Regulatory Statement

Purpose

This Regulatory Statement (Statement) is issued in respect of section 87 [Subordinated notes] of the Financial Institutions Act (FIA). Section 87 contains requirements for a trust company or credit union to issue a note (Subordinated Note) representing indebtedness which is subordinated in right of payment to all other indebtedness that is not a subordinated note. The requirements include that the Subordinated Note is evidenced by a form of certificate (Certificate) approved by the Superintendent of Financial Institutions (Superintendent).

The purpose of this Statement is to specify the form of Certificate that is approved by the Superintendent and the disclosures required by section 87. The form of Certificate approved by the Superintendent pursuant to this Statement replaces all previously approved certificates.

Background

Section 87 of the FIA provides that a trust company or credit union must not issue a Subordinated Note unless the note is evidenced by the Certificate; contains the disclosures required in section 87 of the FIA; and contains any other information required by the Superintendent.

In the FIA, a trust company and a credit union mean companies incorporated under the laws of B.C.

A certificate is not defined in the FIA but, in the securities context, a certificate references a paper record evidencing a security instrument and/or ownership of the instrument. Today, many securities or security instruments, such as a Subordinated Note, are issued non-certificated form (that is, in digital or book entry form, or dematerialized). A physical certificate evidencing or demonstrating the Subordinated Note is not usually provided to the noteholder.

Requirements

Form

Section 87(1)(a) of the FIA includes a requirement for the Certificate to contain statements “to the effect of” those in sections 87(1)(b) and 87(1)(c) of the FIA. Section 87(1)(b) and (c) of the FIA provide the trust company or credit union must disclose that:

• (b) the borrowing evidenced by the note does not constitute a deposit of money with the trust company or credit union that issues the note and is not insured by the Canada Deposit Insurance Corporation or the deposit insurance corporation.

• (c) in the event of the insolvency or winding up of the trust company or credit union, the indebtedness evidenced by the note is subordinated in right of payment to all other indebtedness that is not evidenced by a subordinated note.

Pursuant to section 87(1)(a) of the FIA, the Superintendent further requires a trust company or credit union to provide disclosure to the effect of:

• Neither the Superintendent of Financial Institutions nor any other authority of the government of the Province of British Columbia has in any way passed on the merits of investment in [Enter Name of Issuing Credit Union or Trust Company]’s attached note or of matters set out in any offering, circular, advertisement, correspondence or literature related to the note.

Accordingly, under section 87 of the FIA, the Superintendent establishes the attached Certificate.

Non-Certificated Subordinated Note

To recognize book entry or non-certificated Subordinated Notes and to adapt the requirements of section 87 of the FIA in such cases, the Superintendent will accept deviations from the Certificate not affecting the substance of the required disclosures and not intended to mislead. If a trust company or credit union proposes to issue a Subordinated Note in non-certificated form, and all necessary disclosures and requirements of section 87 are met through a related offering document, the Superintendent will treat the offering document as sufficient for the purposes of section 87 and not require a separate Certificate. Nevertheless, in every case a copy of the offering document that provides the required disclosures in writing must be submitted to BC Financial Services Authority (BCFSA) for our records.

Notably, section 87(2) of the FIA provides that in any offering, circular, advertisement, correspondence or literature relating to a Subordinated Note issued (or to be issued), the trust company or credit union (or any person acting on their behalf) must not refer to the Subordinated Note otherwise than as a subordinated note, and the trust company or credit union must indicate clearly in the offering, circular, advertisement, correspondence or literature that the money secured by the Subordinated Note is not an insured deposit.

CAUTION: This Statement is not intended to be exhaustive of all requirements for a credit union or trust company’s issuance of securities. The Securities Act is not disapplied to trust companies or to credit unions. Approval of the form of Certificate/ disclosure required under section 87 of the FIA does not fetter the Superintendent’s use of any other power.

Instructions

To provide a copy of the Certificate or offering document to BCFSA follow these steps:

1. Log into BCFSA’s Integrated Regulatory Information System (IRIS) and create a New Submission.
2. Under Type, select Filing – Other.
3. Click Apply, then choose Certificate of Subordinated Note.
4. Attach and submit the Certificate or offering document.

For detailed guidance, refer to Managing Submissions.

Legislation

FIA, s. 87
Interpretation Act, ss. 8, 27(2), 28(1)

Copies of the legislation are available from www.bclaws.gov.bc.ca

Regulatory Statements issued by BC Financial Services Authority (BCFSA) establish the form, content, or timing of a regulatory submission; prescribe the manner of meeting or enforcing a requirement existing in an enactment; and/or provide the BCFSA’s interpretation of the laws that BCFSA administers. Accordingly, BCFSA expects regulated entities (and others where applicable) to use the form or process, and/or to comply with the requirements set out in a Regulatory Statement. Regulatory Statements may refer to law, practice, or background existing at the time of publication. If relying on the legal information contained in a Regulatory Statement, confirm that any references to the law, including enabling legislation, are up to date and obtain independent legal advice, when needed. Regulatory Statements are effective on the date of their publication, unless stated otherwise.