Canadian Bail-in and TLAC Rules: Impact on Structured Notes Offered in the United States -

Introduction -

In June 2017, the Canadian government released draft regulations relating to “bail-in instruments” issued by Canadian domestically systemically important banks (“D-SIBs”). The proposed regulations are a key part of Canada’s new bank recapitalization plan; under the plan, certain bank instruments, including many debt securities, may convert into the issuer’s equity securities if an issuer becomes non-viable. In addition to the bail-in regulations, Canada’s Office of the Superintendent of Financial Institutions (“OSFI”) also published for comment its draft Total Loss Absorbing Capacity (“TLAC”) guideline.

Once finalized, these regulations will have a significant impact on how Canadian banks issue debt securities around the world. We discuss in this article the principal impact of the proposed regulations on Canadian banks that issue structured notes into the U.S. market.