over cash
On March 27, 2012, in connection with the 2012 Ontario budget,
the Government of Ontario announced plans to put forward changes to
the PPSA consistent with the intent of a proposal from the Ontario
Bar Association. The Ontario Bar Association's Personal
Property Security Law Subcommittee's proposal recommends
amending the PPSA to introduce a "control" regime for
deposit accounts and other forms of cash collateral (comparable to
the regime in the U.S.). If the promised amendments are
implemented, it would be a significant improvement for secured
parties taking security over cash collateral.
Proposed Amendments to PPSA
The proposed amendments would create a new class of collateral,
"financial accounts", defined broadly to include any form
of deposit account maintained by a financial institution and other
similar items. "Financial institution" would also be
defined broadly to include any type of financial entity that
maintains deposit accounts for customers, or receives cash
collateral as security. However, "consumer accounts"
(i.e., accounts maintained by natural persons primarily for
personal, family or household purposes) would be excluded from the
Under the proposal, perfecting a security interest in a
financial account could be accomplished by either:
filing a financing statement (as the current PPSA provides);
taking "control" (the crux of the amendment to the
PPSA, since control will give the secured party priority over all
other creditors who do not have control).
There are three ways proposed to take "control" over a
financial account, similar to the means for taking control over a
securities account under the Securities Transfer Act (Ontario)
(1) Automatic: The secured party will
automatically have control if it is the financial institution that
is obligated to a customer to pay a financial account (i.e., the
debtor transfers funds to a financial institution to secure an
obligation to such financial institution, giving rise to an account
receivable with no deposit account established).
(2) Control Agreement: If the financial
account is with a third party financial institution (or the
financial institution is acting in more than one capacity), the
secured party, the debtor and the financial institution may enter
into a control agreement over the account.
(3) Transfer to the Financial Institution's A
ccount: The secured party will have control if it is the
customer with respect to the financial account (i.e., the account
is in its name at a third party financial institution).
Similar to the STA, this new regime will look to the financial
institution's jurisdiction to determine what law governs the
perfection of the security interest, with a number of rules to
determine the financial institution's jurisdiction (including
the option of specifying a jurisdiction in the relevant
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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