Covered bonds are debt instruments that are issued by a financial institution and secured by a segregated pool of assets (the “covered bond collateral”). The issuer of a covered bond pays periodic interest and principal on the bond to investors, in accordance with terms that are set upon issuance.

Since 2007, covered bonds have been issued in Canada under a contractual framework. Assurance that the assets in the cover pool would be used for the benefit of investors had been provided through contractual terms in the prospectus.

Registered covered bonds are only those bonds that are issued under a covered bond program registered pursuant to the National Housing Act (NHA) and listed on the Canadian Covered Bonds Registry. In order to be registered, an issuer must comply with all of the requirements in the Canadian Registered Covered Bond Programs Guide. Under the legal framework, there is statutory protection for the covered bond investor. This results in increased certainty for investors with respect to the cover pool of collateral in the event of issuer default.

Outstanding Canadian covered bonds and programs that have not been issued under a registered program and that are not disclosed on the Canadian Covered Bonds Registry, do not fall under the legal framework for covered bonds pursuant to the National Housing Act (NHA). Canadian financial institutions with registered programs that are disclosed on the Canadian Covered Bonds Registry are prohibited from issuing new covered bonds unless they are made under a registered program.

Date Published: September 26, 2018