As previously reported in more detail in our recent blog Canadian National Security Review Ends in Divestiture , as one of a number of closing conditions to its acquisition of Genworth Financial, Inc. (Genworth), China Oceanwide Holdings Group Co., Ltd. (Oceanwide) was required to obtain Canadian regulatory approval of its indirect acquisition of control of Genworth’s Canadian subsidiary Genworth MI Canada Inc. (Genworth Canada).

In considering whether to grant that approval, the Office of the Superintendent of Financial Institutions (OSFI) was required to consider a number of factors including the potential impact of the transaction on Canada’s “national security”. At issue from a national security perspective was Canada’s concern about China-based Oceanwide obtaining access to sensitive personal data regarding Genworth Canada’s Canadian customers.

When the Canadian regulator failed to grant its approval in a timely fashion, at least from the parties’ perspective, Genworth, in the words of its CEO, found itself with “no choice” but to dispose of Genworth Canada in order to remove the need for the OFSI clearance. Canadian headquartered Brookfield Business Partners L.P. (Brookfield) then stepped in to purchase Genworth’s 57% stake in Genworth Canada thus removing the Canadian national security roadblock to the closing of the Oceanwide/Genworth merger. Or so it was thought.

It now seems that OSFI views the Genworth/Brookfield transaction as also raising a potential national security concern. As a result, the clearance process that one might have assumed would be a smooth sailing experience for Brookfield has encountered some headwinds slowing that clearance process down.

Genworth reported in an earnings call on October 30, 2019 that an agreement entered into with Genworth Canada when it went public in 2009 requires Genworth to provide transition services to Genworth Canada for a 12 to 18 month period immediately following Genworth selling its majority stake in Genworth Canada.

Because Genworth will likely, for some period of time, be providing transition services to Genworth Canada, including IT infrastructure and accounting-related support functions, after Oceanwide has acquired control of Genworth, OSFI is concerned about Oceanwide’s ability to access sensitive personal data about Genworth Canada’s Canadian customers during that transition period. OSFI has now asked Genworth, Brookfield and Genworth Canada to work together to develop a mitigation plan to ensure that appropriate data protections are in place during the portion of the transition period that continues to run after the closing of Oceanwide’s purchase of Genworth.

Other than the OSFI clearance, Genworth reported that Genworth and Brookfield have received all other required approvals to complete the sale of Genworth Canada and that the parties are still targeting closing the transaction by the end of 2019. One question that remains is whether the parties, which now include Brookfield, will find OSFI more responsive to providing the requested clearance than it was when only Oceanwide and Genworth were asking for a similar decision.