Canada: In Brief - Canadian Legislative Framework Introduced For Covered Bonds

On April 26, 2012 the Canadian government introduced legislation which provides a framework for the issuance of covered bonds by Canadian financial institutions. The framework is intended to make the market for Canadian covered bonds more robust and increase financial stability by helping lenders find new sources of funding. It implements the measures introduced by the federal government in its budget on March 29, 2012 and follows through on the government's 2010 commitment to introduce covered bond legislation and a public consultation on covered bonds undertaken by the government last year. Covered bonds are debt obligations issued by financial institutions which, in the Canadian context, are secured by a cover pool of insured and uninsured mortgage loans and other substitute assets held in a special purpose vehicle thereby isolating the collateral from the assets of the financial institution issuer to ensure they are available for covered bond holders in the event of an insolvency of the issuer.


The key highlights of the framework are:

  • the establishment of a publicly accessible registry maintained by the Canadian Mortgage and Housing Corporation (CMHC) containing details of any registered programs. Issuers will need to apply for registration to issue and for their covered bond programs and applications will be required to include certain prescribed information (essentially a detailed description of the program and any additional information that in CMHC's opinion is required).
  • CMHC will have discretion as to whether it will register a particular issuer or covered bond program and to establish conditions or restrictions applicable to registered issuers and registered programs. CMHC will also have the authority to suspend the right of a registered issuer to issue further covered bonds under a registered program and to impose cost-recovery based fees for administering the framework.
  • registered issuers will be permitted to withdraw from the framework when they have no covered bonds outstanding under a registered program.
  • only federal financial institutions (such as banks, insurance companies and loan and trust corporations) and provincially regulated co-operative credit societies will be entitled to register under the legislative framework. Corresponding amendments have been proposed to the federal legislation governing such issuers prohibiting them from issuing covered bonds outside of the framework.
  • permitted collateral will include loans made on security of residential property located in Canada and consisting of not more than four residential units and may include other prescribed assets. Residential mortgages insured by CMHC and other identified private insurers and high ratio mortgages will no longer be allowed as collateral for covered bond programs. Government of Canada securities and other assets yet to be prescribed (to a limit of 10% of the collateral) may also be held as covered bond collateral.
  • in the event of an insolvency or bankruptcy of a registered issuer, the framework confirms that the separately held collateral will be available to service its registered covered bond program and that the transfer of the collateral to the special purpose vehicle for the registered program cannot be attacked.

Impact of the framework

The proposed legislation is very much a broad based framework and can be expected to be complemented by guidance from CMHC and potentially regulations made by the Minister of Finance.

The framework does not impose a maximum level of overcollateralization for registered programs as was alluded to in the consultation process or impose valuation or monitoring requirements. However, it is possible that CMHC guidelines will address these issues. The issuance limit of 4% of adjusted assets of the issuer imposed by the Office of the Superintendent of Financial Institutions (OSFI) on federal financial institutions is not affected by the legislation but again may be the subject of CMHC guidance or left with OSFI to determine.

The major shift of the legislation from current practice is to prohibit the inclusion of insured mortgages as acceptable collateral for Canadian covered bond programs and to prohibit the issuance of covered bonds outside of the framework. Those current issuers with insured collateral in their programs will be required to reconstitute their cover pools for issues of covered bonds after the legislation is adopted and comes into force (expected in a matter of months).

In addition, the implementation of a legislative regime for the issuance of covered bonds will expand the group of investors outside Canada and the United States that may invest in covered bonds of Canadian issuers, particularly in Europe, where certain investors are limited to investing in covered bonds which are covered by specific covered bond legislation. However, full expansion of the scope of investors in the European Economic Area (EEA) will require amendment to European legislation covering mutual funds and regulated financial institutions to provide the same advantages to issuers outside of the Eurpoean Union to those provided to EEA issuers.

The proposed legislation also places CMHC under the purview of OSFI.

Norton Rose Group

Norton Rose Group is a leading international legal practice. We offer a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.

Knowing how our clients' businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.

We have more than 2900 lawyers operating from 43 offices in Abu Dhabi, Almaty, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels, Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.

Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.

On January 1, 2012, Macleod Dixon joined Norton Rose Group adding strength and depth in Canada, Latin America and around the world. For more information please visit

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.