Canada Improves Transparency Of Principal Protected Notes

by Mike Godfrey, Tax-News.com, Washington

09 June 2008

The government of Canada has improved disclosure regulations for consumers who purchase principal protected notes (PPNs) issued by federally regulated deposit-taking institutions such as banks.

Jim Flaherty, Minister of Finance, announced on 2nd June that regulations aimed at improving disclosure have been approved and will come into force on 1st July, 2008.

“Adequate disclosure is needed to help investors make informed financial decisions,” explained Minister Flaherty, adding that: “Our Government believes a principles-based approach to regulation is the best way to ensure transparency in today’s rapidly evolving and innovative marketplace.”

The regulations deliver on a commitment made in 'Creating a Canadian Advantage in Global Capital Markets,' released in March 2007, to introduce a new disclosure regime for banks issuing PPNs.

Principal protected notes guarantee the invested principal and offer returns linked to returns on an underlying investment product, which can range from a relatively straightforward basket of equities to more complex investments such as hedge funds.

In recent years, the increased variety and complexity of PPNs has raised concerns about whether previous disclosure regulations provided consumers with enough information to make informed decisions.

The new regulations will help ensure that consumers are informed of the fees, returns, risks and cancellation and redemption rights associated with PPNs. They also require ongoing disclosures after a PPN is sold to aid consumers in monitoring and tracking their investments.

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