CONSOLIDATION

Bank Recapitalization (Bail-in) Conversion Regulations

SOR/2018-57

Current to June 20, 2022 Last amended on September 23, 2018



OFFICIAL STATUS OF CONSOLIDATIONS Subsections 31(1) and (3) of the Legislation Revision and Consolidation Act, in force on June 1, 2009, provide as follows: Published consolidation is evidence

31 (1) Every copy of a consolidated statute or consolidated regulation published by the Minister under this Act in either print or electronic form is evidence of that statute or regulation and of its contents and every copy purporting to be published by the Minister is deemed to be so published, unless the contrary is shown. ... Inconsistencies in regulations

(3) In the event of an inconsistency between a consolidated regulation published by the Minister under this Act and the original regulation or a subsequent amendment as registered by the Clerk of the Privy Council under the Statutory Instruments Act, the original regulation or amendment prevails to the extent of the inconsistency.

LAYOUT The notes that appeared in the left or right margins are now in boldface text directly above the provisions to which they relate. They form no part of the enactment, but are inserted for convenience of reference only.

NOTE This consolidation is current to June 20, 2022. The last amendments came into force on September 23, 2018. Any amendments that were not in force as of June 20, 2022 are set out at the end of this document under the heading “Amendments Not in Force”.

Current to June 20, 2022 Last amended on September 23, 2018

TABLE OF PROVISIONS Bank Recapitalization (Bail-in) Conversion Regulations

Interpretation 1

Definitions

Shares and Liabilities 2

Prescribed shares and liabilities

Conditions for Conversion 3

Definition of conversion

Conversion amount

Order of conversion

Coming into Force *6

180th day after registration

Current to June 20, 2022 Last amended on September 23, 2018

ii

Registration SOR/2018-57 March 27, 2018

CANADA DEPOSIT INSURANCE CORPORATION ACT Bank Recapitalization Regulations P.C. 2018-336

(Bail-in)

Conversion

March 26, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 39.2(10)a of the Canada Deposit Insurance Corporation Actb, makes the annexed Bank Recapitalization (Bail-in) Conversion Regulations.

a

S.C. 2016, c. 7, s. 139(4)

b

R.S., c. C-3

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations

Interpretation Definitions 1 The following definitions apply in these Regulations.

Act means the Canada Deposit Insurance Corporation Act. (Loi) debt obligation has the same meaning as in section 2 of the Bank Act. (titre de créance) non-viability contingent capital means a share or liability of a federal member institution that, by operation of its terms, may be converted into common shares of the institution as a result of a public announcement related to the institution’s viability that is made by the Superintendent or Her Majesty in right of Canada or a province. (fonds propres d’urgence en cas de non-viabilité) subordinated indebtedness has the same meaning as in section 2 of the Bank Act. (titre secondaire)

Shares and Liabilities Prescribed shares and liabilities 2 (1) Subject to subsections (2) to (7), the following

shares and liabilities are prescribed for the purposes of subsection 39.2(2.3) of the Act: (a) any debt obligation, other than subordinated indebtedness, that is issued by a domestic systemically important bank and that (i) is perpetual, has an original or amended term to

maturity of more than 400 days, has one or more explicit or embedded options that, if exercised by or on behalf of the issuer, would result in a maturity date that is more than 400 days from the date of issuance of the debt obligation or has an explicit or embedded option that, if exercised by or on behalf of the holder, would by itself result in a maturity date that is more than 400 days from the maturity date that would apply if the option were not exercised,

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations Shares and Liabilities Section 2

(ii) is unsecured or is only partially secured at the time of issuance, and (iii) has been assigned a Committee on Uniform

Security Identification Procedures (CUSIP) number, International Securities Identification Number (ISIN) or other similar designation that identifies a specific security in order to facilitate its trading and settlement; and (b) any share or subordinated indebtedness that is issued by a domestic systemically important bank and that is neither a common share nor non-viability contingent capital. For greater certainty (2) For greater certainty, a reference to a debt obligation

or to subordinated indebtedness in this section includes a reference to any debt obligation or subordinated indebtedness that is due but remains unpaid on the day on which the order under paragraph 39.13(1)(d) of the Act is made or becomes due after that day. Limitation (3) A share or liability is prescribed only if (a) the share or liability is issued on or after the day on which these Regulations come into force; or (b) in the case of a liability issued before the day on

which these Regulations come into force, the terms of the liability are, on or after that day, amended to increase its principal amount or to extend its term to maturity.

Partially secured (4) If a debt obligation, other than subordinated indebtedness, is only partially secured at the time of issuance, only the portion of the principal amount and accrued and unpaid interest of the debt obligation that exceeds the value of the collateral, determined at the time that the debt obligation is issued, is a prescribed liability.

Exclusions (5) The following, as well as any liabilities that arise from any of them, are not prescribed shares or liabilities: (a) any covered bond, as defined in section 21.5 of

the National Housing Act; (b) any eligible financial contract, as defined in subsection 39.15(9) of the Act; (c) any structured note;

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations Shares and Liabilities Section 2

(d) any conversion or exchange privilege that is convertible at any time into shares; (e) any option or right to acquire shares or any privilege referred to in paragraph (d); and (f) any share of a series that was created before January 1, 2013 and issued as a result of the exercise of a conversion privilege under the terms of another series of shares that was created before January 1, 2013.

Structured note (6) For the purposes of paragraph (5)(c), a structured

note is a debt obligation that (a) specifies that the obligation’s stated term to maturity, or a payment to be made by its issuer, is determined in whole or in part by reference to an index or reference point, including (i) the performance or value of an entity or asset, (ii) the market price of a security, commodity, investment fund or financial instrument, (iii) an interest rate, and (iv) the exchange rate between two currencies; or (b) contains any other type of embedded derivative or

similar feature.

Exceptions — structured note (7) Despite subsection (6), the following debt obligations

are not structured notes: (a) a debt obligation in respect of which the stated

term to maturity, or a payment to be made by its issuer, is determined in whole or principally by reference to the performance of a security of that issuer; and (b) a debt obligation that (i) specifies that the return on the debt obligation is

determined by a fixed or floating interest rate or a fixed spread above or below a fixed or floating interest rate, regardless of whether the return is subject to a minimum interest rate or whether the interest rate changes between fixed and floating,

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations Shares and Liabilities Sections 2-5

(ii) has no other terms affecting the stated term to

maturity or the return on the debt obligation, with the exception of the right of the issuer to redeem the debt obligation or the right of the holder or issuer to extend its term to maturity, and (iii) is payable in cash.

Conditions for Conversion Definition of conversion 3 For the purposes of sections 4 and 5, conversion means (a) with respect to non-viability contingent capital,

conversion of the shares and liabilities in accordance with their terms; and (b) with respect to other shares and liabilities, conversion under subsection 39.2(2.3) of the Act.

Conversion amount 4 In carrying out a conversion, the Corporation must

take into consideration the requirement, under subsection 485(1) of the Bank Act, for banks to maintain adequate capital. Order of conversion 5 (1) The Corporation must use its best efforts to ensure

that a prescribed share or liability is converted only if all subordinate prescribed shares and liabilities and any subordinate non-viability contingent capital have previously been converted or are converted at the same time.

Same proportion — equal rank (2) The Corporation must use its best efforts to ensure

that the converted part of the liquidation entitlement of a prescribed share, or the converted part of the principal amount and accrued and unpaid interest of a prescribed liability, is converted on a pro rata basis for all prescribed shares or liabilities of equal rank that are converted during the same restructuring period.

Priority of instruments (3) In a conversion under subsection 39.2(2.3) of the Act, (a) holders of prescribed shares or liabilities must receive a greater number of common shares per dollar of the converted part of the liquidation entitlement of their shares, or the converted part of the principal amount and accrued and unpaid interest of their

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations Conditions for Conversion Section 5

liabilities, than holders of any subordinate prescribed shares or liabilities that are converted during the same restructuring period or of any subordinate non-viability contingent capital that is converted during the same restructuring period; (b) holders of prescribed shares or liabilities of equal

rank that are converted during the same restructuring period must receive the same number of common shares per dollar of the converted part of the liquidation entitlement of their shares or the converted part of the principal amount and accrued and unpaid interest of their liabilities; and (c) holders of prescribed shares or liabilities must receive, if any non-viability contingent capital of equal rank to the shares or liabilities is converted during the same restructuring period, a number of common shares per dollar of the converted part of the liquidation entitlement of their shares, or the converted part of the principal amount and accrued and unpaid interest of their liabilities, that is equal to the largest number of common shares received by any holder of the non-viability contingent capital per dollar of that capital.

Ranking (4) In this section, a share or liability of the federal member institution is (a) subordinate to another share or liability of the institution if, in the event that the institution is wound up, the share or liability would rank subordinate in right of payment to that other share or liability; and (b) equal in rank to another share or liability of the institution if, in the event that the institution is wound up, the share or liability would rank equally in right of payment to that other share or liability.

Definition of liquidation entitlement (5) In this section, liquidation entitlement means the amount to which the holder of a share of a federal member institution is entitled to be paid, in the event that the institution is wound up, in priority to any amount to be paid to a holder of a subordinate share.

Current to June 20, 2022 Last amended on September 23, 2018

Bank Recapitalization (Bail-in) Conversion Regulations Coming into Force Section 6

Coming into Force 180th day after registration * 6 These Regulations come into force on the 180th day after the day on which they are registered. *

[Note: Regulations in force September 23, 2018.]

Current to June 20, 2022 Last amended on September 23, 2018

