Canada plans tougher rules on some securities

OTTAWA, May 8 (Reuters) - Canada plans to tighten regulations on certain complex debt securities this spring, so that investors fully understand the risks associated with the instruments, Finance Minister Jim Flaherty said on Thursday.

The new rules will apply to "principal-protected notes" sold by banks, which guarantee the principal and offer returns on an underlying investment product that can range from stocks to less transparent investments such as hedge funds.

"We will be moving forward with final principles-based regulations on principal-protected notes this spring," Flaherty said in a speech in New York.

The move is a small step in a wider push to improve disclosure by banks and other financial institutions to avoid excessive risk-taking of the kind that led to the global credit market crisis.

The Department of Finance published the proposed regulations last November in the Canada Gazette and asked for comment.

At that time, it said the regulations were needed to provide consumers with adequate disclosure of risks, potential returns and fees. Financial institutions might incur some minor costs in implementing them, it said.

The first generation of principal-protected notes were relatively simple and returns were linked to an index. They have since grown more complex and so the old disclosure rules are no longer valid, Flaherty said.

Flaherty also said on Thursday that Canadian banks were supportive of recommendations to improve reporting methods coming from the Financial Stability Forum, comprised of global central bankers and regulators.

He said he would monitor their progress in complying with a 100-day deadline for disclosing exposure to potentially risky assets, a period that expires in July. (Reporting by Louise Egan; editing by Rob Wilson)