Principal-protected Notes Regulations

Principal-protected Notes Regulations 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. 37 S.C. 2007, c. 6, s. 93 S.C. 1991, c. 46 S.C. 2007, c. 6, s. 170 S.C. 1991, c. 48 S.C. 2007, c. 6, s. 368 S.C. 1991, c. 45 Definitions The following definitions apply in these Regulations. institution means [Repealed, SOR/2021-181, s. 104] a retail association, as defined in section 2 of the Cooperative Credit Associations Act; or a company, as defined in section 2 of the Trust and Loan Companies Act. (institution) 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 has the same meaning as in subsection 627.01(1) of the Bank Act. (billet à capital protégé) 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. 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: 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; and [Repealed, SOR/2020-47, s. 9] 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. 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. 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. 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: 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 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. 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. Detailed information The information referred to in paragraphs 3(a) to (l) respecting the principal-protected notes offered by an institution must be disclosed by the institution in a full and complete manner on its websites through which products or services are offered in Canada; and in written format to be sent to any person who requests it. Information — current value An institution must disclose the following information 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; or 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. 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. 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. 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 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; 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); and 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). Required content — all advertisements In 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 payable In each of its advertisements that refer to features of principal-protected notes or the interest payable under them, an institution must also disclose the 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; and 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. Market performance 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] July 1, 2008 These Regulations come into force on July 1, 2008.