The Office of the Superintendent of Financial Institutions has issued an advisory concerning the regulatory capital treatment of preferred shares and innovative Tier 1 instruments.

OSFI says that the final revisions to accounting rules mean that certain outstanding Tier 1-qualifying preferred shares that may be converted into common shares will be accounted for as liabilities under Canadian GAAP.

The revisions will also affect the accounting treatment of outstanding capital instruments having similar conversion features, which currently qualify for innovative Tier 1 capital recognition.

OSFI has determined that these revisions will affect the ability to continue recognizing these sorts of preferred shares in a financial firms’ Tier 1 capital; and, may affect the ability to continue recognizing any instruments with similar conversion features in firms’ innovative Tier 1 capital.

These revisions are effective for fiscal periods beginning on November 1, 2004. OSFI is issuing the advisory to provide clarity regarding its regulatory treatment of these capital instruments in the future.