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Principal Protected Notes Regulations (SOR/2008-180)

Regulations are current to 2019-08-28 and last amended on 2016-06-14. Previous Versions

Principal Protected Notes Regulations

SOR/2008-180

BANK ACT

COOPERATIVE CREDIT ASSOCIATIONS ACT

TRUST AND LOAN COMPANIES ACT

Registration 2008-05-29

Principal Protected Notes Regulations

P.C. 2008-979 2008-05-29

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 459.4Footnote a and 576.2Footnote b of the Bank ActFootnote c, section 385.28Footnote d of the Cooperative Credit Associations ActFootnote e and section 444.3Footnote f of the Trust and Loan Companies ActFootnote g, hereby makes the annexed Principal Protected Notes Regulations.

Interpretation

Marginal note:Definitions

 The following definitions apply in these Regulations.

institution

institution means

interest

interest, in relation to a principal protected note, includes any return payable under the note by an institution in respect of the principal. (intérêt)

principal protected note

principal protected note means a financial instrument that is issued in Canada by an institution to an investor and that

  • (a) provides 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, including

    • (i) the market price of a security, commodity, investment fund or other financial instrument, and

    • (ii) the exchange rate between any two currencies; and

  • (b) provides 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. (billet à capital protégé)

  • SOR/2011-98, s. 10

Manner of Disclosure

Marginal note:Clear and simple language

 Any 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 Issuance

Marginal note:Information that must be disclosed

 Subject 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:

  • (a) the term of the note, and how and when the principal is to be repaid and the interest, if any, is to be paid;

  • (b) any charges and their impact on the interest payable;

  • (c) how interest is accrued, and any limitations in respect of the interest payable;

  • (d) any risks associated with the note, including, if applicable, the risk that no interest may accrue;

  • (e) the distinction between principal protected notes and fixed-rate investments with respect to the levels of risk and return;

  • (f) the circumstances in which a principal protected note could be an appropriate investment;

  • (g) 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;

  • (h) 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;

  • (i) the terms and conditions of any secondary market offered by the institution;

  • (j) whether the investor may cancel their purchase of the note and, if so, how the purchase may be cancelled;

  • (k) whether the note provides that the institution may amend the note and, if so, in what circumstances;

  • (l) whether the manner in which the note is structured or administered may place the institution in a conflict of interest;

  • (m) any other information that could reasonably be expected to affect an investor’s decision to purchase the note; and

  • (n) that 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.

  • SOR/2016-142, s. 3(F)

Marginal note:Exception — agreements entered into in person

 The 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.

Marginal note:Exception — agreements entered into by electronic means

 An 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.

Marginal note:Institutions that have made a public commitment

 The 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:

  • (a) 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; and

  • (b) if 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.

Marginal note:Calculation of time — disclosure by mail

 An 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 Disclosure

Marginal note:Detailed information

 The 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 manner

  • (a) on its websites through which products or services are offered in Canada; and

  • (b) in written format to be sent to any person who requests it.

Marginal note:Information — current value

 An 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:

  • (a) the net asset value of the note on the specified day and how that value is related to the interest payable under the note; or

  • (b) the 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.

Marginal note:Information — amendments

 Before 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.

Marginal note:Information — index or reference points

 If 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.

Marginal note:Information — early redemption

 Before redeeming or purchasing a principal protected note before its maturity on the request of an investor, an institution must disclose to the investor

  • (a) the 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;

  • (b) the amount of any penalty or charge;

  • (c) 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); and

  • (d) when 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).

Marginal note:Required content — all advertisements

  •  (1) In each of its advertisements for principal protected notes, an institution must disclose how the public may obtain information about the notes.

  • Marginal note:Required content — advertisements referring to a note’s features or interest payable

    (2) In each of its advertisements that refer to features of principal protected notes or the interest payable under them, an institution must also disclose

    • (a) the manner in which interest is to be accrued, and any limitations in respect of the interest payable;

    • (b) 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;

    • (c) 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; and

    • (d) if 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.

  • Marginal note:Market performance

    (3) An 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 Force

Marginal note:July 1, 2008

 These Regulations come into force on July 1, 2008.

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