O. Reg. 43/18: ELIGIBLE INVESTMENTS AND RELATED FINANCIAL AGREEMENTS
filed February 27, 2018 under Municipal Act, 2001, S.O. 2001, c. 25
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made under the
Municipal Act, 2001
Made: February 21, 2018
Filed: February 27, 2018
Published on e-Laws: February 27, 2018
Printed in The Ontario Gazette: March 17, 2018
Amending O. Reg. 438/97
(ELIGIBLE INVESTMENTS AND RELATED FINANCIAL AGREEMENTS)
1. The title to Ontario Regulation 438/97 is revoked and the following substituted:
ELIGIBLE INVESTMENTS, RELATED FINANCIAL AGREEMENTS and prudent investment
2. Section 1 of the Regulation is revoked and the following substituted:
Part I
Eligible Investments and forward rate agreements
1. (1) This Part applies in respect of investments by a municipality under section 418 of the Act.
(2) A municipality does not have the power to invest under section 418 of the Act in a security other than a security prescribed under this Part.
3. (1) Paragraph 3.1 of section 2 of the Regulation is amended by adding “or” at the end of subparagraph i and revoking subparagraph iii.
(2) Paragraph 4 of section 2 of the Regulation is revoked and the following substituted:
4. Bonds, debentures, promissory notes or other evidence of indebtedness, the terms of which provide that the principal and interest shall be fully repaid no later than two years after the day the investment was made if issued or guaranteed by an institution listed in paragraph 3.1.
4.1 Bonds, debentures, promissory notes or other evidence of indebtedness, the terms of which provide that the principal and interest shall be fully repaid more than two years after the day the investment was made if issued or guaranteed by an institution listed in paragraph 3.1.
4.2 Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments, the terms of which provide that the principal and interest shall be fully repaid more than two years after the day the investment was made if the receipt, note, certificate or instrument was issued, guaranteed or endorsed by a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies.
4.3 Bonds, debentures, promissory notes or other evidence of indebtedness issued or guaranteed by a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies.
(3) Paragraph 7 of section 2 of the Regulation is revoked and the following substituted:
7. Securities that are arrangements for the sale of assets that entitle the purchaser to an undivided beneficial interest in a pool of assets.
(4) Paragraph 8 of section 2 of the Regulation is amended by striking out “asset-backed securities” and substituting “securities referred to in paragraph 7”.
(5) Paragraphs 10 and 11 of section 2 of the Regulation are revoked and the following substituted:
10. Any security if the municipality acquires the security as a gift in a will or as a donation not made for a charitable purpose.
4. (1) Subsection 3 (1) of the Regulation is amended by striking out “paragraph 3.1 or 4” in the portion before clause (a) and substituting “paragraph 4”.
(2) Section 3 of the Regulation is amended by adding the following subsections:
(2) A municipality shall not invest in a security under paragraph 3.1 or 4.1 of section 2 unless the bond, debenture, promissory note or evidence of indebtedness is rated,
(a) by Dominion Bond Rating Service Limited as “A(low)” or higher;
(b) by Fitch Ratings as “A-” or higher;
(c) by Moody’s Investors Services Inc. as “A3” or higher; or
(d) by Standard and Poor’s as “A-” or higher.
(2.0.1) If a municipality’s total investments in securities under subparagraph 3 iii and paragraph 4.2 of section 2 have, in the opinion of the treasurer, a value in excess of $250,000, the municipality shall not invest in any additional security under paragraph 4.2 of section 2 unless the credit union or league that issues, guarantees or endorses the security provides, within 30 days before the day the investment is made,
(a) audited financial statements indicating that the financial indicators mentioned in subsection (2.0.2) are met by the credit union or league; or
(b) certification in writing that all of the financial indicators mentioned in subsection (2.0.2) are met by the credit union or league.
(2.0.2) For the purposes of subsection (2.0.1), the financial indicators to be met by the credit union or league are the following:
1. Positive retained earnings in its audited financial statements for its most recently completed fiscal year.
2. Regulatory capital of at least the percentage of its total assets set out in subsection (2.0.3) as of the date of the latest audited financial statements, calculated in accordance with Ontario Regulation 237/09 (General) made under the Credit Unions and Caisses Populaires Act, 1994.
3. Regulatory capital of at least the percentage of its total risk weighted assets set out in subsection (2.0.4) as of the date of the latest audited financial statements, calculated in accordance with Ontario Regulation 237/09 (General).
4. Positive net income in its audited financial statements for three of its five most recently completed fiscal years.
(2.0.3) The percentage mentioned in paragraph 2 of subsection (2.0.2) is the percentage obtained by adding one percent to the minimum percentage set out in paragraph 1 of subsection 15 (3) of Ontario Regulation 237/09 (General).
(2.0.4) The percentage mentioned in paragraph 3 of subsection (2.0.2) is the percentage obtained by adding one percent to the minimum percentage set out in paragraph 2 of subsection 15 (3) of Ontario Regulation 237/09 (General).
(2.0.5) A municipality shall not invest in securities under paragraph 4.3 of section 2 unless the credit union or league that issues or guarantees the security satisfies the conditions set out in subsection (2.0.1).
(3) Subsection 3 (3) of the Regulation is amended by striking out “an asset-backed security” and substituting “a security”.
(4) Subsection 3 (4) of the Regulation is amended by striking out “an asset-backed security” and substituting “a security”.
(5) Subsections 3 (4.1) and (4.2) of the Regulation are revoked and the following substituted:
(4.1) A municipality shall not invest in a security under paragraph 7.1 or 7.2 of section 2 unless the security is rated,
(a) by Dominion Bond Rating Service Limited as “A(low)” or higher;
(b) by Fitch Ratings as “A-” or higher;
(c) by Moody’s Investors Services Inc. as “A3” or higher; or
(d) by Standard and Poor’s as “A-” or higher.
(6) Subsection 3 (6) of the Regulation is revoked and the following substituted:
(6) If an investment made under subparagraph 1 iii, v.1, v.2, vi.1, vi.2 or vi.3 of section 2 or paragraph 3.1, 4, 4.1, 6.1, 7, 7.1, 7.2 or 8 of section 2 falls below the standard required by this section, the municipality shall create a plan, including expected timelines, for selling the investment and shall sell the investment in accordance with the plan.
(7) Section 3 of the Regulation is amended by adding the following subsections:
(6.1.1) If a municipality’s total investments in securities under subparagraph 3 iii and paragraph 4.2 of section 2 have, in the opinion of the treasurer, a value in excess of the limit mentioned in subsection (2.0.1) of this section and one of the following circumstances applies, the municipality shall create a plan, including expected timelines, for selling investments made under paragraph 4.2 of section 2 in excess of that limit and shall sell the investments in accordance with the plan:
1. The financial indicators mentioned in subsection (2.0.2) are not met.
2. The credit union or league fails to provide audited financial statements or a certification as mentioned in subsection (2.0.1).
(6.1.2) For the purposes of determining the value of investments under subsection (6.1.1), the value of all investments under subparagraph 3 iii of section 2 shall be counted as part of the total first, followed by the value of all investments made under paragraph 4.2 of section 2.
(6.1.3) If one of the circumstances in paragraph 1 or 2 of subsection (6.1.1) applies, the municipality shall create a plan, including expected timelines, for selling investments made under paragraph 4.3 of section 2 and shall sell the investments in accordance with the plan.
(8) Subsection 3 (11) of the Regulation is revoked and the following substituted:
(11) If a municipality acquires a security under paragraph 10 of section 2 that is not otherwise prescribed under this Part, the municipality shall create a plan, including expected timelines, for selling the investment and shall sell the investment in accordance with the plan.
5. (1) Clause 4.1 (1) (b) of the Regulation is amended by striking out “Limited”.
(2) Subsection 4.1 (1.1) of the Regulation is amended by striking out “Limited”.
(3) Subsection 4.1 (2) of the Regulation is amended by striking out “Limited” in the portion before clause (a).
(4) The English version of clause 4.1 (2) (e) of the Regulation is amended by striking out “or” at the end.
(5) Subsection 4.1 (2) of the Regulation is amended by adding the following clauses:
(g) Local Authority Services;
(h) CHUMS Financing Corporation;
(i) Association of Municipalities of Ontario; or
(j) Municipal Finance Officers’ Association of Ontario.
6. (1) Subsection 6 (1) of the Regulation is revoked and the following substituted:
(1) Subject to subsection (3), a municipality shall not invest in a security that is expressed or payable in any currency other than Canadian dollars.
(2) Section 6 of the Regulation is amended by adding the following subsection:
(3) Subsection (1) does not apply in respect of securities listed in paragraphs 3, 3.1 and 4.2 of section 2, which may also be expressed or payable in the currency of the United States of America.
7. Subsections 7 (1), 8 (1) and 9 (1) of the Regulation are amended by striking out “this Regulation” wherever it appears and substituting in each case “this Part”.
8. (1) Paragraph 2 of subsection 8 (2.1) of the Regulation is amended by striking out “3.1, 4, 6.1, 7, 7.1, 7.2 or 8” and substituting “3.1, 4, 4.1, 6.1, 7, 7.1, 7.2 or 8”.
(2) Section 8 of the Regulation is amended by adding the following subsection:
(2.2) The investment report referred to in subsection (1) shall contain a statement by the treasurer as to whether any investments under paragraphs 4.2 and 4.3 of section 2 are affected by the circumstances set out in paragraphs 1 and 2 of subsection 3 (6.1.1) during the period covered by the report.
9. (1) Subsection 9 (1.1) of the Regulation is revoked.
(2) Subsection 9 (2) of the Regulation is revoked and the following substituted:
(2) If the rating of an investment continued under subsection (1) falls below the standard required by that subsection, the municipality shall create a plan, including expected timelines, for selling the investment and shall sell the investment in accordance with the plan.
10. The Regulation is amended by adding the following Part:
Part II
Prudent investment
Definitions
13. In this Part,
“Investment Board” means a municipal service board that is established under section 196 of the Act by a municipality for the purposes of this Part and includes, for the purposes of paragraph 3 of section 15, subsection 17 (3) and sections 21 and 23, the Toronto Investment Board; (“commission des placements”)
“Joint Investment Board” means a municipal service board that is established under section 202 of the Act by two or more municipalities for the purposes of this Part; (“commission mixte des placements”)
“Toronto Investment Board” means the board of the City of Toronto described in subsection 46 (2) of Ontario Regulation 610/06 (Financial Activities) made under the City of Toronto Act, 2006. (“Commission des placements de Toronto”)
Application
14. This Part applies in respect of investments by a municipality under section 418.1 of the Act.
Requirements under s. 418.1 (3) of the Act
15. A municipality must satisfy one of the following requirements on the day referred to in subsection 418.1 (3) of the Act in order to pass a by-law for the purposes of that subsection:
1. The municipality must have, in the opinion of its treasurer, at least,
i. $100,000,000 in money and investments that it does not require immediately, or
ii. $50,000,000 in net financial assets, as indicated in Schedule 70 of the most recent Financial Information Return supplied to the Ministry of Municipal Affairs by the municipality under the Act and posted on the Ministry’s website on the day the municipality passes the by-law under subsection 418.1 (2) of the Act.
2. The municipality must have entered into an agreement to establish and invest through a Joint Investment Board with one or more other municipalities, and all of the municipalities must have, in the opinion of each of their treasurers, a combined total of at least $100,000,000 in money and investments that the municipalities do not require immediately.
3. The municipality must have entered into an agreement with the following parties to invest through an Investment Board or a Joint Investment Board that was established by another municipality or municipalities before the day the municipality passes the by-law:
i. The Investment Board or Joint Investment Board, as the case may be.
ii. Any other municipalities investing through the Investment Board or Joint Investment Board on the day the municipality passes the by-law.
Limitation, school board securities
16. A municipality shall not invest money in a security issued or guaranteed by a school board or similar entity in Canada unless the money raised by issuing the security is to be used for school purposes.
Investments only through Investment Board or Joint Investment Board
17. (1) A municipality that satisfies the requirement set out in paragraph 1 of section 15 may invest money only by having an Investment Board that meets the following criteria do so on its behalf:
1. The Investment Board has been established by the municipality.
2. The Investment Board has been given the control and management of the municipality’s investments by the municipality delegating to the Investment Board,
i. the municipality’s powers to make the investments, and
ii. the municipality’s duties under section 418.1 of the Act.
(2) A municipality that satisfies the requirement set out in paragraph 2 of section 15 may invest money only by having a Joint Investment Board that satisfies the following criteria do so on its behalf.
1. The Joint Investment Board is the subject of an agreement referred to in paragraph 2 of section 15.
2. The Joint Investment Board has been given the control and management of the municipality’s investments, together with that of all the other municipalities that are party to the agreement referred to under paragraph 2 of section 15, by each municipality delegating to the Joint Investment Board,
i. the municipality’s powers to make the investments, and
ii. the municipality’s duties under section 418.1 of the Act.
(3) A municipality that satisfies the requirement under paragraph 3 of section 15 may invest money only by having an Investment Board or Joint Investment Board, as the case may be, that satisfies the following criteria do so on its behalf:
1. The Investment Board or Joint Investment Board is the subject of an agreement referred to in paragraph 3 of section 15.
2. The Investment Board or Joint Investment Board has been given the control and management of the municipality’s investments by the municipality delegating to the Investment Board or Joint Investment Board,
i. the municipality’s powers to make the investments, and
ii. the municipality’s duties under section 418.1 of the Act.
(4) The following persons may not be appointed as members of the Investment Board or Joint Investment Board:
1. An officer or employee of any municipality for which it invests.
2. A member of council of any municipality for which it invests.
(5) Subsection (3) does not apply to any treasurer of a municipality for which the board invests provided that treasurers do not make up more than one quarter of the members.
Investment policy
18. (1) The council of a municipality shall adopt and maintain an investment policy in relation to investing under this Part.
(2) The investment policy shall include requirements with respect to the following:
1. The municipality’s objectives for return on investment and risk tolerance.
2. The municipality’s need for liquidity including, for greater certainty, the municipality’s anticipated needs for funds for planned projects and the municipality’s needs to have funds available for unanticipated contingencies.
(3) The investment policy may include other requirements with respect to investment matters that council considers to be in the interests of the municipality.
(4) At least annually, the council shall review the investment policy and update it, as necessary, as a result of the review.
Investment plan
19. (1) An Investment Board or Joint Investment Board shall adopt and maintain an investment plan in respect of all municipalities that have delegated to it,
(a) the municipality’s powers to make investments; and
(b) the municipality’s duties under section 418.1 of the Act.
(2) The investment plan shall deal with how the Investment Board or Joint Investment Board will invest each municipality’s money and set out the Board’s projections of the proportions of each municipality’s portfolio of investments to be invested at the end of the year in each type of security selected by the Investment Board or Joint Investment Board and may include other requirements.
(3) At least annually, following each council’s review of the investment policy under subsection 18 (4), the Investment Board or Joint Investment Board shall review the investment plan and update it, as necessary, as a result of the reviews.
Investment report
20. (1) An Investment Board or Joint Investment Board shall prepare and provide to the council of each municipality referred to in subsection 19 (1), each year or more frequently as specified by the council, an investment report.
(2) The investment report shall contain,
(a) a statement about the performance of the municipality’s portfolio of investments during the period covered by the report;
(b) a statement by the treasurer of the municipality as to whether or not, in the opinion of the treasurer, all investments are consistent with the municipality’s investment policy under section 18 and the investment plan for the municipality under section 19; and
(c) such other information that the council may require or that, in the opinion of the treasurer, should be included.
Inconsistencies, treasurer’s duty
21. If an investment made by an Investment Board or a Joint Investment Board is, in the opinion of the municipality’s treasurer, not consistent with the municipality’s investment policy under section 18 and the investment plan for the municipality under section 19 of this Regulation or section 48.1 of Ontario Regulation 610/06 (Financial Activities) made under the City of Toronto Act, 2006, as the case may be, the treasurer shall report the inconsistency to the council within 30 days after becoming aware of it.
Agents of the Investment Board
22. (1) Subject to subsections (2) and (3), an Investment Board or Joint Investment Board may authorize an agent to exercise any of the board’s functions to the same extent that a prudent investor, acting in accordance with ordinary investment practice, would authorize an agent to exercise any investment function.
(2) An Investment Board or Joint Investment Board may not authorize an agent under subsection (1) unless a written agreement between the board and the agent is in effect and the agreement includes,
(a) a requirement that the agent comply with the requirements included in the investment policy or policies under section 18 and with the investment plan under section 19; and
(b) a requirement that the agent report to the board at regular stated intervals.
(3) An Investment Board or Joint Investment Board shall exercise prudence in selecting an agent, in establishing the terms of the agent’s authority and in monitoring the agent’s performance to ensure compliance with those terms.
(4) For the purpose of subsection (3), prudence in monitoring an agent’s performance includes,
(a) reviewing the agent’s reports;
(b) regularly reviewing the agreement between the Investment Board or Joint Investment Board and the agent and how it is being put into effect, including assessing whether the requirement described in clause (2) (a) is being complied with;
(c) considering whether directions should be provided to the agent or whether the agent’s appointment should be revoked; and
(d) providing directions to the agent or revoking the appointment if the Investment Board or Joint Investment Board considers it appropriate to do so.
(5) This section does not prevent the investment, by the Investment Board or Joint Investment Board, in mutual funds, pooled funds or segregated funds under variable insurance contracts, and the manager of such a fund is not an agent for the purpose of this section.
Withdrawal from investment arrangement
23. A municipality may withdraw from investing through an Investment Board or Joint Investment Board that the municipality has not established if all of the following conditions are met:
1. All the municipalities investing through the board agree to the withdrawal.
2. The municipality has done one of the following:
i. Entered into an agreement with another municipality that has established an Investment Board, that Investment Board and any other municipalities investing through that Investment Board, to invest through that Investment Board.
ii. Entered into an agreement with the municipalities that have established a Joint Investment Board, that Joint Investment Board and any other municipalities investing through that Joint Investment Board, to invest through that Joint Investment Board.
iii. Established an Investment Board on its own or established a Joint Investment Board with one or more other municipalities.
3. The municipality has given the Investment Board or Joint Investment Board through which it will be investing the control and management of the municipality’s investments by delegating to the board,
i. the municipality’s powers to make the investments, and
ii. the municipality’s duties under section 418.1 of the Act.
Application of Part, withdrawal or dissolution
24. (1) This section applies if a municipality establishes an Investment Board or a Joint Investment Board,
(a) in order to meet the condition set out in subparagraph 2 iii of section 23 with respect to withdrawing from investing; or
(b) in order to meet a condition set out in Ontario Regulation 42/18 (Dissolution of and Prescribed Changes to Investment Board or Joint Investment Board) made under the Act.
(2) The municipality must satisfy the requirement set out in paragraph 1 or 2 of section 15 at the time of establishing the board and the reference in subparagraph 1 ii of section 15 to “the day the municipality passes the by-law under subsection 418.1 (2) of the Act” is deemed for the purposes of this section to be a reference to “the day the Investment Board is established”.
(3) Subsections 17 (1) and (2) apply to the municipality.
(4) Sections 16 and 18 to 22 apply with respect to the investment of money by the Investment Board or Joint Investment Board.
Transitional matters, what may be done in advance
25. For greater certainty, before a municipality passes a by-law under subsection 418.1 (2) of the Act and before the effective date of the by-law,
(a) the municipality may establish an Investment Board or Joint Investment Board and appoint the members;
(b) the municipality may enter into an agreement described in paragraph 2 or 3 of section 15;
(c) the municipality may adopt an investment policy under section 18;
(d) an Investment Board or Joint Investment Board may adopt an investment plan under section 19; and
(e) an Investment Board or Joint Investment Board may authorize an agent under section 22.
Transitional matters, s. 418.1 of the Act
26. (1) No municipality shall pass a by-law under subsection 418.1 (2) of the Act until January 1, 2019.
(2) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act,
(a) section 8 of this Regulation continues to apply to the municipality for the purposes of reporting in respect of any period up to and including the effective date of the by-law; and
(b) section 20 of this Regulation applies to an Investment Board or Joint Investment Board for the purposes of reporting in respect of any period following the effective date of the by-law.
(3) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act,
(a) section 8.1 of this Regulation continues to apply with respect to investments made on or before the effective date of the by-law; and
(b) section 21 of this Regulation applies with respect to investments made following the effective date of the by-law.
(4) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act, reports shall be made by the treasurer under subsection 12 (1) of this Regulation until reports have been made covering the periods up to and including the period ending on the effective date of the by-law.
Commencement
11. (1) Subject to subsection (2), this Regulation comes into force on the day it is filed.
(2) Section 10 comes into force on the later of the day section 72 of Schedule 1 to the Modernizing Ontario’s Municipal Legislation Act, 2017 comes into force and the day this Regulation is filed.