Publication
title
New Regulations Regarding Principal Protected Notes to Take Effect July 1, 2008
AUTHOR(S)
DATE
June 11, 2008
EXPERTISE
On July 1, 2008 new federal regulations regarding principal protected notes (PPNs) will come into force. These regulations respond to concerns about investments in PPNs given the increased variety and complexity of such products. The regulations will affect federally regulated financial institutions such as banks and trust companies which issue PPNs in Canada and are intended to ensure that consumers who purchase such products have sufficient information to make informed investment decisions.
The following are the key requirements introduced by the new regulations:
- All disclosure regarding PPNs must be clear, simple and not misleading.
- Certain oral and written disclosure must generally be given by a financial institution to an investor two days prior to entering into an agreement to purchase a PPN. Such disclosure must include the following information:
- the term of the PPN and when the principal will be repaid and the interest will be paid;
- any charges and their impact on the interest payable on the PPN;
- how interest accrues on the PPN;
- the difference between PPNs and fixed-rate investments, the circumstances in which a PPN could be an appropriate investment, and any risks associated with the PPN;
- whether the institution may amend the PPN and, if so, in what circumstances;
- the rights and terms of cancellation of the purchase of the PPN;
- the terms and conditions of any secondary market offered by the financial institution;
- a statement that the note relates to a deposit that is not eligible to be insured by CDIC, if such is the case;
- whether the PPN may be redeemed prior to maturity and, if so, that redemption prior to maturity may result in an investor receiving less than the principal amount of the PPN;
- whether the structure or administration of the PPN may place the financial institution in a conflict of interest;
- any other information which could reasonably be expected to affect an investor's decision to purchase the PPN; and
- a statement that the institution is obliged to disclose to any person on request the above information and the current value of a PPN investment.
- Oral disclosure will not be required where an agreement is entered into by electronic means provided the investor is given contact details of a person who is knowledgeable about the terms of the PPN.
- The above disclosure must also appear on the institution's website and be sent to any person who requests it.
- The regulations also require institutions to generally give notice to investors before making an amendment to a PPN that might have an impact on the interest payable under the PPN or before redeeming or purchasing a PPN prior to maturity.
- Advertisements issued regarding PPNs must include certain required disclosure.
The regulations repeal the Index-linked Deposits Interest Disclosure Regulations. Click here to view a copy of the proposed regulations.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
Contacts
Marc Duquette
Montréal
514.847.4508
mduquette@ogilvyrenault.com
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Geoffrey G. Gilbert
Ottawa
613.780.3764
ggilbert@ogilvyrenault.com
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Anne-Marie Naud
Québec
418.640.5058
anaud@ogilvyrenault.com
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Andrew Fleming
Toronto
416.216.4007
afleming@ogilvyrenault.com
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Walied Soliman
Toronto
416.216.4820
wsoliman@ogilvyrenault.com
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Peter S. Noble
London
011.442.1912
pnoble@ogilvyrenault.com
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