CSA staff (but for Quebec) published an update today to supplement their previous notices on Principal Protected Notes (the most recent being published in August 2008). The notice provides an update on the CSA's work with IIROC and the MFDA to ensure that suitability and know-your-client obligations apply to all dealings in PPNs by registered representatives. The notice also sets out the CSA's expectations that deposit-taking institutions will use registered dealers and individuals to distribute PPNs that do not fall within a limited class.
Of interest, the notice states that IIROC and the MFDA will soon be issuing notices to their members setting out the expectation that all dealings in PPNs by registered representatives be transacted by the representatives in their capacity as an employee or agent of their member firm.
Issues with the sales of PPNs were also highlighted in IIROC's August 2010 publication of findings and recommendations emanating from its compliance review regarding the sale of PPNs.
With respect to deposit-taking institutions, the CSA state that they will continue to monitor the distribution of PPNs and may take further action should they become aware that sales practices of such institutions do not accord with expectations. As discussed by Phil Henderson when they were first introduced, PPN distribution by federally regulated financial institutions is also governed by the Principal Protected Notes Regulations. For more information, see CSA Multilateral Staff Notice 46-306.
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