- News Release 2008-041 -

Principal Protected Notes (PPN) Regulations

What are PPNs?

PPNs are financial instruments issued by financial institutions. These notes guarantee the invested principal and offer returns that are linked through formulas 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.

Why do we need these regulations?

Consumers are best served when they can choose among competing product providers and have sufficient information to make informed choices. The first generation of PPNs were simpler financial instruments, with returns linked to the performance of an index. The increasing variety and complexity of such products can make it difficult for the average retail investor to fully understand the risks, fees and potential returns. As such, the regulations build on, and replace, the existing Index-linked Deposits Interest Disclosure Regulations under the Bank Act, the Cooperative Credit Associations Act and the Trust and Loan Companies Act, to reflect the broader suite of products being offered in the marketplace.

What do the regulations do?

The regulations specify the content, manner and timing of disclosure that federally regulated deposit-taking institutions are required to provide at the point of sale for various sales channels (in-person, telephone and on-line). The regulations also require that institutions make available, and provide on request, information to aid consumers in monitoring their investment. In addition, the proposed regulations set out requirements for advertising these products.

Specifically:

• Section 2 sets out the underlying principle that any information must be provided in clear and simple language and in a manner that is not misleading.

• Section 3 sets out the synopsis of information that must be disclosed to investors orally and in writing before they purchase a PPN, including the term of the note, any charges and their impact on the interest payable, how interest is accrued, any limitations in respect of the interest payable, and any risks associated with the note.

• Section 8 sets out that institutions must provide complete information about the note on their websites and that they must send this information in written format to any person who requests it.

• Section 9 sets out that institutions must provide on request information regarding the current value of the note to aid consumers in monitoring their investment.

• Section 13 sets out the information that must be disclosed in advertisements of PPNs and the conditions under which it may be provided.

When are the regulations coming into force?

The Principal Protected Notes Regulations will come into force on July 1, 2008.