Canadian securities regulators issue guidance on bail-in debt regime

Toronto – The Canadian Securities Administrators (CSA) today published two notices outlining CSA staff’s views regarding the implementation of the bail-in debt regime for domestic systemically important banks (D-SIBs), which include Canada’s six largest banks, and for Quebec’s Desjardins Group. The first notice (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018 addresses the distribution or trade of bail-in debt to investors and the second notice (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018"CSA Staff Notice, 81-331, Investment Funds, Investing, Bail-in Debt" provides guidance for investment fund issuers that may invest in bail-in debt.

Under the new federal bail-in debt regime, which comes into force on September 23, 2018, if the Office of the Superintendent of Financial Institutions (OSFI) determines that a D-SIB is no longer viable, then the federal government may turn control of the D-SIB to the Canada Deposit Insurance Corporation (CDIC). As the appointed receiver, CDIC has the authority to convert all, or a portion of the D-SIB’s bail-in debt (D-SIB Bail-in Debt), into common shares to recapitalize the bank.

“We are publishing these two notices to provide greater clarity for persons offering this type of investment, including the expectations about disclosure and the associated risks,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “To protect investors from the potential risks of investing in bail-in debt, registered dealers must comply with regulatory requirements and investment fund managers must understand the risks.”

CSA Staff Notice 46-309 (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018Bail-in Debt (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018 clarifies that bail-in debt has additional risks to investors that are distinct from the risks of other types of “unsubordinated debt”. The notice also clarifies that, subject to specific exemptions, the trading or distribution of bail-in debt by persons or companies in the business of trading in securities to investors located in Canada must be done through a registered dealer and in accordance with relevant investor protection requirements under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Requirements (NI 31-103) This link will open in a new window.

CSA Staff Notice 81-331 (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018"CSA Staff Notice, 81-331, Investment Funds, Investing, Bail-in Debt"Investment Funds Investing in Bail-in Debt (pdf - 80 KB)This link will open in a new windowUpdated on August 23, 2018"CSA Staff Notice, 81-331, Investment Funds, Investing, Bail-in Debt" clarifies that D-SIB Bail-in Debt is an eligible investment for a money market fund only if the D-SIB Bail-in Debt continues to meet the prescribed eligibility requirements applicable to money market funds, to ensure the safety and liquidity of such fund’s portfolio assets. The notice also outlines other requirements for investment fund managers that will or may hold D-SIB Bail-in Debt, including the requirement that they fully understand and take into consideration key features and risks of D-SIB Bail-in Debt to their investment funds.

CSA staff will continue to monitor developments regarding the implementation of the bail-in debt regime and will consider whether additional guidance is needed in this area.

Both notices can be found on CSA members’ websites.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

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For more information:

CSA member name

Point of contact

Phone number

Autorité des marchés financiers

Caroline Trottier

418-525-0337 #4115

Alberta Securities Commission

Hilary McMeekin

403-592-8186

British Columbia Securities Commission

Andrew Poon

604-899-6880

Financial and Consumer Affairs Authority of Saskatchewan

Shannon McMillan

306-798-4160

Financial and Consumer Services Commission, New Brunswick

Sara Wilson

506-643-7045

Government of Prince Edward Island, Superintendent of Securities

Steve Dowling

902-368-4550

Manitoba Securities Commission

Jason (Jay) Booth

204-945-1660

Nova Scotia Securities Commission

David Harrison

902-424-8586

Nunavut Securities Office

Jeff Mason

867-975-6591

Office of the Superintendent of Securities, Newfoundland and Labrador

Craig Whalen

709-729-5661

Office of the Superintendent of Securities, Northwest Territories

Tom Hall

867-767-9305

Office of the Yukon Superintendent of Securities

Rhonda Horte

867-667-5466

Ontario Securities Commission

Kristen Rose

416-593-2336