On June 11, 2008, the federal government published the new
Principal Protected Notes Regulations (the
Regulations), which are intended to come into force on July 1,
The Regulations were introduced in response to the growing
variety and complexity of principal protected notes currently
being offered by financial institutions and build on the
existing Index-linked Deposits Interest Disclosure
Regulations, which will be repealed with the adoption of
the new Regulations. The new requirements seek to ensure that
investors in PPNs are adequately informed by improving the
manner, content and timing of disclosure for these types of
The Regulatory Impact Analysis Statement, which accompanies
but does not form part of the Regulations, states that the new
requirements are intended to implement a "more
principles-based approach to regulation, which focuses on
outcomes rather than prescriptive check-lists." To that
end, section 2 of the Regulations sets out the underlying
principle of the new scheme, requiring disclosure be made in
language that is "clear and simple and in a manner that is
not misleading." Specific requirements, however, are also
prescribed. Section 3 specifies the information that must be
disclosed to investors, which includes, inter alia,
information regarding the term of the note, how interest is
accrued and limitations in respect of interest payable, any
risks associated with the note, the distinction between PPNs
and fixed-rate investments with respect to levels of risk and
return and any other information that could be reasonably
expected to affect an investor's purchasing decision.
Institutions must provide the information orally and in writing
at least two days prior to selling the notes to an investor,
however, exceptions are available if the agreement for the
issuance of PPNs is completed in person or electronically. The
Regulations also require that information be available on the
institution's website and in written format on
The value of PPNs on any specific day must also be disclosed
on request, and such information must include the net asset
value of the note or the last available measure of the index or
reference point on which the interest is determined, as well as
information with respect to how the value of the note or
relevant measure is related to the interest payable on the
note. The Regulations also specify the information to be
disclosed to investors prior to early redemption and regulate
the marketing of PPNs by requiring certain information be
included in any advertisements.
As mentioned above, the Regulations are expected to come
into force on July 1, 2008.
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.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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