Canada
Answer ... In Canada, there is no sole regulatory body, individual government regulator or piece of legislation that governs securitisations and originators. Separate individual parts of the Canadian securitisation market are regulated both federally and/or provincially. There are several contextual factors of the assets being securitised that influence whether provincial or federal laws will apply at various points of the transaction’s lifecycle, including:
- the types of parties involved in the transaction;
- the types of securities being offered;
- the nature of the assets being securitised; and
- the location of the assets.
The table below provides a few non-exhaustive examples of different aspects of securitisation and how regulatory jurisdiction shifts depending on the stage.
Federal |
Provincial |
Federal and provincial |
Banking regulations and the Bank Act regulate financial institutions that are administered by the Office of the Superintendent of Financial Institutions (OSFI).
Securitisation and market participants must abide by the anti-money laundering requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
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Provincial securities acts govern the offering of securitised products. |
Federal and provincial consumer protection can impose disclosure requirements; provide rescission and prepayment rights; and limit interest rates, fees and penalties.
Privacy legislation can impose requirements on a securitisation based on the type of assets securitised. |
Federal insolvency and bankruptcy laws will determine whether a special purpose vehicle (SPV) is bankruptcy remote.
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Provincial Personal Property Security Acts govern the assignment of receivables and the distribution of security interests in personal property, which apply to the granting of security over a securitised asset portfolio.
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Federal and provincial tax legislation can influence the choice of SPV and the structure of a securitisation in order to minimise tax costs. |
Often, originators are banks, trust and loan companies, insurance companies and pension plans. If originators fall within one of those designations, they are subject to the rules and guidance of OFSI in particular. OSFI regulates originators by providing guidance on:
- capital adequacy;
- accounting practices;
- risk management; and
- governance of regulated entities.
For example, OSFI’s Capital Adequacy Requirements Guideline and Guidelines B-5 and B-5A outline the capital treatment of securitisation exposures and investments in securitisations. The aim of Guidelines B-5 and B-5A is to align with the Basel Committee recommendations.
Originators can also be subject to the guidance and oversight of the Canada Mortgage and Housing Corporation, if the originators are dealing in the government-backed securitised assets in the National Housing Act Mortgage-Backed Securities Programme or the Canada Mortgage Bonds Programme.
Finally, depending on the originator in question and the nature of its industry, other provincial or federal legislative regimes may apply to govern the implementation of a securitisation programme.
Canada
Answer ... With respect to the requirements applicable to prospective investors in Canada, ‘over the counter’ offerings of asset-backed securities (ABS), which are typically available only to wholesale/professional investors, will be subject to the exempt market distribution guidelines as enumerated in the provincial securities acts, as well as National Instrument 45-106 – Prospectus Exemptions. Retail investors will generally participate in the securitisation market through public offerings of ABS, in which case the originators of such securities will be required to adhere to the prospectus regime, as outlined in the provincial securities acts and National Instrument 41-101 – General Prospectus Requirements.
Canada
Answer ... Custodians and servicers of the type often engaged in securitisation in Canada – such as trustees operating as trust companies – are governed by the Canada Business Corporations Act (CBCA) and the Trust and Loan Companies Act (TLCA). The requirements of these acts include the following:
- Qualifications: Trust companies must be licensed under one or both of applicable provincial or federal law in Canada. All federal loan and trust corporations must be federally incorporated and are governed by OSFI.
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Obligations to act in good faith: The CBCA and the TLCA impose certain statutory obligations on trustees to observe fiduciary duties and the duty of care. Under the CBCA and the TLCA, a trustee, in exercising its powers and discharging its duties, must:
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- act honestly and in good faith with a view to the best interests of the holders of the debt obligations issued under the trust indenture; and
- exercise the care, diligence and skill of a reasonably prudent trustee.
- Under both the CBCA and the TLCA, a trustee cannot be relieved of the duties imposed on the trustee through any terms of a trust indenture or other agreement.
- Obligation to avoid conflicts of interest: The CBCA and the TLCA impose certain statutory obligations on trustees to avoid conflicts of interest. Under the CBCA and the TLCA, no person may be appointed as trustee if there is a material conflict of interest between its role as trustee and its role in any other capacity. A trustee must, within 90 days of becoming aware that a material conflict of interest exists, eliminate the conflict of interest or resign from office. A trust indenture, any debt obligations issued thereunder and a security interest affected thereby are valid notwithstanding a material conflict of interest of the trustee.
Canada
Answer ... Canada’s securitisation market has a wide range of asset classes. ABS in Canada can either be longer-term ABS that mature past a year or shorter-term asset-backed commercial paper (ABCP) that matures in under a year. Canada’s securitisation market is largely comprised of consumer-related receivables such as:
- auto loans and leases;
- credit cards;
- secured and unsecured lines of credit;
- consumer loans; and
- residential mortgage loans.
Other examples of assets classes are:
- equipment leases and loans;
- floorplan loans;
- fleet leases;
- trade receivables;
- insurance commission receivables; and
- cell tower and data centre revenues.
Canada
Answer ... We highlight certain securities law amendments for this question. Following the 2008 financial crisis, the Canadian Securities Administrators (CSA) amended National Instrument 45-106 – Prospectus Exemptions to address investor protection concerns. As part of the CSA’s amendments, measures were introduced aimed at addressing systemic risk concerns by:
- modifying the credit ratings required to distribute short-term debt – primarily corporate commercial paper – under the ‘short-term debt exemption’;
- making the ‘short-term debt’ prospectus exemption unavailable for short-term securitised products – primarily composed of ABCP; and
- creating a new prospectus exemption for the distribution of short-term securitised products, known as the ‘short-term securitised products exemption’.
The aforementioned changes aimed to increase market efficiency and fairness, while improving practices in the ABCP market.