Impact of registration reform on existing sub-advisory and other advisory arrangements in Quebec
Canadian, U.S. and other non-Canadian investment advisers which have entered into portfolio management agreements with permitted institutional clients in Quebec and, in particular, sub-advisory agreements with Quebec-registered dealers and advisers, on the basis of the existing adviser registration exemption under section 194.2 of the Regulation Respecting Securities (Quebec) (the 194.2 Exemption) should make sure that they consider the impact of the new Canadian registration regime on such arrangements.
In Quebec, the 194.2 Exemption has historically been relied on by non-Quebec advisers in connection with portfolio management arrangements entered into with permitted Quebec institutional investors. The 194.2 Exemption has been used, in particular, to structure sub-advisory arrangements with Quebec registered dealers and advisers. As part of the registration reform transition rules, the 194.2 Exemption will remain in place until December 28, 2009 when the exemption will be repealed.
As previously noted, National Instrument 31-103 Registration Requirements and Exemptions (31-103) does not include the sub-adviser exemption which the Canadian Securities Administrators (CSA) had formulated under preceding proposals for the Instrument. A sub-adviser exemption will remain available in Ontario under section 7.3 of OSC Rule 35-502 Non-Resident Advisers and the CSA have stated that discretionary relief on a similar basis will be granted in other jurisdictions.
For U.S. and other non-Canadian advisers, the 194.2 Exemption is effectively replaced by the more restricted international adviser exemption under section 8.26 of 31-103. It will not be possible to continue sub-advisory arrangements under the international adviser exemption since a registered dealer or adviser is not a "permitted client" for purposes of this exemption.
Non-Quebec advisers which have not already done so should, thus, consider the upcoming repeal of the 194.2 Exemption on sub-advisory arrangements entered into with Quebec registered dealers and advisers.
