IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION
(the Filer)
DECISION
BACKGROUND
The principal regulator has received an application from the Filer for a decision under the securities legislation of the Jurisdiction exempting the Filer from the requirements contained in section 53 of the Act to file and obtain a receipt for a preliminary prospectus and a final prospectus (the Prospectus Requirement) as it relates to a debt security issued or guaranteed by the Filer in the currency of Canada or the United States of America (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission is the principal regulator for this application, and
(b) The Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all other provinces and territories other than the Jurisdiction.
INTERPRETATION
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
REPRESENTATIONS
This decision is based on the following facts represented by the Filer:
The Filer is a multilateral association with 173 member countries. It is one of the largest multilateral channels for providing concessional financing and knowledge services to the world’s poorest countries. The Filer is one of the five institutions of the World Bank Group, together with the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), each of which is recognized in Canada as a “permitted supranational agency” under NI 45-106.
The Filer was established in 1960 pursuant to the International Development Association Articles of Agreement (the Agreement), which came into effect on September 24, 1960. Canada was one of the original signatories to the Agreement in 1960 and became a member of the Filer on September 24, 1960. Canada granted the Filer privileges and immunities on May 29, 2014 pursuant to the International Development Association, International Finance Corporation and Multilateral Investment Guarantee Agency Privileges and Immunities Order (P.C. 2014-623 29 May, 2014), made by the Governor General under Sections 2 to 9 of Article VIII of the Articles of Agreement of the Filer, as set out in Schedule III to the Bretton Woods and Related Agreements Act (R.S.C., 1985, c. B-7), in order to fulfill its international obligations to the World Bank Group.
The Filer’s head office is in Washington, D.C. The Filer does not have any offices in Canada.
The Filer is not and has no intention of becoming a reporting issuer under the securities legislation of any jurisdiction of Canada. The Filer is not in default of securities legislation in any jurisdiction of Canada.
The Filer’s primary purposes are to promote economic development, increase productivity and raise the standards of living in the less-developed areas of the world included within the Filer’s membership. It achieves these objectives by:
(a) providing loans, grants and guarantees to the world’s poorest countries for programs and operations that help meet their development needs;
(b) providing technical assistance through reimbursable advisory services, policy advice and global knowledge services through economic sector work and country studies;
(c) supporting member countries with disaster risk financing and insurance to help increase their financial resilience against natural disasters; and
(d) providing or facilitating financing through trust fund partnerships with bilateral and multilateral donors.
The Filer funded its operations over the years out of its own equity, including periodic infusions from its member countries. Given the strong support of Canada and other member countries, the Filer has built up a substantial equity base. In order to make the most efficient use of this equity base and to provide greater support to the world’s poorest countries, in December 2016, the Filer’s member countries approved plans for the Filer to enter the capital markets in connection with its Eighteenth Replenishment of resources (Filer 18). This new model allowed the Filer to increase its capacity to finance its member countries over the ongoing Filer 18 three-year period by 50 percent, without requiring member countries to increase their contributions above past levels.
The Filer operates under an effective “Collective Governance System”. Pursuant to this framework, Canada (as one of the larger shareholders of the Filer) exercises oversight over the capital market activities of the Filer, including the issuance of its bonds, the use of derivatives, and over the Filer generally. The Filer has a resident Board of Executive Directors, with all members appointed or elected by their sovereign shareholders, including Canada. The resident Board of Executive Directors (and the Audit Committee thereof) has oversight authority over the Filer’s financial operations, including its bond issuances and has in-depth familiarity with, and approval authority over, the Filer’s financial disclosures to the public which are incorporated by reference into the Filer’s bond documentation.
In accordance with the Agreement, the Executive Directors are appointed or elected every two years by their member governments. The Board currently has 25 Executive Directors who represent all 173-member countries. The Executive Directors oversee all Filer operations.
The Filer has the same Executive Directors (including the Executive Director representing Canada), management and staff as IBRD (also known in the capital markets, as the World Bank). Thus, the treasury, accounting, risk, corporate finance, and legal teams that have been responsible for IBRD bond issuance, financial reporting, risk management, and legal offering documentation over the years, including in Canada, play the same roles for the Filer.
The Basel Committee on Banking Supervision has included the Filer in the list of entities receiving a 0% risk weight under the Basel II Framework and the Filer is included in the list of multilateral development banks set out in the Basel II Framework. The Filer’s securities are also included as Level 1 High Quality Liquid Assets under the Basel Committee’s liquidity coverage ratio framework.
The Filer’s long-term debt has been assigned a triple-A rating or its equivalent by each of Moody’s Investors Services (January 20, 2021) and Standard & Poor’s (February 25, 2021).
Subsection 2.34 (2)(f) of NI 45-106 provides an exemption from the Prospectus Requirement for a debt security issued or guaranteed by a permitted supranational agency if the debt security is payable in the currency of Canada or the United States of America.
The definition of a “permitted supranational agency” under subsection 2.34 (1) of NI 45-106 includes IBRD and IFC, as well as the African Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development and the Inter-American Development Bank.
As the definition of “permitted supranational agency” of subsection 2.34(1) of NI 45-106 does not include the Filer, the Filer is not able to rely on the prospectus exemption contained in subsection 2.34 (2)(f) of NI 45-106 in respect of a debt security issued or guaranteed by the Filer in the currency of Canada or the United States.
The Filer has submitted that because it is substantially similar to the permitted supranational agencies listed in subsection 2.34(1) of NI 45-106, it should be exempt from the Prospectus Requirement as it relates to a debt security issued or guaranteed by the Filer in the currency of Canada or the United States of America.
The Filer submits that the considerations that led to the exemptions for other permitted supranational agencies, including the Filer’s co-members of the World Bank Group, IBRD and IFC, also apply to the Filer. In addition, the Executive Directors, management and staff that are responsible for IBRD’s bond issuances, have the same roles for the Filer.
The Filer has considered whether, under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and the securities legislation, it could be considered to be engaged in or holding itself out as engaging in the business of trading in securities and therefore required to register as a dealer, rely on another exemption from the dealer registration requirement or seek exemptive relief from the dealer registration requirement. In light of the particular facts and circumstances of the Filer, including the fact that the distribution of debt securities of the Filer is incidental to the Filer's principal activities, it does not receive any fees or other income from engaging in trades or acts in furtherance of distributions, and its activities do not have the attributes typical of a person or company carrying on the business of a dealer, and having considered the guidance in section 1.3 of Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, the Filer has concluded that it should not be considered to be engaged in registrable activities and therefore does not require relief from the registration requirement of the securities legislation.
DECISION
The principal regulator is satisfied that the decision meets the test set out in the securities legislation for the principal regulator to make the decision.
The decision of the principal regulator under the securities legislation is that the Exemption Sought from the Prospectus Requirement is granted provided that and for so long as the debt securities of the Filer are payable in the currency of Canada or the United States of America.
DATED at Toronto this 3rd of December 2021.
“Mary Anne De Monte-Whelan” “Tim Moseley” Mary Anne De Monte-Whelan Tim Moseley
Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission
OSC File#: 2020/0389