B-1.01Bank ActC-41.01Cooperative Credit Associations ActT-19.8Trust and Loan Companies ActSOR/2008-18020085
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201301
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BANK ACTCOOPERATIVE CREDIT ASSOCIATIONS ACTTRUST AND LOAN COMPANIES ACTPrincipal Protected Notes RegulationsP.C.2008-97920085
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Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 459.4a and 576.2b of the Bank Actc, section 385.28d of the Cooperative Credit Associations Acte and section 444.3f of the Trust and Loan Companies Actg, hereby makes the annexed Principal Protected Notes Regulations.S.C. 2007, c. 6, s. 37S.C. 2007, c. 6, s. 93S.C. 1991, c. 46S.C. 2007, c. 6, s. 170S.C. 1991, c. 48S.C. 2007, c. 6, s. 368S.C. 1991, c. 45INTERPRETATIONDefinitionsThe following definitions apply in these Regulations.institutioninstitutioninstitution meansa bank, as defined in section 2 of the Bank Act;an authorized foreign bank, as defined in section 2 of the Bank Act;a retail association, as defined in section 2 of the Cooperative Credit Associations Act; ora company, as defined in section 2 of the Trust and Loan Companies Act.interestintérêtinterest, in relation to a principal protected note, includes any return payable under the note by an institution in respect of the principal.principal protected notebillet à capital protégéprincipal protected note means a financial instrument that is issued in Canada by an institution to an investor and thatprovides for one or more payments to be made by the institution that is determined, in whole or in part, by reference to an index or reference point, includingthe market price of a security, commodity, investment fund or other financial instrument, andthe exchange rate between any two currencies; andprovides that the principal amount that the institution is obligated to repay at or before the note’s maturity is equal to or more than the total paid by the investor for the note.A principal protected note does not include a financial instrument that specifies that the interest or return on the instrument is solely determined on the basis of a fixed rate of interest or return or a variable rate of interest or return that is calculated from the institution’s prime lending rate or bankers’ acceptance rate.
SOR/2011-98, s. 10.
Previous VersionMANNER OF DISCLOSUREClear and simple languageAny disclosure that is required to be made by an institution under these Regulations must be made in language that is clear and simple and in a manner that is not misleading.DISCLOSURE BEFORE ISSUANCEInformation that must be disclosedSubject to sections 4 to 6, an institution must provide — at least two days before entering into an agreement to issue a principal protected note to an investor — a synopsis of the following information to the investor orally, by means of a person who is knowledgeable about the terms and conditions of the note, and in writing:the term of the note, and how and when the principal is to be repaid and the interest, if any, is to be paid;any charges and their impact on the interest payable;how interest is accrued, and any limitations in respect of the interest payable;any risks associated with the note, including, if applicable, the risk that no interest may accrue;the distinction between principal protected notes and fixed-rate investments with respect to the levels of risk and return;the circumstances in which a principal protected note could be an appropriate investment;if the note relates to a deposit that is not eligible for deposit insurance coverage by the Canada Deposit Insurance Corporation, the fact that it is not eligible;whether the note may be redeemed before its maturity and, if so, that redemption before maturity may result in the investor receiving less than the principal amount;the terms and conditions of any secondary market offered by the institution;whether the investor may cancel their purchase of the note and, if so, how the purchase may be cancelled;whether the note provides that the institution may amend the note and, if so, in what circumstances;whether the manner in which the note is structured or administered may place the institution in a conflict of interest;any other information that could reasonably be expected to affect an investor’s decision to purchase the note; andthat the information referred to in section 8 is available on request and that the information referred to in section 9 is available on request after the note is issued.Exception — agreements entered into in personThe disclosure referred to in section 3 may be provided at any time before entering into the agreement for the issuance of a principal protected note if the institution and the investor expressly consent to it and the agreement is entered into in person.Exception — agreements entered into by electronic meansAn institution, other than an institution referred in section 6, that enters into an agreement for the issuance of a principal protected note by electronic means is not required to provide the oral disclosure referred to in section 3. However, at least two days before entering into the agreement the institution must disclose, in addition to the written disclosure referred to in section 3, the telephone number of a person who is knowledgeable about the terms and conditions of the note.Institutions that have made a public commitmentThe following rules apply in respect of an agreement to issue a principal protected note that is entered into by electronic means or by telephone by an institution that has made a public commitment referred to in paragraph 3(2)(c) of the Financial Consumer Agency of Canada Act to allow an investor to cancel the purchase of a principal protected note within two or more days after the day on which the agreement is entered into or, if it is later, the day on which the disclosure required by this section is provided:if the agreement is entered into by electronic means, the institution is not required to make the oral disclosure referred to in section 3 but the institution must provide the written disclosure referred to in that section before entering into the agreement and must provide the telephone number of a person who is knowledgeable about the terms and conditions of the note before, or without delay after, entering into the agreement; andif the agreement is entered into by telephone, the institution must provide the oral disclosure referred to in section 3 before entering into the agreement and must provide the written disclosure referred to in that section before, or without delay after, entering into the agreement.Calculation of time — disclosure by mailAn institution that provides the written disclosure referred to in section 3 by mail is deemed to have provided the disclosure five business days after the postmark date.ADDITIONAL DISCLOSUREDetailed informationThe information referred to in paragraphs 3(a) to (m) respecting the principal protected notes offered by an institution must be disclosed by the institution in a full and complete manneron its websites through which products or services are offered in Canada; andin written format to be sent to any person who requests it.Information — current valueAn institution must disclose the following information without delay to an investor who makes an inquiry concerning the value of their principal protected note on a specified day:the net asset value of the note on the specified day and how that value is related to the interest payable under the note; orthe last available measure, before the specified day, of the index or reference point on which the interest is determined and how that measure is related to the interest payable under the note.Information — amendmentsBefore making an amendment to a principal protected note that may have an impact on the interest payable under the note, the institution must disclose the amendment, and its potential impact on the interest payable, in writing to the investor. If it is not possible to disclose the amendment before making it, the institution must disclose it without delay after it is made.Information — index or reference pointsIf a principal protected note ceases to be linked to an index or reference point that was to be used to determine the interest payable under the note and, as a result, no interest will be paid, the institution must disclose that fact to the investor without delay.Information — early redemptionBefore redeeming or purchasing a principal protected note before its maturity on the request of an investor, an institution must disclose to the investorthe value of the note on the last business day before the day that the investor requests the redemption or purchase, or the value of the note based on the last available measure of the index or reference point on which the interest is determined;the amount of any penalty or charge;the net amount that the investor would have received for the redemption or purchase after deducting the amount referred to in paragraph (b) from the value of the note referred to in paragraph (a); andwhen and how the value of the note will be calculated, and the fact that the value of the note may differ from the value referred to in paragraph (a).Required content — all advertisementsIn each of its advertisements for principal protected notes, an institution must disclose how the public may obtain information about the notes.Required content — advertisements referring to a note’s features or interest payableIn each of its advertisements that refer to features of principal protected notes or the interest payable under them, an institution must also disclosethe manner in which interest is to be accrued, and any limitations in respect of the interest payable;if the advertisement gives an example of a situation in which interest would be payable, an example of another situation in which no interest would be payable;if the advertisement gives an example of a situation in which interest would be payable that is in addition to any minimum interest that is guaranteed, an example of another situation in which only the minimum interest would be payable; andif the notes relate to deposits that are not eligible for deposit insurance coverage by the Canada Deposit Insurance Corporation, the fact that they are not eligible.Market performanceAn institution that uses past market performance in an advertisement for a principal protected note shall represent that performance fairly and, if hypothetical examples are used, the assumptions underlying those examples must be realistic and must be disclosed in the advertisement. The institution must also disclose in the advertisement that past market performance is not an indicator of future market performance.REPEAL[Repeal]COMING INTO FORCEJuly 1, 2008These Regulations come into force on July 1, 2008.