BC dealer registration exemption for trades in MIEs extended

The British Columbia Securities Commission announced earlier this week that it is extending to BC Instrument 32-517, which provides a dealer registration exemption related to trades in prospectus-exempt securities of mortgage investment entities, to June 30, 2015.

OSC gains derivatives rule-making authority

As of December 31, 2013, certain derivatives-related amendments to the Ontario Securities Act (OSA) primarily relating to the rule-making authority of the Ontario Securities Commission have come into force.

Among other things, the OSC now has the authority to make rules in respect of prescribing registration requirements in respect of persons or companies trading in derivatives, prescribing classes of derivatives that are deemed to be securities for the purposes of prescribed provisions of the OSA, prescribing requirements for investment funds in respect of derivatives and prescribing requirements relating to derivatives, including disclosure and record keeping requirements.

As previously discussed, these amendments can be found in Ontario’s Bill 135, the Helping Ontario Families Managing Responsibility Act 2010, which received Royal Assent on December 8, 2010. Despite these recent amendments to the OSA, a number of amendments remain unproclaimed.

A look back at 2013

From the implementation of prospectus pre-marketing rules to a new "notice-and-access" framework for proxy materials, the past year has been a busy one for capital market regulators. And, 2014 is shaping up to be a busy one as well, with indications from regulators that we could soon see the release of proposals related to crowdfunding, proxy voting and gender diversity. Further, the federal government, along with Ontario and B.C. continue to work towards the creation of a cooperative securities regulator.

In case you missed them the first time around, we've compiled some of our most popular and substantive posts from the last 12 months, below.

M&A

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Quebec's AMF adjusts fees for 2014

Quebec's Autorité des marchés financiers (AMF) has announced that certain fees pursuant to laws it administers will be increasing as of January 1, 2014.

Fees being increased include those found in Title VI, Chapter II of the Securities Regulation and the fees payable under the regulation Tariffs for costs and fees payable in respect of derivatives, which will be increased by 0.97%. Certain other fees, including those payable under the Regulation respecting fees and contributions payable under An Act respecting the distribution of financial products and services will increase by 1.1%.

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IIROC's annual compliance report identifies dealers' common deficiencies

Earlier this week, the Investment Industry Regulatory Organization of Canada released its Annual Consolidated Compliance Report for 2013/2014. The report, which sets out the results of recent targeted reviews and describes IIROC's key priorities for the next fiscal year, is intended to assist dealers in satisfying compliance obligations.

Specifically, the report identifies IIROC's three key areas of compliance focus over the next year, namely (i) financial and operational compliance, including with respect to balance sheet leverage and repo book financing risk management practices, outsourcing of regulatory functions (with IIROC stating that guidance on the subject would be issued by year end), and maintenance of books and records on accounting systems physically located on servers outside a dealer's control;  (ii) surveillance and trading conduct compliance, including in respect of unreasonable or clearly erroneous trades, electronic trading rule requirements, best execution practices and cyber-crime; and (iii) business conduct compliance , including in respect of the implementation of client relationship model provisions, personal financial dealings with clients and outside business activities, and policies and procedures for communicating through social media.

Meanwhile, the report highlights the results of IIROC's targeted compliance reviews. With respect to non-arm's length investment products, IIROC found that a majority of dealers reviewed had appropriate controls in respect of suitability obligations and accredited investor determination in the sale of non-arm's length products. However, issues were identified with respect to conflict of interest disclosure and product due diligence. The report also identifies areas of concern with respect to dealers' best execution practices, books and records, margin requirements for dealers engaged in underwriting, internal controls, safekeeping and custody of customer and firm assets, policies and procedures for supervision of business and trading conduct, manipulative and deceptive trading practices, client compliant handling and various registration related deficiencies.

For more information, see IIROC Notice 13-0296.

CSA propose narrowing scope of EMD activities along with other changes to the registration regime

The Canadian Securities Administrators last week proposed a broad range of amendments to the registrant regulatory framework ranging from those intended to codify exemptive relief and create internal consistencies to substantive amendments that would narrow the scope of activities that are conducted by certain registrants.  

Specifically, such substantive amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and related instruments, companion policies, OSC rules and forms would, among other things, restrict the activities that exempt market dealers may conduct and prohibit exempt market dealers from conducting brokerage activities (a proposal first discussed earlier this year), and prohibit registrants from relying on registration exemptions to conduct activity that is permitted by their category of registration. Changes to the exempt market dealer category would also clarify the limited circumstances in which exempt market dealers are able to underwrite securities.  

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OSC outlines compliance deficiencies in annual report

The OSC Compliance and Registrant Regulation Branch's Annual Summary Report for Dealers, Advisers and Investment Fund Managers was published today. The report summarizes new and proposed rules and initiatives impacting registrants and reviews current trends in respect of compliance deficiencies and registration issues.

Of particular interest are the OSC's findings in respect of its compliance review process. Specifically, during fiscal 2013, compliance reviews resulted in 38% of registered firms reviewed requiring enhanced compliance (as compared to 34% in 2012), while 52% of registered firms reviewed requiring "significantly enhanced compliance" (as compared to 47% in 2012).

Deficiencies identified during the review process in respect of all registrants included: (i) non-compliance with KYC, KYP, suitability and accredited investor requirements; (ii) inadequate compliance systems and ultimate designated persons and chief compliance officers not meeting their responsibilities; (iii) inadequate or lack of annual compliance reports; (iv) failures to provide notice of ownership changes or asset acquisitions; (v) inaccurate calculations of excess working capital; (vi) insufficient working capital and failure to report capital deficiency; (vii) financial statements not prepared in accordance with NI 52-107; (viii) inadequate relationship disclosure information; and (ix) incorrect calculation of capital market participation fees.

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Alternative investment fund managers regulations 2013 - disclosure and reporting requirements for Canadian fund managers

Jeffrey Keey and Stanley McKeen -

As we initially discussed in an earlier post, Canadian managers of private equity, venture capital and other fund structures that are not regulated as “investment funds” under Canadian securities laws may, in the UK, be subject to marketing and related restrictions imposed by the Alternative Investment Fund Managers Regulations 2013 (the UK Regulations) when marketing alternative investment funds (AIFs) to professional investors in the UK pursuant to the UK’s national private placement regime. 

The UK Regulations, which implement the European Alternative Investment Fund Managers Directive (the Directive), came into force on 22 July 2013. As required by the Directive, the UK Regulations effectively regulate a much broader array of fund structures than conventional alternative investment funds. While EU member states were required to implement the Directive prior to July 22, 2013, only 12 of 31 EU member states had completed full legislative transposition within the deadline. Many of these 12 member states will provide transitional relief from the obligations imposed by the Directive for a one (and in some cases two) year period.

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CSA issue cyber security recommendations

The Canadian Securities Administrators yesterday issued a staff notice recommending that issuers, registrants and regulated entities consider the risks of cyber crime and take steps to address cyber security risks. Suggested actions include educating staff of the importance of securing client information, following industry guidance and best practices in regards to security measures and conducting regular third party vulnerability and security tests.

While protecting against cyber crime is relevant for issuers, registrants and regulated entities (such as SROs, marketplaces, clearing agencies and information processors), CSA staff provide their view on specific considerations for each of these categories of market participants. According to the notice, issuers should consider whether such risks, related controls and any cyber crime incidents they may experience are matters that need to be disclosed in a prospectus or continuous disclosure filing. Registrants meanwhile are advised to consider whether their risk management systems allow them to manage such risks in accordance with prudent business practices, while regulated entities are advised to consider what measures are necessary to manage cybercrime risk.

For more information, see CSA Staff Notice 11-326.

Client reporting requirements receive Ministerial approval

The OSC announced last week that amendments to NI 31-103 that would set out requirements for, among other things, client reporting with respect to cost disclosure, investment performance reporting and client statements, have received Ministerial approval. The amendments become effective on July 15, 2013.

CSA members extend registration exemption for trading in short-term debt

In 2011, the CSA issued a staff notice in respect of blanket relief to exempt certain financial institutions from having to register in respect of trading in short-term debt. The parallel orders were set to expire on September 28, 2014. Recently, CSA members began issuing orders to extend the initial exemption, modified to reflect the terminology of National Instrument 25-101 Designated Rating Organizations, to December 31, 2014.

Categories of registration and business triggers under CSA's proposed derivatives registration regime

Margaret Grottenthaler and Sumeet Thind -

As we discussed last month, the Canadian Securities Administrators Derivatives Committee recently published Consultation Paper 91-407 Derivatives: Registration, which contains regulatory proposals specific to the implementation of a registration regime for derivatives market participants in Canada. Under the Paper’s proposals, the imposition of “derivative-appropriate” registration requirements would be based on the type of activity conducted by derivative market participants regardless of the nature of the underlying asset.

The Committee developed the proposals in light of Canada’s G20 commitments to improve the regulation and oversight of OTC derivatives markets and with consideration of derivatives registration regimes in the U.S. and Europe. While the Committee also considered the existing securities regulatory framework, the proposed business triggers for derivatives registration and the requirements applicable to registrants would be substantially different than those applicable in the securities context, given the differences in the purpose of trading, the existence of risk-amplifying leverage in most categories of derivatives and the complexity of derivatives contracts.

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CSA release recommendations regarding derivatives registration regime

The Canadian Securities Administrators today released the latest in a series of consultation papers considering the regulation of derivatives in Canada. Specifically, CSA Consultation Paper 91-407 considers the regulation of derivatives market participants through the implementation of a registration regime.

Under the recommended regime articulated by the paper, three categories of registration would be created, namely those of (i) derivatives dealers, being persons carrying on the business of trading in derivatives or holding themselves out to be carrying on that business; (ii) derivatives advisers, being those carrying on the business of advising others in respect of derivatives, or who hold themselves out to be in that business; and (iii) large derivative participants, being entities, other than derivatives dealers, that have a substantial aggregate derivatives exposure.

Those required to be registered under the proposed regime would then be subject to various requirements respecting such things as proficiency, solvency, honest dealing obligations, and gatekeeper and business conduct requirements in the case of derivatives dealers and advisers. Exemptions from registration requirements would also be available in certain circumstances. For example, clearing agencies would generally not have to register, and foreign derivatives advisers and dealers would be exempted from specific regulatory requirements where they are subject to equivalent requirements in their home jurisdictions.

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OSC asks investment fund managers to consider budget changes to forward agreements

The Ontario Securities Commission yesterday released a staff notice setting out the issues that investment fund managers should consider in light of the recent federal budget. Specifically, under proposed amendments to the Income Tax Act, distributions to unitholders of a mutual fund resulting from partial or full settlements of a forward agreement will now be treated as income distributions.

According to OSC Staff, investment fund managers should consider the effects of these changes on their funds, especially if the income conversion feature is an "essential" aspect of the fund, and specifically with respect to compliance with their disclosure obligations and the need for communication with current securityholders. The notice also suggests that managers consider on a longer-term basis whether to cap affected funds to new and additional investments, whether changes to funds' investment objectives and strategies will be needed, and whether funds need to be restructured, reorganized or terminated.

For more information, see OSC Staff Notice 81-719.

CSA adopting client reporting requirements

The Canadian Securities Administrators today announced the adoption of amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its Companion Policy that set out requirements for, among other things, client reporting with respect to cost disclosure, investment performance reporting and client statements. As we discussed in an earlier post, the CSA published its initial proposal, which forms part of their Client Relationship Model Project, in June 2011, with revised proposals released in June 2012.

Among other things, the amendments will expand client statements to include additional information, set out a methodology for registrants to use to determine the market value of securities in client reports and require the disclose to clients of such things as the amount of trailing commissions received by a registered firm.

The changes made to the prior version of the proposal are not considered material and the amendments are thus scheduled to take effect on July 15, 2013. Generally, the transition times for the new requirements will span between one and three years. Of particular interest, the CSA have also provided sample reports on charges and other compensation, as well as a sample investment performance report in the appendices of the revised Companion Policy.

SEC considers uniform fiduciary standard for dealers and investment advisers

On March 1, the U.S. Securities and Exchange Commission released a request for comments as it considers potentially harmonizing the standards of conduct of broker-dealers and investment advisers. While investment advisers are currently fiduciaries to their clients, broker-dealers are not uniformly subject to fiduciary standards. The notice suggests that retail customers do not appreciate the difference in duties, and expresses concern that the applicable regulatory obligations depend on the statute under which a financial intermediary is registered rather than the services provided.

As such, the SEC is requesting data and other information to assist it in determining whether to adopt a uniform fiduciary duty. Specifically, the SEC is interested in receiving empirical and quantitative data from respondents, including surveys of retail customers, information describing the extent to which different rules apply to similar activities of broker-dealers and investment advisers, and data analyzing retail customer returns generated under the two existing regulatory regimes. Comments are being accepted for 120 days after publication of the notice in the Federal Register.

As we discussed in October, the CSA has also recently released a consultation paper considering the feasibility of imposing a fiduciary duty on advisers and dealers. Comments on the CSA's paper closed on February 22.

Ontario CM participation fee due April 1 for UIFMs with December 31 year end

A reminder to unregistered investment fund managers (UIFMs) that the annual capital markets participation fee (CM participation fee) applicable only in Ontario is due within 90 days of a UIFM’s year end. For UIFMs with a December 31 year end, the due date is Monday, April 1, 2013. Late fees apply and accrue.

The amount of the CM participation fee is determined on a sliding scale based on the amount of the UIFM's "specified Ontario revenues" for its previous financial year attributable to capital markets activities in Ontario. UIFMs must complete and deliver to the OSC (along with the fee payment) a Form 13-502F4 Capital Markets Participation Fee Calculation setting out the basis on which the CM participation fee paid by the UIFM was computed.

OSC amendments to fee rules approved

The Ontario Securities Commission announced today the approval of amendments to OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees.  The amendments come into effect on April 1, 2013.

IIROC proposes changes to disclosure requirements for electronic research reports

On December 20, the Investment Industry Regulatory Organization of Canada released proposed amendments to its Dealer Member Rules that would result in the repeal of Dealer Member Rule 3400, Requirement 15 in its entirety and replace it with a requirement that would permit Dealer Members to include in paper based research reports covering more than six issuers, directions as to where the Rule 3400 Disclosures may be found.

The amendments would also require Dealer Members delivering research reports by electronic means to either (i) include the Rule 3400 Disclosures in the body of the research report; or (ii) allow readers to access the Rule 3400 Disclosures by electronic means from within the research report, such as through the provision of a hyperlink.

The proposals are open for a 90-day comment period. For more information, see IIROC Rules Notice 12-0385.

OSC publishes final amendments to fee rule

Last month, the Ontario Securities Commission published final amendments to OSC Rule 13-502 Fees and its companion policy that will see an increase to the current fees payable by market participants. As we described in August 2012, the OSC published proposed amendments to its fee structure last year.

While the final version of the amendments is generally consistent with the earlier proposal, the OSC has taken steps to address some of the concerns communicated during the public comment process. For example, while the original proposals contained increases in participation fees over a three-year fee cycle of 7.9% per year for registrants and 15.5% for issuers, the increases have been reduced to 4.7% and 11.65% per year, respectively.

Of note, the OSC has exempted unregistered investment fund managers that do not have a place of business in Ontario from the requirement to calculate and pay capital market participation fees where the investment fund manager does not have security holders resident in Ontario or where there has been no active solicitation of investors in Ontario after September 27, 2012. However, while many commentators expressed opposition to the OSC’s proposed change to the calculation of fees based on a “reference fiscal year”, which for many market participants will result in the fees payable over the next three years to be based on historical market capitalization or revenue data rather than current data, the OSC, citing the need for predictability in its fee revenues, proceeded with this change.

Assuming Ministerial approval, the amendments to both rules will come into force on April 1, 2013.

BCSC proposes revoking certain trade-based and MIE registration exemptions

Last week, the British Columbia Securities Commission proposed revoking BC Instrument 32-513, which currently provides a registration exemption in respect of those that trade in certain prospectus-exempt securities. Similarly, the regulator also proposed revoking BC Instrument 32-517, which provides a dealer registration exemption related to trades in the prospectus-exempt securities of mortgage investment entities.

According to the BCSC, while it initially adopted the exemptions due to a lack of information on the impact of the EMD registration requirement, it has now determined that revoking the exemptions would have a "negligible impact" on capital raising. Further, the BCSC cites non-compliance with the exemptions, as well as the need to better protect investors as reasons for revocation.

The BCSC is accepting comments on its proposals until February 4, 2013. For more information, see BCN 2013/01.

Exchanges release paper on emerging market issuers

Ivan T. Grbešić -

The TSX and TSX-V issued a joint consultation paper earlier this week intended to identify the potential risks associated with listing emerging market issuers and provide preliminary guidance to issuers with respect to applicable listing considerations.

Specifically, the paper identifies a number of risks applicable to emerging market issuers, including with respect to (i) management and corporate governance concerns due to management's potential lack of familiarity with Canadian regulatory requirements or a lack of familiarity with the laws and requirements of the jurisdiction in which the issuer carries on business; (ii) unsatisfactory financial reporting as a result of auditors lacking sufficient expertise in the applicable jurisdiction; (iii) non-traditional corporate/capital structures due to foreign ownership restrictions in certain jurisdictions; and (iv) legal concerns relating to title and the ability to conduct operations.

The consultation paper thus asks for stakeholder input on a number of specific questions concerning the issues identified above, as well as with respect to the definition of "emerging market issuer", other potential risks not identified in the paper and related party transactions. Feedback is also requested on the issues of sponsorship requirements (which the paper suggests will not be waived in the case of emerging market issuers listing on the TSX) and potential supplemental ongoing requirements, which may ultimately include pre-clearance of a change of auditors, new board members or new senior management.

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Quebec's AMF adjusts fees for 2013

Last week, Quebec's Autorité des marchés financiers (AMF) announced that certain annual and other fees pursuant to laws it administers will be increasing as of January 1, 2013. Fees being increased include those payable under An Act respecting the distribution of financial products and services, the fees found in Title VI, Chapter II of the Securities Act and the fees payable under the Derivatives Act

Canada extends economic sanctions against Iran

Alan Kenigsberg -

On December 11, 2012, the Department of Foreign Affairs and International Trade released amendments to the Special Economic Measures (Iran) Regulations, implementing new sanctions against Iran.

Among other things, the new regulations prohibit any person in Canada and any Canadian outside of Canada from exporting, selling, supplying or shipping to Iran: any equipment of machinery designed for the building, maintenance or refitting of ships; any vessels designed for the transportation or storage of crude oil, or any petroleum or petrochemicals products; any goods designed for drilling, mineral surveying and exploration, including specialized equipment used in the mining industry; and any specialized equipment used to provide broadcasting, telecommunication, or satellite service to Iran.

The new regulations also prohibit any person in Canada or any Canadian outside of Canada from importing, purchasing, acquiring or shipping natural gas, crude oil, or any petroleum or petrochemical products, from Iran; or to provide marketing or any financial services to Iran or any person in Iran if it is related to natural gas, crude oil, or petroleum or petrochemical products.

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BCSC extends MIE registration exemption to June 2013

The British Columbia Securities Commission yesterday announced that it is extending the exemption from the dealer registration requirement for trades in securities of mortgage investment entities (MIEs) until June 30, 2013. As we discussed last year, analogous exemptions in the other Canadian jurisdictions expired on March 31, 2011 following the release of CSA guidance (CSA Notice 31-323) to clarify the circumstances in which the investment fund manager registration requirement would apply to MIEs. For more information, see BC Instrument 32-517.

OSC publishes comprehensive summary of registrant initiatives and compliance reviews

The Ontario Securities Commission yesterday released OSC Staff Notice 33-738, a report prepared by its Compliance and Registrant Regulation Branch, that is intended to assist registrants, including dealers, advisers and investment fund managers, in complying with regulatory obligations.

Key Policy Initiatives

First, the report sets out the new and proposed rules that impact registrants including Phase 2 of the Client Relationship Model Project, the potential best interest standard for dealers and advisers, the ongoing development of OTC derivatives regulation and the review of prospectus exemptions. Notably, on the latter point, the OSC states that it intends to publish a second consultation note regarding any new proposed prospectus exemptions.

KYC and Suitability Focus

The report also considers the OSC's continued focus on know-your-client obligations and requirements regarding suitability. On this issue, the report states that "significant deficiencies" continue to be identified in respect of registrants' compliance. The report discusses the OSC's recent targeted review of over 85 exempt market dealers and portfolio managers, and provides highlights of recent enforcement cases focusing on KYC and suitabilty.

Issues identified in the reviews include, among others (i) the inadequate collection and/or documentation of KYC information required to confirm a client's identity, ascertain if the client was an insider of a reporting issuer, or assess the suitability of proposed investments; (ii) unsuitable investments being made; (iii) inadequate or a lack of written policies and procedures regarding KYC, know-your-product and suitability obligations; (iv) EMDs improperly relying on the accredited investor exemption; and (v) portfolio managers not updating KYC information at least annually. A number of best practice guidelines were also provided.

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OSC proposes increase in fees

On August 23, 2012, the Ontario Securities Commission (OSC) published proposed amendments to its fee rule, 13-502.

Being a self-funded agency, and citing issues like the increasing need to deal with regulatory matters on an international level and the complexity added by technological advances in trading and trading strategies and products, fees are generally proposed to be increased over the three years following implementation of these proposals. While fees for both registrants and issuers are proposed to be increased, the increase will represent a 7.9% increase per year for registrants, as compared to 15.5% for issuers, in an attempt to continue to bring the balance for the two groups closer to 50/50.

For example, the annual corporate finance participation fee for issuers in the $50 million to under $100 million capitalization category is slated to increase from the current $5,125 to $5,925 effective April 1, 2013, and then increasing to $6,850 and $7,900 over the following years. The annual capital markets participation fee for registrants in the $1 million to $3 million (Ontario revenues) category, for example, is slated to increase from the current $7,250 to $7,825 effective April 1, 2013, and to $8,400 and then $9,110 over the following two years.

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Updated guidance for applications to cease to be a reporting issuer

The CSA yesterday issued a new version of CSA Staff Notice 12-307, which sets out guidance on coordinated review applications made under NP 11-203 for a decision that an issuer is not a reporting issuer. The notice covers such topics as: (i) applying for a decision under a simplified procedure; (ii) applying for a decision where an issuer is not eligible to use a simplified procedure; (iii) describing the decision sought in an application in a way that addresses legislative differences between jurisdictions; (iv) applying for a decision in the case of foreign issuers with a small securityholder presence in Canada; and (v) the procedure for dissolved issuers.

Notably, the amended notice now clarifies that the simplified procedure for coordinated review applications is only available to issuers whose securities, including debt securities, are not traded on a marketplace in Canada or in another country and expands the restriction to include any other facility for bringing together buyers and sellers of securities where trading data is publicly reported. Meanwhile, the notice now also states that the simplified procedure and the modified approach are not available to "OTC reporting issuers", as defined in Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (and as discussed in our June post).

Further, the notice reminds issuers that a decision obtained under a coordinated review applications is only applicable for the purposes of securities legislation. Depending on the jurisdiction, an issuer may also have to make a separate application under the business corporations legislation under which it was incorporated, continued or amalgamated for an order that it is no longer a public company.

The OSC has also issued its own staff notice with regards to applications made to the OSC only .

For more information, see CSA Staff Notice 12-307 Applications for a Decision that an Issuer is not a Reporting Issuer and OSC Staff Notice 12-703 Applications for a Decision that an Issuer is not a Reporting Issuer.

OSC releases interpretation of commodity futures adviser registration requirement

The Ontario Securities Commission yesterday released a staff notice setting out how OSC staff interpret the application of the adviser registration requirement set out in Ontario's Commodity Futures Act with respect to non-resident investment funds sold to Ontario investors.

The notice was released in response to enquiries regarding the "flow-through" theory for adviser registration, which, as announced in July 2009, has been discontinued in respect of the adviser registration requirement under NI 31-103. Under the discontinued theory, OSC staff had taken the view that advice to an investment fund "flowed through" to the investors in the fund and thus required the adviser to the fund to register as an adviser in Ontario, or be exempted from such registration, if any units of the fund were sold in the province. Under NI 31-103, however, the adviser to a fund must register as a portfolio manager in the jurisdiction where the fund is established, regardless of where the fund's investors are located.

Ultimately, yesterday's notice confirms that OSC staff take the same view regarding the elimination of "flow-through" theory under the Commodity Futures Act and the requirement to register as with NI 31-103.

Regulators adopt registration exemptions for non-resident IFMs

Martine Ordon -

The CSA yesterday announced the adoption of new instruments and policies to address the registration of non-resident investment fund managers, as well as the issuance of parallel orders to extend the transition provisions regarding the registration requirement of IFMs from September 28 to December 31, 2012.

Specifically, the OSC, Quebec's Autorité des marchés financiers and Newfoundland and Labrador's Financial Services Regulation Division, Service NL announced the implementation of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, which provides an exemption from the investment fund manager registration requirement where an IFM does not have a place of business in the local jurisdiction and if either (i) none of the investment funds has security holders resident in the local jurisdiction; or (ii) the IFM and those investment funds have not, at any time after September 27, 2012, actively solicited residents in the local jurisdiction to purchase securities of the fund.

Meanwhile, all other jurisdictions in Canada released Multilateral Policy 31-202 Registration Requirements for Investment Fund Managers, which is intended to provide guidance with regards to determining whether registration as an IFM is required in those jurisdictions. As we noted in an earlier post describing the initial proposal, these jurisdictions would allow the applicable exemptions found in NI 31-103 to expire, but would subsequently interpret the registration requirements to only require registration as an investment fund manager in a jurisdiction if the investment fund manager directs or manages the business, operations or affairs of an investment fund in that jurisdiction.

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OSC to increase transparency in individuals' registration decisions

The Ontario Securities Commission today released a staff notice advising that, when OSC Staff recommend that the Director refuse, amend, suspend or impose terms and conditions on an individual's registration status under the Securities Act, staff will provide written notice of its recommendation and brief reasons not only to the individual registrant, but also the sponsoring firm. Historically, staff only sent sponsoring firms their recommendation and not any of the reasons underlying the recommendation.

According to the staff notice, providing the additional information to firms will assist firms in maintaining accurate and complete information, while enhancing investor protection. For more information, see OSC Staff Notice 33-737.

CSA publish proposed amendments to client reporting

The Canadian Securities Administrators today published a revised set of proposed amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations as well as its Companion Policy to set out requirements for reporting to clients with respect to investment charges, investment performance and client statements. As we discussed in a blog post last year, the CSA published an earlier version of the amendments in June 2011 as part of their Client Relationship Model (CRM) Project.

Ultimately, the changes made to the 2011 version of the proposal reflect comments received, as well as further research and industry consultation undertaken by the CSA. Among other things, the proposed amendments would expand client statements to include additional information, set out a methodology for registrants to use to determine the market value of securities in client reports and require the disclose to clients of such things as the amount of trailing commissions received by registered firm.

The CSA are accepting comments on the proposed amendments until September 14, 2012.

OSC releases April 2012 issue of Investment Funds Practitioner

Darin Renton -

The Investment Funds Branch of the Ontario Securities Commission recently published the April 2012 issue of its Investment Funds Practitioner. The publication provides an overview of issues identified by the Branch arising from exemptive relief applications, prospectus filings and continuous disclosure documents filed by investment funds with the OSC.

Prospectus Issues

The Practioner highlights a number of issues that have come to light in the course of prospectus reviews, including amending a final prospectus to fix incorrect fee disclosure, and fund names that are inconsistent with the fund's investment objectives or strategies. On the latter issue, Branch Staff state that fund managers should select names that "closely reflect the fund's investment objectives" and that distinguish the funds from others. Branch Staff will consider whether additional guidance or rule-making is needed on this point.

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IIROC to consolidate enforcement rules

On March 23, the Investment Industry Regulatory Organization of Canada (IIROC) released a set of proposed rules intended to consolidate and rationalize enforcement-related rules currently contained in the Dealer Member Rules and UMIR. Specifically, the proposed rules include those respecting investigations, disciplinary hearings, compliance and registration. Consequential amendments to UMIR would also be made.

IIROC is accepting comments on the proposals until June 21, 2012. For more information, see IIROC Notice 12-0104.

BCSC excludes former registrants from EMD registration relief

The British Columbia Securities Commission (BCSC) today published revisions to BC Instrument 32-513, which provides certain limited trade-based registration exemptions to persons that would otherwise be required to register as exempt market dealers in BC. Specifically, the amendments, effective April 16, 2012, would exclude former registrants and persons who have provided financial services to the purchaser from relying on the exemptions.

BCSC extends registration exemption for MIEs until end of year

On March 2, the British Columbia Securities Commission (BCSC) extended the exemption from the dealer registration requirement for trades in securities of mortgage investment entities (MIEs) until December 31, 2012. The exemption had been scheduled to expire on March 31. As we discussed last year, analogous exemptions in the other Canadian jurisdictions expired on March 31, 2011. In the place of exemptions outside of B.C., the CSA released guidance to clarify the circumstances in which the investment fund manager registration requirement would apply to MIEs.

New Canadian proposals for non-resident investment fund manager registration

Kathleen Ward, Ken Ottenbreit and Alix d’Anglejan-Chatillon -

As discussed in our post of February 10, the Canadian Securities Administrators (CSA) recently published two sets of proposals relating to the registration of non-resident investment fund managers (IFMs). The provinces of Ontario, Quebec, New Brunswick and Newfoundland and Labrador, referred to here as the “Exemption Jurisdictions” have proposed one approach, while the other six provinces and three territories referred to here as the ”Policy Jurisdictions”, have taken another. The key differences between the two approaches are highlighted below.

The securities regulators in both the Exemption Jurisdictions and the Policy Jurisdictions make it clear that if an IFM is directing or managing the business, operations or affairs of an investment fund from a place of business in a Canadian jurisdiction, the IFM would need to be registered there. The difference in the proposals is the effect of offering securities or having investors in the jurisdiction.

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OSC identifies IFRS areas of interest

Last week, the OSC's Office of the Chief Accountant published a staff notice highlighting selected areas of interest with respect to financial reporting in the era of IFRS, and identifying areas for closer examination during 2012. Among other things, the notice considers: (i) the level of compliance with certain features of IFRS 3 Business Combinations; (ii) accounting for business combinations under common control; and (iii) the application of the requirements of IAS 36 Impairment of Assets. According to the OSC, the objective of the notice is to provide market participants with information that may assist in preparing financial reports during 2012.

CSA release 2011 enforcement report

Earlier this week, the Canadian Securities Administrators released their 2011 Enforcement Report, which sets out the results of regulators' enforcement activities over the last year. According to the report, CSA members commenced a total of 126 proceedings in 2011, down from 178 the year before, and concluded a total of 124 cases, down from 174. Of particular interest is the breakdown of concluded cases by category. Specifically, the majority of cases concluded last year (66) involved illegal distributions, while cases of registrant misconduct and insider trading were second and third, respectively. Meanwhile, total fines and administrative penalties ordered amounted to over $52 million, while restitution, compensation and disgorgement amounted to over $49 million.

Canadian regulators sign MOU with Australian regulator

Earlier this month, the Ontario Securities Commission, Quebec's Autorité des marchés financiers, the Alberta Securities Commission and the British Columbia Securities Commission announced the signing of a memorandum of understanding with the Australia Securities and Investments Commission. The MOU is intended to facilitate the supervision of regulated entities operating in both Canada and Australia by providing a mechanism for consultation, cooperation and exchange of information among the regulators.

Reminder: Ontario capital markets participation fees for unregistered IFMs due within 90 days of their year end

A reminder to unregistered investment fund managers (UIFMs) that the annual capital markets participation fee (CM participation fee) applicable only in Ontario is due within 90 days of a UIFM’s year end. For UIFMs with a December 31 year end, the due date is Friday, March 30, 2012. Late fees apply and accrue.

The amount of the CM participation fee is determined on a sliding scale based on the amount of the UIFM's "specified Ontario revenues" for its previous financial year attributable to capital markets activities in Ontario. UIFMs must complete and deliver to the OSC (along with the fee payment) a Form 13-502F4 Capital Markets Participation Fee Calculation setting out the basis on which the CM participation fee paid by the UIFM was computed.

Minister of Finance approves registration amendments

On February 10, the OSC announced that the Minister of Finance (Ontario) has approved amendments to NI 31-103, previously published in November 2011, related to exemptions for SRO members. The amendments go into effect on February 28, 2012.

CSA adopt amendments to mutual fund and investment fund regulatory framework

The CSA announced last week that it is adopting amendments to complete the first phase of its project to modernize the product regulation of publicly offered investment funds. The amendments, initially published as a proposal in June 2010, seek to codify exemptive relief frequently granted to address market and product developments over the years in the investment fund industry. According to the CSA, these amendments to NI 81-102 Mutual Funds and related consequential amendments help to modernize the investment fund rules by making requirements "more effective and relevant in today's more diverse and increasingly innovative retail fund marketplace."

Specifically, among other things, the amendments will: (i) eliminate the need for ETFs to seek exemptive relief from certain operational requirements designed primarily for open-end conventional mutual funds; (ii) allow mutual funds to short sell securities subject to a cap of 20% of their net asset value; and (iii) introduce new investment restrictions for money market funds.

The final rules reflect changes made in response to comments to the 2010 proposal. As these changes are not considered material, the amendments will, assuming Ministerial approvals, come into effect on April 30, 2012.

Regulators propose registration exemptions for non-resident IFMs

Regulators from Ontario, Quebec, New Brunswick and Newfoundland and Labrador today published a proposed multilateral instrument that would exempt non-resident investment fund managers from the requirement to register in circumstances where there are no security holders of the investment fund, or active solicitation of residents, in the local jurisdiction. The instrument, which would apply in the participating jurisdictions, would apply to investment fund managers that do not have their head office or principal place of business in a jurisdiction of Canada and that do not have a place of business in the local jurisdiction. An exemption would also exist from the registration requirement in cases of distributions only to permitted clients.

Ultimately, the exemption from registration would extend the current temporary exemptions found in NI 31-103 and require affected investment fund managers to apply for registration by December 31, 2012. The participating regulators are accepting comments on the proposal until April 10, 2012. For more information, see proposed MI 32-102.

Meanwhile, securities regulators in the remaining provinces and territories have published a separate multilateral instrument that would allow the applicable exemptions found in NI 31-103 to expire on September 28, 2012 as planned, but would subsequently interpret the registration requirements to only require any entity to register as an investment fund manager in a jurisdiction if it directs or manages the business, operations or affairs of an investment in that jurisdiction. In determining whether registration is required, the proposed instrument would look at the functions and activities of the entity, and the presence of security holders and the solicitation of investors in a jurisdiction would not automatically require an investment fund manager to register. Affected investment fund managers in these jurisdictions would be required to apply for registration by September 28, 2012. Like the proposed instrument described above, comments are being accepted until April 10, 2012. For more information, see proposed MI 31-202.

In both cases, the proposals are intended to replace the CSA proposal published in October 2010, with which the CSA are not proceeding.

ASC outlines compliance review of EMDs

Last week, the Alberta Securities Commission released a staff notice providing a summary of staff's initial compliance reviews of firms registered as exempt market dealers (EMDs). The notice highlights issues identified in staff's review and provides guidance with respect to suggested practices. Common issues identified include: (i) policies and procedures not reflecting EMDs' actual business practices; (ii) inconsistencies between clients' tolerance for risk and the types of securities that EMDs sell; (iii) an inability by some EMDs to demonstrate having conducted an appropriate level of due diligence to satisfy the suitability requirement; and (iv) EMDs not always adequately disclosing relationships to clients with respect to issuers, ownership of securities, outside business activities, and risks related to borrowing money for the purposes of making financial investments.

The notice also provides information regarding the compliance activities to be performed by ASC staff in the future. For more information, see ASC Staff Notice 33-704 Review of Exempt Market Dealers.

OSC publishes Investment Fund Practitioner for December 2011

Earlier today, the Ontario Securities Commission released the December 2011 issue of its Investment Funds Practitioner. The publication provides an overview of issues arising from exemptive relief applications, prospectus filings and continuous disclosure documents filed by investment funds with the OSC.

Issues considered with respect to applications for exemptive relief include applications from portfolio managers to permit the distribution of pooled fund securities to fully managed accounts held by clients who do not qualify as accredited investors, requests for confidentiality without substantive reasons provided, and subadviser conflicts of interest. With respect to prospectus filings, the publication provides the Investment Funds Branch's views on the use of prepaid forwards by mutual funds and non-redeemable investment funds and the disclosure of management fees and trailing commission payments.

The publication also provides an overview of issues arising in connection with Fund Facts, specifically with respect to relief to permit early delivery of Fund Facts, disclosure of expected mergers, risk methodology and the disclosure of separately negotiated fees.

Registration rule exemptions for SRO members adopted by CSA

The Canadian Securities Administrators today announced the adoption of amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its Companion Policy related to exemptions for SRO members. A draft proposed version of the amendments was published in May and the final amendments are substantially similar to the earlier version. Assuming that ministerial approvals are received, the amendments will come into force on February 28, 2012.

OSC registrant compliance report flags deficiencies and provides guidance

Alix d'Anglejan-Chatillon and Alex Colangelo

On September 23, the Ontario Securities Commission released OSC Notice 33-736 – 2011 Annual Summary Report for Dealers, Advisers and Investment Fund Managers. While the report was prepared by the OSC’s Compliance and Registrant Regulation Branch (the Branch) to assist dealers, advisers and investment fund managers in complying with Ontario securities laws, it provides useful guidance for registrants and applicants for registration in all Canadian jurisdictions. The report primarily covers the OSC’s 2011 fiscal year and (i) reviews recent developments in light of the new registration regime; (ii) considers Canada’s response to global financial developments, including with respect to OTC derivatives regulation and the potential systemic risks posed by hedge funds; (iii) discusses the OSC’s recent focus on registrant misconduct; (iv) provides information for firms and individuals applying for registration by, among other things, identifying common deficiencies in registration applications and providing corresponding guidance; and (v) identifies trends in deficiencies and suggested practices for registrants, advisers, investment fund managers and dealers based on ongoing compliance reviews.

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MFDA proposes amendments to client reporting requirements

The Mutual Fund Dealers Association of Canada (MFDA) proposed amendments today intended to ensure consistency between its rules respecting the delivery of client account statements with those found in NI 31-103. As such, the proposal would eliminate the distinction between delivery requirements for accounts held in client and nominee name and adopt the requirement for registered dealers to deliver a statement to all clients at least once every three months.

CSA extend relief regarding trading short-term debt and relationship disclosure

As we discussed in our earlier post, CSA members issued parallel orders yesterday to provide relief from certain requirements found in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Obligations.

In addition to dealing with the issue of permitted clients, CSA members, other than the OSC, also extended their blanket orders relieving certain persons and companies from the requirement to register when trading in short-term debt instruments to Sept. 28, 2014. In Ontario, alternative exemptions may be available from the dealer registration requirement, such as the exemption in section 8.5 of NI 31-103 [trades through a registered dealer] and for financial institutions under section 35.1 of the Securities Act (Ontario) and section 4.1 of OSC Rule 45-501 Ontario Prospectus and Registration Exemptions.

Further, all CSA members issued parallel orders that extend interim relief for SRO members and Quebec mutual fund dealers from the requirement in section 14.2(1) of NI 31-103 to provide relationship disclosure information to December 31, 2013. IIROC consequently also published a Technical Rules Notice reiterating that it anticipates receiving CSA approval of its Client Relationship Model (CRM) before the end of 2011 and will, upon approval, being an immediate phased implementation.

For more information, see CSA Staff Notice 31-329 and IIROC Notice 11-0276.

CSA issue relief from newly enacted "Canadian permitted client" restrictions

Earlier this week, all CSA members except the OSC issued blanket orders to provide interim relief from the new restrictions on registration exemptions for international dealers and international
advisers found in the July 2011 amendments to NI 31-103. As such, the investment dealer and international adviser exemptions are once again generally premised on whether a client is a "permitted client" rather than a "Canadian permitted client". As Ontario securities law does not permit the OSC to issue an order of this nature, OSC Staff have confirmed that they will not enforce the "Canadian permitted client" restrictions provided that, when relying on the exemption, an international dealer or international adviser

  1. satisfies the requirements of the exemption of the definition of "Canadian permitted client" in these sections if the sections instead referred to "permitted client" but excluded in the case of the international adviser exemption, a dealer or adviser registered under the securities legislation of a jurisdiction of Canada;
     
  2. complies with the other provisions of Ontario securities law applicable to the exemptions (including requirements relating to payment of fees); and,
     
  3. identifies on Form 31-103F2 Submission to Jurisdiction and Appointment of Agent for Service that, in addition to the corresponding exemption, the person or company is also relying on CSA Staff Notice 31-329.The OSC expects to withdraw this position on the coming into effect of any future amendments to NI 31-103 dealing with the definition of "Canadian permitted client".

For more information, see CSA Staff Notice 31-329.

OSC report sets out deficiencies from compliance review of registrants

The OSC today released a report prepared by its Compliance and Registrant Regulation Branch that summarized the new and proposed rules impacting registrants, provided information intended to assist firms and individuals applying for registration, and identified deficiencies found in compliance reviews of registrants. The report primarily covered the OSC's 2011 fiscal year. 

Of particular interest, the deficiencies highlighted by the report include: (i) inaccurate calculations by firms of excess working capital on Form 31-103F1; (ii) inadequate insurance coverage by registered portfolio managers and investment fund managers; (iii) a lack of disclosure by portfolio managers regarding the use of client brokerage commissions; (iv) a delegation of "know your client" and suitability obligations by portfolio managers; (v) EMDs selling exempt securities in reliance on the accredited investor exemption to investors who do not meet the definition; (vi) individuals trading on behalf of EMDs without being registered as a dealing representative with the EMD; and (vii) EMDs inappropriately using investor funds.

The report also provides a number of suggested practices to assist registrants in addressing the various identified deficiencies. Guidance was also included concerning such issues as the use of social media, marketing practices and the provision of online advisory services. For more information, see OSC Staff Notice 33-736.

CSA revoke redundant NI 31-103 omnibus/blanket relief orders

The CSA published a staff notice today revoking earlier blanket orders (discussed in our posts of February 26, 2010 and November 5, 2010) that provided exemptions from certain requirements of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. According to the CSA, the orders are no longer required, given the recent amendments to NI 31-103 that became effective on July 11.

The revoked orders dealt with such things as portfolio manager proficiency requirements, client notification requirements for certain Canadian registrants with head offices outside the local jurisdiction and requirements to establish whether a client is an insider for mutual fund dealers. For more information, see CSA Staff Notice 31-328. Also see the OSC Staff Notice 31-714, which identifies the Ontario orders that have been revoked.

Regulators' IFM delegation concerns shouldn't affect trustees

Darin Renton -

As we discussed recently, Canadian registration rules were amended in July with the stated intention of improving the day-to-day operation of the rules for both industry and regulators. Of interest to investment fund managers, the amendments revised the guidance in the Companion Policy to NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations regarding how the investment fund manager registration requirement applies to various fund structures. Specifically, section 7.3 of the Companion Policy now states as follows: 

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Performance reporting amendments could increase burden on registrants

As we discussed in our post of June 24, the CSA recently published proposed amendments to NI 31-103 Registration Requirements and Exemptions intended to "ensure that clients of all dealers and advisers (registrants)...receive clear and complete disclosure of all charges associated with the products and services they receive, and meaningful reporting on how their accounts perform."

While we discussed the changes in our earlier post, particular attention should be given to the proposals respecting performance reporting. Specifically, the amendments would require that registered firms include original cost information for each security position in a client's account statement. The CSA is also specifically requesting comments on whether the use of tax cost (book value) should be permitted as an alternative.

Proposed changes to the Companion Policy would also provide guidance with respect to calculating the market value of securities. On that point, the amendments provide that market value should be determined by reference to a quoted value on a recognized exchange or marketplace. If market value is not quoted on an exchange, it could be determined by reference to quotes that are available through brokers or, failing that, based on a valuation policy that is consistently applied and based on measures considered reasonable in the industry.

Where a market value of a security could not be determined, however, firms would have to disclose this in the account statement and exclude the security from the calculation of the total market value. According to its notice, the CSA is particularly interested in comments on the guidance related to the valuation of exempt or illiquid securities where there are no quoted values available.

Ultimately, the changes proposed by the CSA are operational in nature and could require that registrants make a substantial investment in time and resources to ensure compliance. As such, registrants should review the proposals carefully and consider providing comments to the CSA by the September 23 deadline.

CSA Staff concerned with U.S. exempt market dealers carrying out brokerage activities

The Canadian Securities Administrators released a staff notice today communicating their concern regarding firms that carry out brokerage activities registering as exempt market dealers. The notice describes such firms as being primarily U.S.-based broker-dealers that are members of FINRA.

According to CSA staff, the EMD category of registration was not intended for firms that conduct brokerage activities (trading securities listed on an exchange in foreign or Canadian markets), and the notice states that permitting such activity would result in differing levels of regulatory oversight between EMDs and those firms subject to IIROC requirements and supervision.

In light of their concerns, the CSA will instead "consider" registering these broker-dealers in the restricted dealer category with terms and conditions, including a requirement that such broker-dealers only deal with permitted clients. Such registrations would also be temporary while the CSA engage in a consultation process to ensure that "appropriate regulatory requirements" apply to all firms undertaking brokerage activities. According to the notice, the consultations will "likely" result in changes to the registration rules.

For more information, see CSA Staff Notice 31-327.

CSA remind registrants of obligations regarding outside business activities

The CSA released a notice today reminding registrants that outside business interests must not impede or impair their compliance obligations, including with respect to conflicts of interest provisions under NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and, where applicable, MFDA and IIROC requirements. According to the notice, CSA staff will consider a number of issues related to outside business interests when evaluating a registrant's application for registration, change in registration or considering continuing fitness for registration, such as whether the individual would be able to properly service clients and whether the outside business activity presents a conflict of interest that can be appropriately managed. The notice also reminds registered firms of their supervisory responsibilities.

For more information, see CSA Staff Notice 31-326. For an overview of the recent changes to NI 31-103, see our post of July 11.

July 2011 amendments to Canadian registration rules

 

On April 15, 2011 the Canadian Securities Administrators (CSA) published amendments to National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), Companion Policy 31-103CP Registration Requirements and Exemptions (31-103CP), National Instrument 33-109 Registration Information, Companion Policy 33-109CP Registration Information and related policies and forms (collectively, the “Amendments”).  Note that the Amendments will change the name of NI 31-103 to “Registration Requirements, Exemptions and Ongoing Registrant Obligations”.  The Amendments range from technical adjustments to more substantive matters and, subject to all necessary approvals being obtained, including ministerial approvals, the Amendments are expected to come into force on July 11, 2011.

Summarized below are some of the key changes under the Amendments.

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The impact of the amendments on registrants generally

Summarized below are some of the key changes under the Amendments that will impact all registrants generally. There are additional amendments that will also affect specific categories of market participants. Learn more by by clicking on any of the following:

> Mutual Fund Dealers
> Investment Dealers (IIROC Members)
> Firms Relying on the International Dealer Exemption
> Firms Relying on the International Adviser Exemption

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The impact of the amendments on firms relying on the international adviser exemption

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact firms relying on the international adviser exemption in section 8.26 of NI 31-103.

Addition of Canadian Residency, Organization or Incorporation Requirement for Permitted Clients

Under the Amendments, the international adviser exemption under section 8.26 of NI 31-103 will be available only if the permitted client is a “Canadian permitted client”. “Canadian permitted client” is defined to mean a permitted client referred to in any of the paragraphs of the definition of “permitted client”, as that term is defined in section 1.1 of NI 31-103, set out in section 8.26(2) if:

  • in the case of an individual, the individual is a resident of Canada;
  • in the case of a trust, the terms of the trust expressly provide that those terms are governed by the laws of a jurisdiction of Canada;
  • in any other case, the permitted client is incorporated, organized or continued under the laws of Canada or a jurisdiction of Canada.

As a result, a non-Canadian firm relying on this exemption is precluded from advising a permitted client unless that permitted client is a "Canadian permitted client". The addition of the "Canadian permitted client" definition to NI 31-103 was not included in the proposal of the Amendments published for comment on June 25, 2010. Members of Stikeman Elliott’s securities practice group have written to the CSA to suggest that they defer implementation of this change pending a full notice and comment process. Based on recent discussions, we understand that a deferral is not feasible however, we also understand transitional relief is being contemplated and we anticipate a resolution in the short term. A copy of our letter to the CSA is available upon request.

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The impact of the amendments on firms relying on the international dealer exemption

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact firms relying on the international dealer exemption in section 8.18 of NI 31-103.

Addition of Canadian Residency, Organization or Incorporation Requirement for Permitted Clients

Under the Amendments, the international dealer exemption under section 8.18 of NI 31-103 will be available only if the permitted client is a “Canadian permitted client”. “Canadian permitted client” is defined to mean a permitted client referred to in any of the paragraphs of the definition of “permitted client”, as that term is defined in section 1.1 of NI 31-103, set out in section 8.18(1) if:

  • in the case of an individual, the individual is a resident of Canada;
  • in the case of a trust, the terms of the trust expressly provide that those terms are governed by the laws of a jurisdiction of Canada;
  • in any other case, the permitted client is incorporated, organized or continued under the laws of Canada or a jurisdiction of Canada.

As a result, a non-Canadian firm relying on this exemption is precluded from engaging in a trade with a permitted client unless that permitted client is a "Canadian permitted client". The addition of the "Canadian permitted client" definition to NI 31-103 was not included in the proposal of the Amendments published for comment on June 25, 2010. Members of Stikeman Elliott’s securities practice group have written to the CSA to suggest that they defer implementation of this change pending a full notice and comment process. Based on recent discussions, we understand that a deferral is not feasible however, we also understand transitional relief is being contemplated and we anticipate a resolution in the short term. A copy of our letter to the CSA is available upon request.

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The impact of amendments on investment dealers (IIROC Members)

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact IIROC members.

Avoidance of Conflicts (Managed Accounts)

Where a registered investment dealer is also an adviser to a managed account, the Companion Policy emphasizes that proper policies and procedures should be in place to sufficiently mitigate the conflicts of interest inherent in trades between inventory accounts and managed accounts. The policies and procedures should consider best execution requirements, fair pricing and appropriate oversight.

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The impact of the amendments on mutual fund dealers

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact mutual fund dealers.

Permitted Activities

Registered mutual fund dealers are no longer restricted in Quebec from acting as dealers of labour sponsored investment funds or labour sponsored venture capital corporations.

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CSA discuss compliance expectations for EMD registrants

The CSA issued a staff notice earlier this week dealing with the account statement requirements under National Instrument 31-103 Registration Requirements and Exemptions. Specifically, the notice considers the CSA's expectations for exempt market dealers' compliance with account statement requirements in NI 31-103, notes that the CSA will focus attention on EMDs distributing securities of related or connected issuers and draws attention to CSA guidance on the valuation of securities. For more information, see CSA Staff Notice 31-324.

CSA request comments on cost disclosure and performance reporting

As part of its Client Relationship Model Project, the CSA has recently published proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions intended to ensure that investors are provided with key information about their account and product-related charges. Under the proposed amendments, registered firms would be required to provide clients with: (i) an annual summary of account-related and product charges; (ii) the original cost of each security added to account statements; and (iii) annual account performance reporting. Annual account performance reporting would include disclosure of net amount invested, change in value, percentage returns and a description of the use and limitations of benchmarks. According to the notice, most of the new requirements would be phased in over two years following their implementation. The CSA is accepting comments on the proposals until September 23, 2011.

OSC to publish Director's decisions on registration matters

The OSC announced today that it will expand on the types of Director decisions that it publishes online and in the OSC Bulletin to include uncontested cases of regulatory action with regards to the registration status of a registrant. Currently, the OSC only publishes decisions where a registrant exercises the right to be heard in an administrative proceeding known as an "opportunity to be heard". According to the OSC, "the increased transparency resulting from the publication of decisions of the Director ... will provide enhanced investor protection since important information regarding registrant conduct will be communicated to the public in a timely manner." For more information, see OSC Staff Notice 34-701.

CSA release proposed amendments to registration rule exemptions for SRO members

The Canadian Securities Administrators released proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions and its companion policy today that would add (and clarify), as a condition to the exemptions for SRO members/approved persons provided in sections 3.16, 9.3 and 9.4 of the Instrument, that the registered individual or investment dealer comply with the specified corresponding provision of IIROC or, in the case of a mutual fund dealer firm, the MFDA. The proposed amendments, which follow proposals published on April 15, are open to comment until July 18.

MFDA provides guidance regarding electronic account statements

In response to the required frequency of account statement delivery under NI 31-103 Registration Requirements and Exemptions, the Mutual Fund Dealers Association of Canada (MFDA) has released guidance to assist its members in assessing the issues respecting sending account statements by electronic means. The bulletin cites privacy issues for specific attention and recommends that members and/or members' back-office service providers meet with MFDA staff before sending documents electronically. According to the MFDA, the following issues will be considered in assessing member compliance with regulatory requirements:

  • the confidentiality, security and integrity of client information sent electronically;
     
  • the procedures to obtain consent to receive documents electronically and the form of consent;
     
  • record retention and audit trails; and
     
  • the form and content of the electronic document and the length of time for which the document will be made available to clients.

For more information, see MFDA Bulletin #0474-P.

CSA release amendments to registration instrument

The Canadian Securities Administrators (CSA) today published its final version of amendments to NI 31-103 Registration Requirements and Exemptions.  The amendments, which are intended to "improve the day-to-day operation of the Instrument for both industry and regulators", were initially published for comment in June 2010. While the amendments are focused primarily on the June 2010 proposals, the Instrument is still subject to further proposals relating to investment fund manager registration. Provided all necessary approvals are obtained, the amendments will come into force on July 11, 2011.

OSC issues guidance on prospectus exemptions where relief is evidenced by prospectus receipt

The OSC today issued a practice directive intended to assist issuers making an application for relief in connection with prescribed prospectus requirements where the exemption will be evidenced by the issuance of a receipt for a final prospectus. Specifically, the OSC notes a number of deficiencies that can cause delays when reviewing exemption applications and provides guidance regarding the OSC's expectations concerning such things as the content of the application, its filing on SEDAR and public availability and the related prospectus disclosure. Fore more information, see OSC Staff Notice 41-703.

Quebec Court of Appeal rules against federal securities regulator

In a decision released yesterday, the Quebec Court of Appeal found plans for a national securities regulator to be outside the jurisdiction of the federal government. As we recently discussed, an Alberta ruling of last month came to the same conclusion. The issue is set to be considered by the Supreme Court of Canada at hearings scheduled for April 13 and 14, 2011.

Alberta Court of Appeal finds proposed federal Securities Act unconstitutional

The Alberta Court of Appeal has just released its decision on the reference made by the Alberta government regarding the federal government's plan to implement the proposed federal Canadian Securities Act. According to the Alberta Court of Appeal, the proposed Act exceeds the constitutional authority of the Parliament of Canada as it encroaches on provincial jurisidiction.

The Alberta Court of Appeal's decision in one of among three references currently pending on the issue. The Department of Finance released the proposed Canadian Securities Act in May 2010 and the Canadian Securities Transition Office has since been working on a plan for transitioning securities regulation to a federal regulator. The Quebec Court of Appeal held hearings on the constitutionality of the federal Act in January, while the Supreme Court of Canada is scheduled to hold hearings on the issue on April 13 and 14, 2011.

CSA release guidance regarding registration of mortgage investment entities

The Canadian Securities Administrators today released guidance intended to clarify the registration requirements that apply to mortgage investment entities (MIEs). The guidance follows parallel orders for exemptive relief for MIEs from the investment fund manager registration requirement and the adviser registration requirement, which were issued in August 2010. The exemptive relief was extended in all jurisdictions except B.C. until March 31, 2011. In B.C., exemptive relief was extended until June 30, 2011.

This notice clarifies the circumstances in which the investment fund manager registration requirement would apply to an MIE. While the guidance is generally harmonized, it should be noted that Alberta has taken a different approach and set out its own circumstances under which such registration would apply to an MIE whose principal jurisdiction is Alberta. Similarly British Columbia is taking a different approach with respect to dealer registration in certain circumstances, although all CSA jurisdictions will impose adviser registration on any person or company that advises a Pooled MIE (as defined in the notice) that is an investment fund about investing in or buying or selling mortgages or other securities if it is in the business of advising in securities.

OSC considering mandatory business continuity testing

The OSC released a staff notice this week regarding business continuity planning and, specifically, the industry-wide test scheduled by IIROC for September 10, 2011. While the testing is voluntary, OSC staff

encourage all dealers, marketplaces and clearing agencies to participate in the September 2011 market-wide exercise organized by IIROC. Participation in this exercise may facilitate the discovery of any potential communication issues, points of failure between industry participants within and across different jurisdictions or other issues with services provided by third-party service providers.

Notably, the notice states that the OSC is also considering whether to make such testing mandatory "through rule proposals or additional requirements in the recognition orders of various entities." For more information, see OSC Staff Notice 11-764.

OSC approves amendments to MFDA minimum capital requirements

The Ontario Securities Commission (OSC) announced today that it has approved amendments to MFDA Rule 3.1.1, intended to harmonize the MFDA's minimum capital requirements with those under National Instrument 31-103 Registration Requirements and Exemptions, as well as amendments to Form 1 - Financial Questionnaire and Report. The amendments, which were also approved by various other jurisdictions, are conditional on the MFDA submitting proposed amendments to Form 1 to include a definition of "market value" of securities to regulators for review and approval by March 31, 2011.

Working group releases paper on incorporation of individual representatives of dealers and advisers

On December 20, 2010, a provincial/territorial government working group released a consultation paper to elicit feedback on potential options respecting the incorporation of individual sales representatives of registered dealers and advisers. Specifically, the paper considers the benefits and regulatory concerns surrounding the issue of payments by dealers and advisers to non-traditional business structures, as well as the options being examined.

While National Instrument 31-103 Registration Requirements and Exemptions does not deal with the incorporation of individual sale representatives, MFDA Rule 2.4.1 permits individual sales representatives of a MFDA member to have his or her commissions paid directly to a non-registered corporation under certain conditions. IIROC rules, meanwhile, do not allow the relationship between a dealer and a person conducting securities-related business on behalf of the dealer to be that of an incorporated salesperson.

Ultimately, the paper invites feedback on a number of options under consideration, including legislative proposals and amendments to IIROC rules. Comments on the consultation paper are being accepted by the governments of Alberta and Quebec until February 25.

IIROC republishes proposals to implement CRM

The Investment Industry Regulatory Organization of Canada today republished a proposal to implement core aspects of its Client Relationship Model Project. IIROC's proposal would address issues relating to relationship disclosure, conflicts of interest management and disclosure, suitability assessment and account performance reporting. Proposed transition periods would range from the immediate implementation for certain provisions relating to conflict identification to three years for certain disclosure to existing clients.  

IIROC also stated that the CSA are expected to publish proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions to introduce cost disclosure and performace reporting requirements for all registered dealers and advisers.

Proposals to address CRM issues were originally published in February 2008 and revised rules were subsequently released in April 2009. IIROC's proposal also includes responses to comments received to its April 2009 proposals. Comments on today's proposals are being accepted for 60 days.

CSA extend registration exemption for mortgage investment entities

Earlier today, the CSA announced the extension of the registration exemption for mortgage investment entities from the investment fund manager registration requirement and the adviser registration requirement until March 31, 2011. In British Columbia, the extension will run until June 30, 2011 in order to allow the BCSC time to conduct further analysis on the regulation of mortgage investment entities operating in the province. As we discussed in an earlier post, CSA members issued the initial parallel orders on August 20, which were to remain in effect until December 31, 2010 and which imposed certain prescribed conditions on the use of the exemption. Meanwhile, in Ontario, the additional condition that limits the exemption only to those licensed under the Mortgage Brokerages, Lenders and Administrators Act, 2006 has also been carried forward under the extension order.

According to the CSA, "[w]hile significant analysis has been completed to date", the extension is necessary to allow CSA members "to complete their analysis and communicate the applicable requirements to the public with sufficient notice to allow mortgage investment entities to take the necessary steps to comply with those requirements."

OSC Staff highlight deficiencies and express concerns regarding use of side letters by investment funds in Compliance and Registrant Regulation Branch Report

As we discussed in our post of October 22, the Compliance and Registrant Regulation Branch’s annual report for fiscal 2010 reviews deficiencies identified by staff of the Ontario Securities Commission (OSC) in its review of advisers, investment fund managers and dealers. The Report also highlights initiatives taken by the OSC relating to registrant regulation and provides staff guidance on dealing with identified deficiencies. In a departure from prior reports, the fiscal 2010 report also covers the introduction of the new registration regime, reorganization of the Compliance and Registrant Regulation Branch and common deficiencies found in reviews of registrant applications.

With respect to ongoing compliance requirements, the Report indicates that the percentage of registrants requiring "significantly enhanced compliance" increased from 32% in 2009 to 50% in 2010. Compliance reviews resulting in referral to the Enforcement Branch also increased from 4% in 2009 to 10% in 2010. In addition to general guidance applicable to all registrants, the Report also includes OSC staff views on specific issues relating to investment fund managers, portfolio managers and exempt market dealers, some of which are highlighted below.

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OSC publishes Top 10 Tips for IFRS filers

Earlier this week, the Ontario Securities Commission published an online guide to assist issuers in preparing their first IFRS interim financial report. The issues and tips reviewed in the guide include: (i) changes to acceptable accounting principles; (ii) discussion of a 30 day filing extension for an issuer's first IFRS interim report; (iii) the consequences of missing financial statement filing deadlines, which may include a cease trade order; (iv) suggested financial statement notes to include in the first IFRS interim financial report ; and (v) required reconciliations under IFRS 1, including an example of an equity reconciliation. According to the OSC, its goal in publishing the guide is "to help facilitate a smooth regulatory transition, which will benefit both issuers, their advisors and their investors".

As discussed in our post of October 1, the CSA have published final amendments to NI 52-107 Acceptable Accounting Principles and Auditing Standards and other related instruments and policies relating to the transition to IFRS for reporting issuers and registrants. These amendments take effect on January 1, 2011. The IFRS transition for investment funds, meanwhile, has been deferred for now, to January 1, 2012, as discussed in our post of October 8.

CSA publish further blanket orders for registration exemptions

As you may recall from earlier posts on the subject, the Canadian Securities Administrators have issued a number of blanket orders in response to requests for exemptive relief since the release of NI 31-103 Registration Requirements and Exemptions. The CSA has now issued two more, effective today.

First, the order published in February exempting mutual fund dealers from section 13.2(2)(b) of NI 31-103 (which requires registrants to establish whether a client is an insider of a reporting issuer or any other issuer whose securities are publicly traded) is being replaced by an order that exempts all registrants from that requirement. Specifically, s. 13.2(2)(b) will no longer apply to a registrant in respect of a client where the registrant only trades securities for that client that are listed in sections 7.1(2)(b) and (c) of NI 31-103. The securities listed in s. 7.1(2)(b) and (c) consist of: (i) mutual funds; (ii) except in Quebec, investment funds that are labour-sponsored investment fund corporations or labour-sponsored venture capital corporations under legislation of a jurisdiction of Canada; and (iii) securities of a scholarship plan, an educational plan or an educational trust. The effect of the new order is that the exemption, previously only available to mutual funds, now applies to all registrants trading in the applicable securities.

The second blanket order exempts mutual fund dealers from the requirement to establish the identify of an individual who owns or exercises control or direction over more than 10% of the voting rights attached to the outstanding voting securities of a corporation that is a client (as per section 13.2(3)(b)(i) of NI 31-103,) under two conditions. First, the mutual fund dealer must not be registered other than as a mutual fund dealer or as both a mutual fund dealer and an investment fund manager. Second, the mutual fund dealer must comply with the provisions of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act requiring the identification of any person who owns or controls 25% or more of the shares of a corporation that is a client. According to the CSA, the cost of compliance with this provision exceeded the benefit, since mutual fund dealers primarily trade in securities of mutual funds that are bound by investment restrictions and already comply with certain requirements under the Act.

According to the CSA, it is currently considering amendments to NI 31-103 and these particular provisions will be reconsidered in the course of the amendments process. For more information, see National Instrument 31-321.

MFDA publishes proposed amendments to rules related to registration

Earlier this week, the Mutual Fund Dealers Association of Canada published proposed amendments to its Rules and Policy No. 6 to conform with the requirements of National Instrument 31-103 Registration Requirements and Exemptions. The proposals, which, among other things, deal with proficiency, minimum standards of supervision and record retention, have either been approved, or not objected to, by the securities regulatory authorities of various jurisdictions and are now subject to MFDA Member ratification.

OSC staff provide views on closed-end investment fund conversions

Ontario Securities Commission staff today released their views on the regulatory issues surrounding the conversion of closed-end funds into mutual funds. Specifically, OSC staff identified a number of issues.

Conversion process

According to OSC staff, the conversion process must be transparent to investors. Closed-end funds with a built-in conversion feature should make disclosure regarding the conversion prominent in the fund's initial prospectus. Closed-end funds without a built-in conversion feature should include disclosure regarding the possible conversion and the contemplated process in the initial prospectus. If the conversion is not contemplated at the time of the initial prospectus, OSC staff expect that the decision to convert will trigger the material change reporting requirements. Investors should be provided with sufficient written notice (60 days is suggested in instances where securityholder approval is not sought) before the conversion of the fund. Further, OSC staff expect that investors will be provided with a redemption right prior to the typical suspension of redemptions.

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Canadian proposal regarding the registration of "international" and domestic investment fund managers

Non-Canadian fund managers urged to thoroughly review implications

As we recently discussed, on October 15, 2010, the Canadian Securities Administrators (CSA) published proposed amendments to National Instrument 31-103 – Registration Requirements and Exemptions (NI 31-103) related to the registration of (i) investment fund managers who carry out investment fund management activities from a location outside of Canada (International IFMs), and (ii) domestic Canadian investment fund managers with a head office in one Canadian province or territory and who carry out investment fund management activities in other provinces or territories (Domestic IFMs). While NI 31-103 currently provides temporary exemptions from registration for such investment fund managers, the proposed amendments are intended to be adopted prior to the expiration of the temporary exemptions on September 28, 2011, meaning that investment fund managers required to be registered must be registered by that date. The CSA are accepting comments on these proposals until January 13, 2011 and specifically invited comments from investment fund managers.

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OSC and AMF request additional comment on thresholds to proposed investment fund manager registration exemptions

As we discussed earlier this month, the CSA recently proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (31-103) relating to the registration of international investment fund managers and registration of domestic investment fund managers in additional provinces and territories.

Under the proposals, specific thresholds would preclude an international investment fund manager from relying on the exemption from registration. Similar thresholds, however, were not included for non-resident investment fund managers. As such, the Ontario Securities Commission and the Autorité des marchés financiers have issued an additional request for comments on whether threshold limitations proposed for international investment fund managers should also be applied to non-resident investment fund managers.

Comments on the issue are being accepted until January 13, 2011. For more information, see CSA Notice 31-320.

OSC hints at new amendments to NI 31-103

As we described in our post earlier today, the OSC's Compliance and Regulation Branch recently released its 2010 annual report. Beyond what we've already discussed, the report also provides a hint of regulatory changes that can be expected in the near future:

  • The report discusses the recent work by regulators on the Client Relationship Model and states that future amendments to National Instrument 31-103 Registration Requirements and Exemptions will require registered firms to provide additional disclosure to clients of all costs associated with the products and services they receive, as well as meaningful reporting to clients on how their investments perform.
     
  • Reportedly, the CSA are also considering adding a sub-adviser registration exemption to NI 31-103 to apply across Canada, similar to Ontario's exemption found in s. 7.3 of OSC Rule 35-502 Non Resident Advisers. Currently, many other Canadian jurisdictions grant discretionary relief with similar terms.

OSC releases IF Branch and CRR Branch annual reports

On October 15, the Ontario Securities Commission (OSC) released its Investment Funds Branch Annual Report for 2010 as well as its Compliance and Registrant Regulation Branch Annual Report.

The Investment Funds Branch (IF) report provides an overview of the IF Branch's major policy initiatives for the year (including with respect to the CSA's point of sale project and the modernization of investment fund product regulation) and also describes the IF Branch's ongoing reviews of the prospectus and continuous disclosure filings of Ontario-based investment funds.

Meanwhile, the Compliance and Registrant Regulation (CRR) Branch report summarizes the CRR Branch's activities and initiatives for the year (including, notably, with respect to registration reform), provides information for firms and individuals applying for registration for the first time and reviews its findings for the normal course reviews it conducted of regulated registrants. With respect to the latter, the CRR Branch found that the percentage of firms requring "significantly enhanced compliance" rose from 32% in fiscal 2009 to 50% in fiscal 2010. Meanwhile, referrals to the enforcement branch due to serious breaches of securities law jumped from 4% to 10% of field reviews.

General deficiencies identified by the CRR Branch included improper marketing practices on the part of large portfolio managers, inadequate written policies and procedures on the part of newly registered portfolio managers and prohibited investments for investment funds.

For more information, see OSC Staff Notice 81-712 and OSC Staff Notice 33-734.

CSA propose amendments regarding registration of investment fund managers

The Canadian Securities Administrators (CSA) today proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (31-103) relating to the registration of international investment fund managers and registration of domestic investment fund managers in additional provinces and territories. While 31-103 currently provides temporary exemptions from registration for such investment fund managers, the proposed amendments are intended to be enacted prior to the expiration of the temporary exemptions on September 28, 2011.

Generally, the CSA proposals would require an international investment fund manager to register in a province or territory if the investment fund it manages has local securityholders and the manager, or the fund, has actively solicited local residents to purchase securities of the fund. Domestic investment fund managers would be required to register in another province or territory (in addition to the Canadian jurisdiction in which its head office is located) if the securityholders are local residents of the province or territory and the manager or the fund has actively solicited local residents to purchase securities of the funds.

Meanwhile, the CSA proposed an exemption from the registration requirement for international investment fund managers where the fund it manages is only distributed to permitted clients, subject to certain conditions and thresholds. For the benefit of non-resident investment fund managers, a grandfathering exemption would be available where neither the investment fund manager nor the investment fund has actively solicited local residents after September 28, 2011.

Further, a new notice requirement that would require all investment fund managers to provide a notice to investors regarding non-resident status and the associated risk to investors was also proposed. The Companion Policy to NI 31-103 would also be amended under the proposals to provide guidance on the CSA's interpretation of the registration requirement as well as the term "actively solicited".

The CSA is accepting comments on its proposals until January 13, 2011.

CSTO provides update on transition to federal regulator

The Canadian Securities Transition Office released an update last week outlining the activities it has undertaken since the delivery of its Transition Plan this past summer. According to the CSTO, it has "begun to identify the specific skills required to carry out the activities and tasks required to execute the Transition Plan" and has received regulatory staff seconded by participating jurisdictions.  Discussions continue regarding the allocation of further staff.

The CSTO's annual report for 2009-2010 was also recently tabled in Parliament. The report describes the transition office's activities for the past fiscal year, including its consultations with stakeholders and the development of national securities legislation and the Transition Plan.

CSA publish IFRS-related amendments to various national instruments

The Canadian Securities Administrators (CSA) today published IFRS-related amendments to a number of national instruments and companion policies with the intention of reflecting the transition to IFRS and updating accounting terms and references. Generally, the amendments affect continuous disclosure rules, prospectus rules, certification rules and registration materials and make housekeeping changes to various instruments. Assuming that all required Ministerial approvals are granted, the amendments will come into force on January 1, 2011.

AMF further extends term of temporary blanket exemption on derivatives

Alix d’Anglejan-Chatillon

AMF Staff issued a notice today further extending the term of the temporary exemption provided under its February 1, 2009 blanket decision No. 2009-PDG-0007 (the Blanket Order). The Blanket Order provides relief from the derivatives dealer and adviser registration requirements and the derivatives qualification rules under the Derivatives Act (Quebec) for specified derivatives activities carried out solely with “accredited investors” (as defined under National Instrument 45-106 Prospectus and Registration Exemptions). The original exemption had been extended to September 28, 2010 in a March 26, 2010 AMF Staff notice. Today's notice further extends the Blanket Order for an indefinite term and states Staff's intention to publish any amendments to the relief "at an appropriate time".

CSA Staff Notice summarizes exemptive relief

The Canadian Securities Administrators (CSA) released a Staff Notice today summarizing the recent parallel orders enacted by CSA members that provide relief for IIROC dealer members, MFDA dealer members and mutual fund dealers in Quebec from the requirement to provide the relationship disclosure information prescribed by section 14.2(1) of National Instrument 31-103 Registration Requirements and Exemptions. Specifically, regulators have issued an order that exempts IIROC dealer members from the application of the requirements until the earlier of September 28, 2011 or the coming into force of the IIROC Client Relationship Model proposal. Further, the regulators have issued an order that exempts MFDA dealer members (and in Quebec, mutual fund dealers) from the relevant requirements until the earlier of September 28, 2011 or the coming into force of the MFDA Client Relationship Model proposal (or, in the case of Quebec, the regulation of mutual fund dealers in that province).

CSA Staff Notice 31-319

U.S. financial regulatory reform affects Canadian issuers

As reported widely in the media and discussed here in a blog post back in July, U.S. President Barack Obama recently signed into law sweeping new legislation intended to overhaul the U.S. financial regulatory system. While the extent of the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act may not be known for years, a number of considerations for Canadian issuers are immediately evident. These include, but are not necessarily limited to, the following:

  • Changes to disclosure requirements under the Securities Exchange Act of 1934 may impact MJDS filers by imposing additional disclosure obligations. 
     
  • Non-U.S advisers of private investment funds will, under certain circumstances, be required to register with the SEC, which will lead to new substantive requirements for such advisers. 
     
  • Further rule-making by U.S. regulators under the authority of Dodd-Frank will likely also affect Canadian issuers. For example, the SEC's new proxy rules will, under certain circumstances, apply to foreign issuers that are otherwise subject to U.S. proxy rules.

As can be seen, the long arm of financial regulatory reform in the U.S. may very well reach Canadian issuers. For that reason, issuers in this country should keep abreast of developments as they come to light.

CSA release registration exemption for mortgage investment entities

The Canadian Securities Administrators (CSA) today announced that CSA members have issued parallel orders to provide mortgage investment entities that meet certain requirements with relief from investment fund manager registration requirements and adviser registration requirements until December 31, 2010. In Ontario, an additional condition exists that limits the exemption only to those licensed under the Mortgage Brokerages, Lenders and Administrators Act, 2006. The blanket order follows a number of inquiries to CSA members regarding the impact of NI 31-103 on the obligations of mortgage investment entities, to which many requirements of the national instrument are not applicable.

The order does not, however, provide relief from the dealer registration requirement and the CSA encouraged mortgage investment entities to speak with their legal counsel with respect to any dealer registration requirements that may apply.

The order (CSA Staff Notice 31-318) is effective today.

OSC releases 2010 Annual Report

Earlier this week, the Ontario Securities Commission released its 2010 Annual Report, which provides a review of the OSC's activities over the past year. Of particular interest, the report discusses various compliance issues associated with the implementation of registration reform, IFRS and corporate sustainability reporting. The report also reviews the results of compliance reviews of registrants, public companies and investment fund issuers.

MFDA proposes amendments to minimum capital requirements and financial questionnaire and report

The Mutual Fund Dealers Association of Canada (MFDA) proposed amendments today to MFDA Rule 3.1.1 that are intended to ensure that MFDA Members registered in other registration categories under Canadian securities legislation are subject to consistent minimum capital requirements under MFDA Rules and National Instrument 31-103 Registration Requirements and Exemptions. The MFDA also proposed amendments today to MFDA Form 1 (Financial Questionnaire and Report) that are intended to to align financial reporting under Form 1 with International Financial Reporting Standards.
 
Comments are being accepted on the proposed amendments to Rule 3.1.1 and Form 1 until October 12, 2010.

UK Treasury launches financial regulation consultation

On Monday, Her Majesty's Treasury launched a consultation to gather views on the British Government's proposals to reform the UK's financial regulatory framework. As discussed in our post of June 17, the proposals would: (i) give the Bank of England the authority over macro-prudential regulation; (ii) establish a new prudential regulator, operating as a subsidiary of the Bank of England, that would regulate financial firms; and (iii) establish a new Consumer Protection and Markets Authority to regulate the conduct of financial firms providing services to consumers. The just-released consultation document provides further details regarding the proposals and asks specific questions for public comment.

CSA release proposed first-year amendments to registration rules

Daniella Laise

As we discussed in our post of June 25, the Canadian Securities Administrators (CSA) recently published for comment proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (31-103), National Instrument 33-109 Registration Information  (33-109), and Ontario Securities Commission Rule 33-506 (Commodity Futures Act) Registration Information and related policies and forms (the First Year Amendments). The First Year Amendments range from technical adjustments to more substantive matters and, according to the CSA, will serve to “enhance investor protection and improve the day-to-day operation” of the registration regime for both industry and regulators. Summarized below are some of the more substantive proposals under the First Year Amendments.

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CSTO delivers national securities regulator transition plan

The Canadian Securities Transition Office today announced the release of its Transition Plan for the Canadian Securities Regulatory Authority. The Transition Plan provides a roadmap for establishing the CSRA and sets out a vision for the Authority's regulatory approach. Issues considered by the Transition Plan include governance, organization design, business processes and implementation planning.

According to the Transition Office, the next step in the transition will involve the signing of development agreements between the participating provinces and territories and the federal government by September 2010. Under the development agreements, the provinces and territories would assign regulatory and ministry staff to share expertise in establishing the CSRA. Work under the development agreements would be followed by memoranda of understanding between the participating provinces and territories and the federal government to address various matters of interest. These MOUs would be concluded by July 1, 2011. A launch date for the CSRA, meanwhile, has been established as July 1, 2012.

For more information on the move towards a national securities regulator, see our post of June 8, 2010.

CSA release proposed amendments to registration reform rules

The Canadian Securities Administrators (CSA) today published proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions, National Instrument 33-109 Registration Information and related policies and forms.

The proposed amendments are intended to:

  • provide clarifications to guidance in the Companion Policy to better reflect the original intent of the rule and to codify staff administrative practice;
     
  • give effect to relief orders, which mostly address issues relating to the transition to the new registration regime;
     
  • add an obligation for registered representatives to understand the structure, features and risks of each security that they recommend;
     
  • include guidance for registrants in meeting the requirement to document complaints and to fairly and effectively respond to them;
     
  • amend the obligation of registered firms to ensure independent resolution or mediation services in certain cases of complaints;
     
  • add obligations for investment fund managers to deliver trade confirmations and account statements to investors who deal directly with them, rather than through a dealer;
     
  • address the impact of IFRS on the valuation of securities for the purposes of NI 31-103;
     
  • remove certain non-harmonized provisions respecting the mutual fund dealer category;
     
  • provide additional exemptions to members of self-regulatory organizations where the
    SRO rules adequately cover the same regulatory risks; and
     
  • extend certain exemptions to circumstances that are consistent with the original policy intent of the rule.

The CSA is accepting comments on the proposed amendments until September 30, 2010.

ASC rule consolidates local prospectus exemptions

As we discussed back in February, the Alberta Securities Commission (ASC) previously published a proposed rule to consolidate the remaining local prospectus exemptions available in Alberta along with related requirements contained in the ASC Rules. On June 4, the ASC announced that it had approved the local rule.

ASC Rule 45-511 Local Prospectus Exemptions and Related Requirements and Consequential Amendments to Alberta Securities Commission Rules (General)

Regulators plan for G20 summit in Toronto

With news reports suggesting that Bay Street is preparing to decamp to the suburbs during the G20 Summit, some of you may be wondering about access to regulators during the week of June 21. On that point, the Investment Industry Regulatory Organization of Canada (IIROC) has stated that its Toronto staff will be working offsite on June 24 and 25. While staff will be picking up voicemail, IIROC is recommending that any contact be made via e-mail. Regulatory and electronic filing systems will function as normal.

Investor service provider Computershare, meanwhile, will be moving all critical functions to back-up locations for June 24 to June 28. It will also be relocating its Toronto Service Counter to Brookfield Place at 42 Yonge Street on those dates. Meanwhile, it appears to be business as usual at the Ontario Securities Commission (OSC) and Toronto Stock Exchange.

Should we hear of any change in plans, we will be sure to post an update.

Update: The Mutual Fund Dealers Association of Canada has announced that its operations will continue in the normal course. MFDA staff in Toronto will work off-site on June 24 and 25 and, while staff will be responding to voicemail, the MFDA recommends email communication during this time.

Proposed federal securities legislation moves Canada a step closer to capital market regulation at a national level

On May 26, 2010, the federal Department of Finance released its proposed Canadian Securities Act (the Act). The Act builds upon the Report released last year by the Expert Panel on Securities Regulation and represents the federal government’s proposal for a harmonized national regime to govern capital markets. Following decades of deliberation by various panels and committees, publication of the proposed Act by the Canadian Securities Transition Office evidences this government’s strong commitment to the establishment of a national securities regime and regulator. 

The case for regulation of capital markets at a national level is set out in the preamble to the Act. Among other things, the preamble highlights the need to be competitive and consistent, enhance the integrity and stability of the Canadian financial system, have a comprehensive and coordinated enforcement regime and promote Canada’s interests at a national and international level. While the intent is to create a harmonized federal scheme for securities regulation, provincial participation is voluntary and the Act will only apply to those jurisdictions that choose to take part in the federal scheme. As we discussed previously, the draft Act is only a proposal at this stage, and has been referred to the Supreme Court of Canada for a ruling as to its constitutionality.

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Proposed federal Securities Act outlines framework for regulation of derivatives

Margaret Grottenthaler

The proposed federal Securities Act tabled by the federal government on May 26 establishes a framework for the regulation of exchange-traded and over-the-counter derivatives markets and their participants. Don’t expect to see a new regime too soon though. This legislation has not yet been introduced as a Bill but only laid before Parliament on a Ways and Means motion. The draft legislation has been referred to the Supreme Court of Canada to obtain a ruling as to whether it is within the legislative competence of the federal Parliament and will not be introduced until that question is resolved. Provinces are given the choice to opt into the federal scheme as well. Many provinces (not including Quebec and Alberta) have taken part in the process and would be expected to opt into the national scheme.

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Finance Minister Flaherty announces national securities regulator

As we mentioned a few weeks ago, federal Finance Minister Jim Flaherty recently stated that legislation to create a national securities regulator was imminent. Earlier today, Minister Flaherty unveiled a draft federal Securities Act, which would create such a regulator and allow provinces and territories to opt into the new regime voluntarily. According to the Minister, the proposed regime will provide: (i) better and more consistent protection for investors across Canada; (ii) improved regulatory and criminal enforcement to better fight securities-related crime; (iii) new tools to better support the stability of the Canadian financial system; (iv) faster policy responses to emerging market trends; (v) simpler processes for businesses, resulting in lower costs for investors; and (vi) more effective international representation and influence for Canada.

As there are impending legal challenges on the constitutionality of the plan, however, the proposed Act has been concurrently referred to the Supreme Court for its opinion on whether the proposed Act is within the federal government's legislative authority.

The Canadian Securities Transition Office has stated that it will release a technical commentary on the proposed legislation in the coming weeks and will also deliver a transition plan to the Minister and participating jurisdictions by July 12, 2010. Meanwhile, we expect to provide a more detailed review of the proposed legislation next week.

Ontario reauthorizes publication of issuers in default of requirements

On May 18, Ontario's Bill 16, An Act to implement 2010 Budget measures and to enact or amend various Acts, received Royal Assent. Among other things, the Bill amends section 83 of the Securities Act to once again allow the Ontario Securities Commission (OSC) to publish a list of reporting issuers who are in default of any requirement of the Act or the regulations. Amendments to the Securities Act and the Commodity Futures Act also replace certain terms with comparable terms under International Financial Reporting Standards (IFRS).

Finance Minister to soon send securities regulator bill to Supreme Court

Finance Minister Jim Flaherty is reportedly days away from seeing the completion of draft legislation to create a national securities regulator. According to press reports, Ottawa is planning to send the draft bill to lawmakers and the Supreme Court for a reference on its constitutionality within a few weeks.

IIROC releases strategic plan

The Investment Industry Regulatory Organization of Canada (IIROC) recently released its Strategic Plan for 2010-2012. The plan describes IIROC's vision and values and sets out the challenges it faces in fulfilling its mandate. Specifically, the plan discusses the following goals: 

  1. Promoting a culture of compliance and high standards among those subject to IIROC's jurisdiction. This will include a reorganization of IIROC's rules to enhance comprehension, providing compliance examination findings and recommendations to members and undertaking periodic industry-wide compliance audits.
     
  2. Delivering effective, efficient and expert regulation. Projects that IIROC will undertake in pursuit of this goal include the implementation of a risk-based methodology for registration and completing its framework approach to IFRS.
     
  3. Maintaining market integrity by actively monitoring market structure developments and market-related events. IIROC states that it will reduce timelines to complete enforcement investigations and bring proceedings, clarify roles and relationships in order to strengthen the client/adviser relationship and continue to develop its policies respecting OTC and debt markets.
     
  4. Ensuring that it discharges its responsibilities in a cost-effective manner, which will include the implementation of an equitable Dealer and Marketplace Member fee model.
     
  5. Maintaining a confident and well-trained staff.

CSA publish registration exemption blanket order

The Canadian Securities Administrators (CSA) announced last week that all CSA members except Ontario have issued an order, effective March 27, exempting from the dealer registration requirement scheduled banks, certain other financial institutions, and federally and provincially regulated loan, trust and insurance companies, for trades in a "negotiable promissory note or commercial paper maturing not more than one year from the date of issue", provided the instrument is: (i) not convertible or exchangeable into or accompanied by a right to purchase another security other than a security described in the order, and (ii) has an approved credit rating as specified in the order.

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BC adopts registration exemption for foreign portfolio managers

On March 22, the British Columbia Securities Commission published BC Instrument 32-514, which exempts foreign portfolio managers registered on the date National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) came into force (September 28, 2009) and which continue to be registered from certain requirements under NI 31-103, provided certain conditions are met. The exemption, which took effect on March 27, expires on September 28, 2010.

IIROC publishes registration reform FAQs

On March 12, the Investment Industry Regulatory Organization of Canada (IIROC) published a Rules Notice (the FAQ) addressing frequently asked questions regarding IIROC's registration reform related rule amendments, as well as the impact of National Instrument 31-103 Registration Requirements (NI 31-103) and related instruments on Dealer Members. IIROC's registration reform related rule amendments and NI 31-103 became effective September 28, 2009. The questions addressed in the FAQ were compiled from questions raised at various registration reform workshops hosted by IIROC in 2009. The FAQ covers issues such as NRD filing requirements, reinstatements, new NRD functionality, passport applications, category selection, proficiency requirements, termination notices and the business trigger.

NBSC publishes revised derivatives FAQ

As we reported back in January, the New Brunswick Securities Commission published answers to frequently asked questions regarding Local Rule 91-501 Derivatives. Last week, the NBSC published a revised notice expanding on its answer regarding whether the rule applies to spot foreign exchange contracts. Specifically, the revised notice states that "LR 91-501 does not apply to spot foreign exchange transactions involving the purchase or sale of a currency (i.e. transactions such as changing money at a currency exchange or withdrawing cash at a foreign ATM)." Whether other spot foreign exchange transactions are subject to LR 91-501, however, remains unclear, as the NBSC's use of "i.e." raises questions as to whether the example provided was intended to be comprehensive.

CSA issue orders exempting registrants from certain provisions of NI 31-103

 PDF Version 

On February 26, 2010, members of the Canadian Securities Administrators (CSA) each issued omnibus/blanket orders in response to applications requesting exemptions from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions (31-103).  31-103, together with amendments to related instruments and policies, came into effect on September 28, 2009 (the Effective Date). Notice of these orders was provided under CSA Staff Notice 31-315 Omnibus/Blanket Orders exempting registrants from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions, which was also published on February 26, 2010. The orders are summarized below.

Continuation of transition/grandfathering provisions for registrants adding jurisdiction

Each regulator issued an order that provides a person or company adding a jurisdiction to his, her or its registration, with the benefit of certain grandfathering and transition provisions provided under Part 16 of 31-103 in that additional jurisdiction.  Specifically, those grandfathering and transition provisions that deal with proficiency, capital, insurance, relationship disclosure information, referral arrangements, dispute resolution service and client statement requirements were included in the order. To rely on the order, the registrant must: (i) have been continuously registered in a jurisdiction in Canada since the Effective Date; (ii) remain registered in that jurisdiction during its reliance on the order; (iii) be exempt under the relevant section of Part 16 in that jurisdiction; and (iv) register, after the Effective Date, in the same category of registration (and in the case of an individual, with the same sponsoring firm) in an additional jurisdiction.

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Saskatchewan joins other provinces in providing relief for exempt market dealers

On February 25, Saskatchewan joined Alberta, British Columbia and Manitoba in issuing an order making available certain limited trade-based registration exemptions to persons that would otherwise be required to register as exempt market dealers in the province. The order is most similar to that of Alberta, as it includes a condition that the person relying on the exemption must not have provided financial services to the purchaser at any time other than in connection with a prospectus-exempt distribution under the relevant sections, while also including language that the person relying on the exemption must not be registered or required to be registered. A companion policy providing guidance was also released.

The Northwest Territories, Nunavut and the Yukon Territory are expected to issue similar orders.

British Columbia and Manitoba provide relief for exempt market dealers

The British Columbia Securities Commission (BCSC) issued an order today making certain limited trade-based registration exemptions to persons that would otherwise be required to register as exempt market dealers in BC. Meanwhile, the Manitoba Securities Commission issued a similar orderAs previously discussed, with the implementation of the new registration regime and National Instrument 31-103 Registration Requirements and Exemptions, trade-based registration exemptions that parallel prospectus exemptions available under National Instrument 45-106 Prospectus and Registration Exemptions are to be repealed on March 27, 2010.

Pursuant to the orders, effective March 27, 2010, an exemption from the EMD registration requirement will be available in both B.C. and Manitoba for persons trading in securities in reliance on certain prospectus exemptions under NI 45-106, specifically, section 2.3 ("accredited investors"), section 2.5 ("family, friends and business associates"), section 2.9 ("offering memorandum") and section 2.10 ("minimum investment amount").

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CSA publish blanket orders exempting registrants from provisions of registration regime

The Canadian Securities Administrators (CSA) today published an omnibus set of blanket orders exempting registrants from certain provisions of National Instrument 31-103. The orders, which take effect on February 26, 2010, cover the following areas:

  • The continuation of transition/grandfathering provisions for persons and companies adding a jurisdiction;
  • Relief from for the chief compliance officer (CCO) proficiency requirements for portfolio managers adding a category;
  • Relief from proficiency requirements for portfolio managers adding registration in the mutual fund dealer or exempt market dealer category;
  • Relief from the time limits on examination requirements for dealing representatives of exempt market dealers  (in Ontario and Newfoundland and Labrador only) and scholarship plan dealers in all jurisdictions who were registered when NI 31-103 came into force;
  • Relief from client notification requirements under section 14.5 of NI 31-103 for certain Canadian registrants with head offices outside of the local jurisdiction;
  • Relief from requirements to establish whether a client is an insider under section 13.2(2)(b) of NI 31-103 for mutual fund dealers.

ASC publishes rule consolidating local prospectus exemptions

Effective September 28, 2009, all provinces and territories adopted National Instrument 45-106 Prospectus Requirements and Exemptions containing nationally harmonized prospectus exemptions. In addition to NI 45-106, some jurisdictions may continue to provide local prospectus exemptions through their local legislation, rules or otherwise. On February 12, the Alberta Securities Commission (ASC) published a notice requesting comments on a proposed local rule that would consolidate the remaining local prospectus exemptions available in Alberta along with related requirements contained in the Alberta Securities Commission Rules. Comments are being accepted until March 12, 2010. 

Alberta provides relief for exempt market dealers

On February 12, the Alberta Securities Commission issued a blanket order making available certain limited trade-based registration exemptions to persons who would otherwise be required to register as exempt market dealers in Alberta. As previously discussed, with the implementation of the new registration regime and National Instrument 31-103 Registration Requirements and Exemptions, trade-based registration exemptions that parallel prospectus exemptions available under National Instrument 45-106 Prospectus and Registration Exemptions are to be repealed on March 27, 2010.

Pursuant to the blanket order, effective March 27, 2010, an exemption from the EMD registration requirement will be available for persons trading in securities in reliance on certain prospectus exemptions under NI 45-106, specifically, section 2.3 ("accredited investor"), section 2.5 ("family, friends and business associates"), section 2.9 ("offering memorandum") and section 2.10 ("minimum investment amount").

The blanket order, however, applies only where certain conditions are met. Specifically, the person or company seeking to rely on the exemption: (i) must not be registered or required to be registered in any jurisdiction, including a foreign jurisdiction; (ii) must not have provided advice to the purchaser with respect to suitability; (iii) must obtain from the purchaser a signed risk acknowledgement in the form prescribed by the blanket order; (iv) must not have provided financial services to the purchaser at any time (other than in connection with a prospectus-exempt distribution under sections 2.3, 2.5, 2.9 or 2.10 of NI 45-106); (v) must not hold or have access to the purchaser's assets; and (vi) must electronically file with the ASC a current or updated information report in the prescribed form within ten days of relying on the exemption. A notice issued along with the blanket order provides additional guidance with respect to the applicable requirements.

Alberta, which is the first of the "North West" jurisdictions to issue such a blanket order, is expected to be joined by British Columbia, Saskatchewan, Manitoba, Northwest Territories, Nunavut and the Yukon Territory, whose regulators have announced their intention to issue similar orders.

For more information on the impact of the new registration regime on dealers trading in the exempt market, see our July 2009 publication: "Impact on Limited Market Dealers and Unregistered Dealers Trading in the Exempt Market".

IIROC publishes registration reform rule corrections

On February 12, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice correcting an oversight that left certain proficiency requirements out of the final rule amendments to IIROC's Dealer Member Rules, which related to the implementation of the new registration regime. The final rule amendments inadvertently omitted proficiency requirements for institutional supervisors of futures contracts, futures contract options and options trading. The changes announced last week correct this mistake and are intended to preserve the proficiency requirements existing before registration reform. As the applicable regulators have approved these changes, they are now effective.

CSA publish second FAQ regarding new registration regime

 PDF Version 

On February 5, 2010, staff of the Canadian Securities Administrators (CSA) published a staff notice (the February FAQ) addressing frequently asked questions regarding compliance with the financial reporting requirements under National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103). NI 31-103 came into effect on September 28, 2009 and was the subject of an earlier FAQ published on December 18, 2009. The questions in the February FAQ were compiled from informal public enquiries received by CSA members and the responses are based on views of CSA staff.

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SFSC to provide relief for exempt market dealers

On January 14, the Saskatchewan Financial Services Commission, the securities regulator for the province of Saskatchewan, announced that it will participate along with other "North Western" jurisdictions in making available certain trade-based registration exemptions to persons who would otherwise be required to register as exempt market dealers. As a result of the implementation of the new registration regime and National Instrument 31-103 Registration Requirements and Exemptions, trade-based registration exemptions that parallel prospectus exemptions available under National Instrument 45-106 Prospectus and Registration Exemptions are to be repealed on March 27, 2010.

Pursuant to a blanket order to be issued by the SFSC, an exemption from the EMD registration requirement will be made available for persons trading in securities in reliance on certain prospectus exemptions, including the "accredited investor" and the "minimum investment amount" exemptions under section 2.3 and section 2.10 of NI 45-106, provided the conditions set out in the blanket order are satisfied. Saskatchewan will be joining Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut and the Yukon Territory, whose regulators had previously announced their intention to issues similar blanket orders. The orders granting the exemption are anticipated to be issued on March 27, 2010.

For more information on the impact of the new registration regime on dealers trading in the exempt market, see our July 2009 publication: "Impact on Limited Market Dealers and Unregistered Dealers Trading in the Exempt Market".

CSA publish registration regime FAQ

The Canadian Securities Administrators (CSA) have published a staff notice this morning addressing frequently asked questions as of February 5, 2010 relating to financial reporting requirements under the new NI 31-103 Registration Requirements and Exemptions. The notice supplements an earlier FAQ published on December 18, 2009.

Changes to MFDA policy regarding complaint handling and investigations effective February 1st

Amendments to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline and consequential amendments to related MFDA rules and policies are scheduled to come into effect on February 1, 2010. The amendments are intended to provide "additional guidance with respect to the standards that Members should have in place regarding complaint handling and supervisory investigations" as well as consistency with the new registration regime and IIROC complaint handling requirements. The amended Policy No. 3 considers such issues as the assessment and handling of complaints, settlement agreements, supervisory investigations, internal discipline and record retention.

New Brunswick Securities Commission answers frequently asked questions on local derivatives rule

On January 7, the New Brunswick Securities Commission (NBSC) published NBSC Notice 91-701 to respond to certain frequently asked questions on NBSC Local Rule 91-501 Derivatives (the Rule).  As discussed in our previous update dated December 14, 2009, the Rule imposes registration and risk disclosure requirements in respect of trades in “derivatives” as defined in the Rule, other than trades among qualified parties.   

The notice clarifies that a qualified party that engages in a derivatives transaction is responsible for determining whether the other party is also a qualified party. To do so, it may rely on factual statements made by the other party provided that it does not have reasonable grounds to believe that the statements are false. The qualified party is also responsible for determining whether the exemptions under the Rule are applicable based on the facts supplied by the other party and should retain all documentation relating to its determination.

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OSC releases January 2010 edition of The Investment Funds Practitioner

The Ontario Securities Commission (OSC) has released the January 2010 edition of The Investment Funds Practitioner, a publication intended to assist those that regularly prepare public disclosure documents and applications for exemptive relief on behalf of investment funds. Authored by staff of the OSC's Investment Funds Branch, the Practitioner contains an overview of recent issues emerging from applications for discretionary relief, prospectuses and continuous disclosure documents. Specifically, the OSC provided a number of observations and practice points that may be of interest. Among other things, the publication considers the following: 

  • Responding to "novel applications" for relief from the various conflict provisions under Ontario's Securities Act (Act) and National Instrument 81-102 Mutual Funds (NI 81-102) based on IRC approval. The OSC reminded filers that the Canadian Securities Administrators deliberately chose to maintain the various conflict provisions in local securities legislation and codify only limited exemptions in National Instrument 81-107 Independent Review Committee for Investment Funds.  The OSC stated that it intends to complete reviews to assess how the IRC approval system is working with existing codified exemptions.
     
  • The OSC noted a number of "recurring issues" respecting the mergers and reorganizations of mutual funds, including applications missing required information and filers failing to properly factor in securities regulatory approval into the transaction planning process.
     
  • The OSC also noted that it generally does not require a parallel application for relief from the conflicts of interest prohibitions under the Act where relief is sought under NI 81-102 to facilitate fund on fund arrangements that do not comply with all the conditions in section 2.5(2) of NI 81-102. The OSC indicated that it is of the view that the exemption codified under section 2.5(7) of NI 81-102 still applies even where the fund has obtained an exemption from some of the conditions in section 2.5(2).   
     
  • Filers were also reminded by the OSC that those wishing to receive a receipt for a (preliminary) prospectus that the (preliminary) prospectus and accompanying material should be received by the OSC on or before noon on the day the receipt is required.
     
  • The OSC noted that while it has granted relief to file a prospectus beyond the 90 day period, it encourages filers to make applications for this type of relief prior to the expiration of the 90 day period.  

MFDA proposes amendments to Rules resulting from registration reform

On December 23, the Mutual Fund Dealers Association of Canada (MFDA) published proposed consequential amendments to its rules intended to ensure consistency with the new registration regime under National Instrument 31-103 Registration Requirements and Exemptions. Specifically, the amendments would impact the rules respecting proficiency requirements, referral arrangements, standards of supervision, client reporting and record retention. Meanwhile, MDFA Policy No. 6 Information Reporting Requirements would also be amended.

Comments on the proposals are being accepted until March 23, 2010.

AMF issues foreign sub-adviser exemption in Quebec

 PDF Version

Historically, foreign advisers relied on the registration exemption in section 194.2 of the Regulation Respecting Securities (Quebec) (the 194.2 Exemption) to enter into sub-advisory arrangements with Quebec registered dealers and advisers. As previously noted, in connection with the coming into force of National Instrument 31-103 Registration Requirements and Exemptions (31-103) the 194.2 Exemption was repealed effective December 28, 2009. 31-103 does not provide for a sub-adviser exemption from the adviser registration requirement, although, it was included in previous proposals for 31-103. The CSA have indicated that they plan to consider further a sub-adviser exemption for inclusion in 31-103. To accommodate this regulatory gap, the Autorité des marchés financiers (AMF) issued a decision, effective December 28, 2009, which exempts foreign sub-advisers from the requirement to register, provided certain conditions are met.

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CSA publish FAQ regarding new registration regime

 PDF Version

On December 18, 2009, staff of the Canadian Securities Administrators (CSA) published a staff notice (the FAQ) setting out their answers to frequently asked questions regarding National Instrument 31-103 Registration Requirements and Exemptions (31-103) and amendments to National Instrument 33-109 Registration Information (NI 33-109). 31-103 and the amendments to NI 33-109 came into effect on September 28, 2009 (the Effective Date). The questions were compiled from informal public enquiries received by CSA members and the responses are based on views of CSA staff. Summarized below are responses to some of the more substantive issues.

Chief compliance officer proficiency requirements and exemptions

Under Part 3 of 31-103, an individual who satisfies the proficiency requirements for a chief compliance officer (CCO) of a portfolio manager (PM), also satisfies the proficiency requirements for a CCO of a mutual fund dealer (MFD), exempt market dealer (EMD) and investment fund manager (IFM). There is, however, no provision to accommodate for MFD, EMD and IFM registrations a CCO of a PM whose proficiency is grandfathered for the PM registration under subsection 16.9(2) of 31-103. The FAQ indicates that the CSA plan to issue an order providing a CCO of a PM whose proficiency is grandfathered under subsection 16.9(2) with an exemption from the proficiency requirements applicable to a CCO of an MFD, EMD or IFM where the firm was registered as a PM on the Effective Date and the individual was designated as the firm’s CCO on the Effective Date and remains so registered.

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CSA publish FAQ regarding new registration regime

The Canadian Securities Administrators (CSA) today published a staff notice containing answers to frequently asked questions regarding National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) and amendments to National Instrument 33-109 Registration Information (NI 33-109), both of which came into force on September 28, 2009. According to the notice, the list of frequently asked questions were compiled from public enquiries the CSA members have received concerning NI 31-103 and NI 33-109. Among other things, the staff notice deals with proficiency exemptions, exempt market dealer underwriting activities and investment fund manager registration.

The notice consists of a chart organized according to the different sections of NI 31-103 and NI 33-109. Applicable answers based on views of CSA staff have been provided on the questions posed. A more detailed overview of these frequently asked questions will follow.

Saskatchewan securities division releases registration and prospectus exemption for qualified persons entering into OTC derivatives

Margaret Grottenthaler |  PDF Version

The Saskatchewan Securities Act, 1988 (the Saskatchewan Act) includes within its definition of “security” a futures contract or option that is not an exchange contract. Given the wording of the definition, there has been uncertainty as to whether OTC forwards and other OTC derivatives transactions would fall within this category and consequently be subject to the registration and prospectus requirements of the Saskatchewan Act. The issue has now been addressed by the Saskatchewan Financial Services Commission, Securities Division. On November 26, 2009, it issued General Order 91-907 exempting over-the-counter (OTC) derivatives trading among qualified parties from the registration and prospectus requirements under the Saskatchewan Act. The Companion Policy to the General Order states that the Act's definition of "security" includes futures contracts and options that are not exchange contracts and, thus, parties that currently enter into futures contracts or options are subject to the registration and prospectus requirements of the Saskatchewan Act.

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CSA publish local exemptions to NI 45-106 and NI 31-103

Subsequent to the recent implementation of the new registration regime, the Canadian Securities Administrators (CSA) today published notice of local prospectus and registration exemptions for each jurisdiction that are not included in NI 45-106 Prospectus and Registration Exemptions or NI 31-103 Registration Requirements and Exemptions. The exemptions, listed by jurisdiction, are up-to-date as of November 27, 2009 and the CSA state that they will update the list periodically.

Impact of registration reform on existing sub-advisory and other advisory arrangements in Quebec

Alix d'Anglejan-Chatillon 

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.

BCSC imposes conditions for BC investment dealers trading in U.S. OTC markets

On October 30, the British Columbia Securities Commission (BCSC) announced amended conditions of registration for investment dealers that maintain an office in British Columbia and trade in U.S. OTC markets, and who have not filed a prescribed form of undertaking. Specifically, the BCSC has clarifed certain aspects of the previous obligations, amended Form B (reporting of OTC trading commissions) and revised language to reflect National Instrument 31-103 Registration Requirements. Of particular note, the conditions now specify who can act as a designated individual, as IIROC has removed that definition from its Dealer Member Rules. Like their previous incarnation, the conditions of registration include the effective management of risks and monitoring, recordingkeeping and reporting requirements. An interpretation note was also published to explain how the BCSC interprets the conditions. The amended obligations are effective immediately and are set to expire on December 31, 2011.

U.S. Financial Services Committee approves private adviser registration bill

The U.S. House Committee on Financial Services announced yesterday that it had passed draft legislation (available here in its initial form as introduced in the House of Representatives) that would require the registration of advisers to private pools of capital. The draft legislation would also introduce new recordkeeping and disclosure requirements for private advisers and increase the regulation of advisers to hedge funds, private equity firms and other private pools of capital.

CSA publish proposed amendments to registration instrument to implement IFRS

The Canadian Securities Administrators (CSA) published a notice today regarding proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions, its companion policy and National Instrument 33-109 Registration Information. The proposed changes relate to the impending transition to IFRS and follow proposals respecting IFRS-related changes to investment fund disclosure and prospectus and registration exemptions published last week. Specifically, the immediate amendments include replacing existing Canadian GAAP terms and phrases with IFRS terms, providing registered dealers and investment fund managers a 15-day extension for delivery of their first IFRS interim financial information for an interim period beginning on or after January 1, 2011 and providing registrants with an exemption from the requirement to provide comparative information for financial years beginning in 2011. The CSA are accepting comments on the proposals until January 21, 2010.

IIROC answers questions regarding new registration categories

Yesterday (October 21), the Investment Industry Regulatory Organization of Canada released a notice responding to "recurring questions" received by its staff regarding the new approval categories for "Executives" and "Supervisors" under the new registration regime. Specifically, the notice describes those individuals that must be approved under one of the above noted categories, as well as considering the proficiency requirements for Supervisors.

Additional transitional relief for international dealers

On September 25, 2009, the Ontario Securities Commission issued its passport decision In the Matter of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103 or the Instrument), Miller Tabak Roberts Securities, LLC (the Filer) and certain other international dealers (the Decision).   The Decision provides certain transitional relief for certain persons or companies that were registered in Ontario or Newfoundland and Labrador as international dealers immediately before the effective date of NI 31-103 (collectively, International Dealers).  As noted in previous posts, the effective date of NI 31-103 was September 28, 2009 (the Effective Date).  As of the Effective Date, the dealer registration of International Dealers was revoked.  Under NI 31-103 an International Dealer can continue to transact business in the jurisdiction in which  it was so registered by relying on the international dealer exemption, which, provided certain conditions are met, generally permits trading with "permitted clients" when trading in foreign securities and certain debt securities.  Reliance on the international dealer exemption would, in certain respects, restrict the activity that could previously be conducted by the International Dealer under its dealer registration, including the trading of Canadian debt securities outside of a distribution of the securities with local "designated institutions". 

Provided certain conditions are met, International Dealers can elect to rely on the transitional relief provided under the Decision to continue to trade in the local jurisdiction in which they were so registered in debt securities with local "designated institutions", other than during the security's distribution, for a period of one year from the Effective Date.  Electing to rely on the transitional relief would also also extend the requirement to provide the prescribed notice to clients to six months from the Effective Date.  To rely on the transitional relief, the International Dealer  will have to satisfy certain conditions, which are generally those applicable to a firm wishing to rely on the international dealer exemption under NI 31-103 . Further, the International Dealer would, within one month of the Effective Date, have to provide notice to the applicable regulator of their intention to rely on the Decision along with the Form 31-103F2 – Submission to Jurisdiction and Appointment of Agent for Service.

Additional transitional relief for exempt market dealers

On September 28, 2009, the Ontario Securities Commission issued its passport decision In the Matter of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103 or the Instrument) and Crosbie & Company Inc. and Certain Other Limited Market Dealers that have become Exempt Marker Dealers under Subsection 16.3(2) of NI 31-103 (the Decision).  The Decision provides additional transitional relief from particular requirements under NI 31-103 for certain limited market dealers (LMDs) that transitioned to exempt market dealers (EMDs) in Ontario and Newfoundland and Labrador as of the effective date of NI 31-103.  As noted in previous posts, the effective date of NI 31-103 was September 28, 2009 (the Effective Date). An LMD that transitioned to an EMD as of the Effective Date and that is not registered in any other category of registration in Ontario or Newfoundland and Labrador, now has one year from the Effective Date to comply with the financial reporting requirements under section 12.12 of NI 31-103.  Further, an LMD that transitioned to an EMD as of the Effective Date and that is not registered in any other category of registration in Ontario or Newfoundland and Labrador except as a registered mutual fund dealer as of the Effective Date or as an investment fund manager, has two years from the Effective Date to comply with  the requirement to deliver client statements under s. 14.14 of NI 31-103.

MFDA outlines changes to Rules and Member practices due to registration reform

Earlier this month, the Mutual Fund Dealers Association of Canada published a bulletin advising its Members of expected changes to its rules and Member practices due to the implementation of National Instrument 31-103 Registration Requirements and Exemptions. The bulletin specifically considers changes to proficiency requirements and categories of registration, new client mobility provisions, the harmonization of requirements for referral arrangements and changes to the frequency and content of account statements. A second bulletin, published a few days after the first, clarified record-keeping requirements for branch managers.

CSA publish proposed amendments to NI 52-107 to reflect transition to IFRS and notice of proposed consequential amendments to continuous disclosure, prospectus and certification rules

The Canadian Securities Administrators (CSA) today published for comment proposed amendments to National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards  (NI 52-107) and its companion policy as well as related consequential amendments to National Instrument 14-101 Definitions. As previously discussed, International Financial Reporting Standards (IFRS) will apply to Canadian publicly accountable enterprises for financial years beginning on or after January 1, 2011. The amendments are intended to "provide an efficient transition mechanism for issuers and registrants to reflect the change to IFRS". 

The Canadian Accounting Standards Board (AcSB) has announced that it plans to incorporate IFRS into the Handbook of the Canadian Institute of Chartered Accountants (the CICA Handbook) as “Canadian GAAP for publicly accountable enterprises.” As a result, Part 1 of the CICA Handbook will contain a version of Canadian GAAP to be known as Canadian GAAP for publicly accountable enterprises that will apply for financial years beginning on or after January 1, 2011, and Part IV will contain a version known as Canadian GAAP for public enterprises that are the standards constituting Canadian GAAP before the mandatory effective date (current Canadian GAAP).

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Ontario approves NI 31-103 regarding registration reform

On September 18, the Ontario Securities Commission (OSC) announced that Ontario's Minister of Finance has approved National Instrument 31-103 Registration Requirements and Exemptions and related consequential amendments. The amendment and restatement of National Instrument 45-106 Prospectus and Registration Exemptions and related consequential amendments have also been approved.

For more comprehensive information regarding these instruments, see our earlier posts regarding NI 31-103 and NI 45-106. The amended instruments, forms and rules are scheduled to become effective on September 28, 2009.

IIROC releases final amendments to Dealer Member Rules to implement registration reform

The Investment Industry Regulatory Organization of Canada (IIROC) announced yesterday the approval of amendments to its Dealer Member Rules related to the implementation of registration reform. Proposed amendments were originally published for comment on September 26, 2008 and an amended proposal was published on July 17, 2009. The final version of the amendments, having incorporated the suggestions of the securities regulators, have now been approved by the regulators. The amendments will, among other things, reduce the number of approval categories from 46 to 11, merge supervisory categories and implement a principles-based approach to supervision. Most of the amendments will be effective on September 28, 2009 in conjunction with National Instrument 31-103 Registration Requirements and Exemptions.

FINRA announces NASD rule changes regarding new investment banker registration category

In July, the U.S. Financial Industry Regulatory Authority (FINRA), published a regulatory notice regarding the approval by the Securities and Exchange Commission of amendments to NASD Rules 1022 and 1032.  The amendments, effective November 2, 2009 and first described in our post of March 19, require individuals engaged in investment banking activities to register under a new limited representative registration category for investment banking professionals and take a corresponding qualification exam in lieu of the current General Securities Registered Representative (Series 7) exam. A transition period, however, will allow individuals holding the Series 7 registration to opt into the new category until May 3, 2010 without having to take the new exam.

TSX announces end of temporary relief for listed issuers

The TSX announced last week that the temporary relief granted with respect to the Remedial Review Process will not be extended beyond the end of this month. As described in our post of March 26, the relief was initially granted on November 3, 2008 and, after providing for an extension, is set to expire on September 30, 2009. The relief, initiated in response to the "extraordinary market conditions" prevalent late last year, extends from 120 to 210 days the maximum time period that an issuer has to remedy deficiencies that triggered a delisting review.

IIROC to host registration reform webcast

On September 8, 2009, the Investment Industry Regulatory Organization of Canada announced that an overview of registration reform would be available on its website as of 4:00 p.m. on September 15, 2009. Topics to be covered include: changes to approval categories, the "Passport" registration system, the virtual elimination of transfer/approval delays and plans for implementing new requirements and standards. Registration is required to view the webcasts, which will be available in English and French.

CSA publish notice regarding suitability obligations

The Canadian Securities Administrators have published a staff notice reminding registrants of their "suitabilty" and "know your product" obligations to clients. The CSA expect firms to have a process in place for reviewing and approving new products, as well as existing products whose structure or features have significantly changed. The notice provides specific factors that firms should consider in assessing investment products and reminds firms that the approval of an investment product does not mean that the product is suitable to any specific client.

Second Registration Reform webcast now available

Stikeman Elliott's second seminar on registration reform is now also available online. The webcast provides further details regarding the recently-published National Instrument 31-103 Registration Requirements, including a discussion of who needs to be registered and how to do so, as well as an overview of new capital, insurance and compliance requirements. A PDF of the seminar booklet accompanying the audio presentation is also available.

IIROC releases amendments to complaint handling requirements

On Wednesday, the Investment Industry Regulatory Organization of Canada released a rules notice respecting the anticipated implementation of its client complaint handling rule proposals. IIROC first proposed amendments to its Dealer Member Rules to establish a framework for complaint handling in February 2009, and the proposals just released incorporate what IIROC has described as "minor" changes in response to public comments received. The complaint handling process requires Dealer Members to appoint a designated complaints officer and establish written complaint-handling procedures, while also setting out the general process and timelines for responding to complaints.

IIROC has submitted its proposals to the Canadian Securities Administrators (CSA) for final approval and the proposals will become effective 30 days after CSA approval and the issuance of an IIROC rules notice. Thus, IIROC advises Dealer Members to start preparing for implementation. A black-line copy reflecting changes to its earlier proposal was also provided.

Registration reform webcast available online

A webcast of Stikeman Elliott's recently-held seminar on registration reform is now available online. The webcast provides an overview of recently-published National Instrument 31-103 Registration Requirements, describes the new regime's impact on various market participants and provides tips for effective transition and implementation. A PDF of the seminar booklet accompanying the audio presentation is also available.

CSA staff publish notice regarding exempt market dealer category

Staff of the Canadian Securities Administrators (CSA Staff) today published CSA Staff Notice 31-312 (the Staff Notice), which summarizes the key requirements and transition process for the new exempt market dealer (EMD) registration category under National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103).  NI 31-103 was published by the Canadian Securities Administrators (CSA) on July 17, 2009 and subject to governmental and other local approval requirements, is scheduled to come into force September 28, 2009 (the Implementation Date). 

The Staff Notice discusses a number of issues, including the planned local dealer registration exemptions in Alberta, British Columbia, Manitoba, the Northwest Territories, Nunavut and the Yukon Territory (the Northwestern jurisdictions), the transition for limited market dealers (LMDs) in Ontario and Newfoundland and Labrador, and the transition for firms acting in the exempt market in Canadian jurisdictions outside Ontario and Newfoundland and Labrador.

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Amendments to the Quebec Derivatives Regulation announced - Proposed exemption for exchange-traded derivatives offered primarily outside Quebec

Comment period open until August 31, 2009

Alix d'Anglejan-Chatillon |  PDF Version 

On July 17, 2009, the Canadian Securities Administrators (the CSA) published their final proposal for National Instrument 31-103 - Registration Requirements and Exemptions (31-103). Subject to governmental and other local approval requirements, 31-103 will come into force on September 28, 2009 (the Implementation Date). The adoption of 31-103 in Quebec can be expected to accelerate the further implementation of the Quebec Derivatives Act (QDA) which came into force in Quebec on February 1, 2009 and governs trading and advisory activities relating to all forms of derivatives.

On July 31, 2009, as part of this implementation process, the Autorité des marchés financiers (AMF), Quebec’s financial services regulator, published a proposed Regulation to amend the Derivatives Regulation  (the Proposed Regulation). The Proposed Regulation incorporates by reference various registration-related instruments and material provisions of 31-103 and sets out an important registration exemption for non-Quebec dealers and advisers in exchange-traded derivatives offered primarily outside Quebec provided they limit their activities to “accredited counterparties”. 

The draft instrument is open for comment until August 31, 2009 and is scheduled to come into force on the Implementation Date, subject to ministerial approval following the end of the 30-day comment period.

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IIROC publishes notice regarding registration reform implementation issues

On August 4, the Investment Industry Regulatory Organization of Canada published a notice providing additional guidance regarding amendments to its Dealer Member Rules related to the implementation of the registration reform project. The notice covers: (i) the approval of Ultimate Designated Persons and Chief Compliance Officers; (ii) the approval category of "Supervisor" and timelines for meeting the new approval requirements; (iii) new record-keeping requirements for Dealer Members; (iv) changes to business types; (v) automatic transfers; and (vi) approval notices. The amendments to IIROC's Dealer Member Rules were published on July 17.

U.S. Treasury Department proposes hedge fund registration requirements

As described in our post of June 18, the U.S. Treasury Department's financial reform plan included a proposal requiring that investment advisers to hedge funds and other private pools of capital whose assets under management exceed "some modest threshold" be registered with the Securities and Exchange Commission under the Investment Advisers Act. On July 15, the Treasury Department delivered such proposed legislation to Congress.

While some hedge fund managers are currently subject to regulation as “investment advisers” by the SEC under the Investment Company Act of 1940, the majority operate outside the ambit of the SEC as they are organized to qualify for exemptions from registration requirements that generally apply to managers of similar types of investment vehicles, such as mutual funds. The proposed legislation, however, would impose registration requirements on advisers to private investment funds with more than $30 million of assets under management. Funds would be subject to various obligations with respect to financial reporting, conflict of interest prohibitions and increased disclosure requirements. According to the Treasury Department's press release, the new legislation "would help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks in the aggregate or risks in any particular fund pose a threat to our overall financial stability.

Registration Reform in Canada: The Finish Line is Here

Canada’s new registration rule was published by the Canadian Securities Administrators in final form on July 17, 2009. 

The new regime is expected to be in force September 28, 2009 with transition periods for implementation of aspects varying.  The new regime, which has been several years in the making, is intended to harmonize, streamline and modernize registration requirements and exemptions across all Canadian jurisdictions.  It regulates dealers and advisers, effectively eliminating the dealer registration exemption for trading in the exempt market in Canada, and imposes a new registration requirement for investment fund managers. 

The new regime has significant implications for Canadian and non-Canadian market participants, particularly those now doing business on an unregistered or exempt basis. 

More details of the regime and its impact on particular types of market participants and their business activities are available by clicking the relevant topic set out below.

Update: New amendments to NI 31-103 came into effect on July 11, 2011. For more information, see our recent update on the subject.

OVERVIEW OF CANADA'S NEW REGISTRATION REGIME

Impact on Limited Market Dealers & Unregistered Dealers Trading in the Exempt Market

Impact on Investment Fund Managers

Impact on Portfolio Managers & Investment Counsel

Impact on International Dealers & Non-Canadian Dealers Trading in the Exempt Market

Impact on International Advisers

Impact on Investment Dealers & Mutual Fund Dealers

Impact on Issuers Generally

Impact on Investment Funds

Impact on Private Equity and Venture Capital Funds

Impact on Non-Canadian Investment Funds Privately Placing Securities in Canada

New Compliance Requirements for Registrants

Registering in Multiple Jurisdictions

Quebec’s Derivatives Act

Trading or Advising in Commodity Futures

COMBINED DOCUMENT INCLUDING ALL ABOVE SECTIONS

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ARCHIVED SEMINARS

 

 Aug. 13 - Registration Reform in Canada: The Finish Line is Here 

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Aug. 20 - The Practical Impact of the New Registration Regime in Canada: A Road Map for Implementation

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CSA publish amended NI 45-106 Prospectus and Registration Exemptions

Ramandeep Grewal

In conjunction with publishing the final rules relating to registration reform on July 17, 2009 (in the form of National Instrument 31-103 Registration Requirements and Exemptions), the Canadian Securities Administrators (CSA) also published an amended and restated National Instrument 45-106 Prospectus and Registration Exemptions (the Revised NI 45-106) along with revised forms and companion policy. Most of the changes reflected in Revised NI 45-106 were required in order to harmonize that instrument with the new registration regime.

Pursuant to the new registration regime, in most jurisdictions of Canada, registration as a dealer will be triggered based on a “business trigger” as opposed to a trade-based trigger. The former NI 45-106 contained prospectus and registration exemptions based on the nature of the trade being undertaken. Since a trade-based trigger will not longer apply in most Canadian jurisdictions, NI 45-106 has been restructured in order to, primarily, be a prospectus exemption rule. The registration exemptions have been moved to a separate part of the instrument and are set to expire after a six-month transition period. However, certain trade-based exemptions (including “accredited investor” and “$150,000 minimum investment amount”) will continue to be available in the provinces of British Columbia, Alberta, Manitoba and in each of the three Territories. These exemptions will, however, be subject to new conditions setting out the circumstances in which they may be used, which conditions are to be set out in blanket orders issued by the respective regulators. Notably, these exemptions will be available only to those who are not otherwise registered. Saskatchewan is also considering whether to adopt this approach and will release a separate notice once it has made this decision.

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Registration Reform in Canada: CSA publish final rule

The Canadian Securities Administrators have just published National Instrument 31-103 Registration Requirements and Exemptions (31-103) in final form. 31-103, which results from a comment and review process that started in early 2007, is expected to be in force on September 28, 2009, with varying transition periods for implementation of different aspects of the rule. 31-103 regulates dealers, advisers and investment fund managers and is intended to harmonize and streamline registration requirements and exemptions across all Canadian jurisdictions. Some of the more material changes in approach include the effective elimination of the dealer registration exemption for trading in the exempt market in Canada and the imposition of a new registration requirement for investment fund managers. 

The new registration regime has significant implications for Canadian and non-Canadian market participants, particularly those now doing business in any Canadian jurisdiction on an unregistered or exempt basis. 

We will be providing a comprehensive review of the new regime and its impact on particular types of market participants and their business activities in the coming days. 

Mark your calendars for the upcoming complimentary breakfast seminars in our Toronto and Montreal offices:

Registration Reform in Canada: The Finish Line is Here

Toronto: August 13, 2009
Montreal: August 25, 2009

The Practical Impact of the New Registration Regime in Canada: A Road Map for Implementation

Toronto: August 20, 2009
Montreal: September 1, 2009

CSA publish staff notice updating registrants on IFRS

The Canadian Securities Administrators (CSA) today published a staff notice updating registrants on the CSA staff's position on whether all non-SRO registrants should be required to use International Reporting Standards (IFRS) beginning in 2011. In September 2008, the CSA published a notice considering the impact of the changeover to IFRS for registrants that are not members of an SRO. Non-SRO registrants, including investment counsel and portfolio managers, limited market dealers, exchange-contracts dealers and scholarship plan dealers do not fall under the definition of publicly accountable enterprise (PAE) and are, therefore, technically not covered by the Canadian Accounting Standard Board's implementation plan relating to mandatory adoption of IFRS.

According to today's notice, the CSA propose that all non-SRO registrants also be required to adopt IFRS for financial years beginning on or after January 1, 2011, regardless of whether the non-SRO registrants falls within the definition of a PAE. Once the new registration categories set out in National Instrument 31-103 Registration Requirements are adopted, the CSA propose that the requirement to use IFRS apply to those categories as well, again, regardless of whether the registrant is a member of an SRO. The Mutual Fund Dealers Association of Canada, the Investment Industry Regulatory Organization of Canada and the Autorité des marchés financiers in Quebec will separately provide notice to their members of the use of IFRS.

IIROC provides guidance on registration transition to new categories

The Investment Industry Regulatory Organization of Canada (IIROC) today released a guidance note setting out how it would transition current Approved Persons from existing categories to the proposed new categories under the upcoming registration regime to be implemented under proposed National Instrument 31-103 Registration Requirements, expected to come into force on September 28, 2009. The notice supplements the information published in CSA Staff Notice 31-311 on June 12.

The current category structure, consisting of 46 categories will be replaced with a regime containing 11 categories that will focus solely on the function of the Approved Person. The type of customer, product and whether the individual engages in portfolio management will be tracked separately.

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CSA staff publish notice regarding transition to new registration regime

Daniella Laise, Kathleen Ward and Alix d'Anglejan-Chatillon |  PDF Version  | Version française

Staff of the Canadian Securities Administrators (CSA Staff) published CSA Staff Notice 31-311 (the Staff Notice), which outlines the CSA Staff's detailed recommendations to the relevant securities regulatory authorities and ministries regarding the transition of firms and individuals from the existing registration regime to the new one under proposed National Instrument 31-103 Registration Requirements (NI 31-103). The recommendations apply to both Canadian and non-resident registrants, and to firms that are not currently subject to registration but will be required to register under NI 31-103. These procedural recommendations do not address any of the substantive requirements of NI 31-103. The CSA Staff will seek final approval to publish the final version of NI 31-103 on or about July 17, 2009 intending for it to come into force on or about September 28, 2009 (the effective date).

The notice discusses a number of issues, including the conversion of existing registrants to new categories of registration, timelines for transition and compliance under the new registration regime, as well as the proposed “freeze period” of the National Registration Database (NRD) to allow staff to transition registrants and activate the new forms under proposed revised National Instrument 33-109 Registration Information (NI 33-109). While the Staff Notice contains detailed and helpful information on key transition issues, CSA Staff caution that it reflects only what CSA Staff are recommending.

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OSC publishes proposed amendments regarding prospectus and registration exemptions

On May 22, 2009 the Ontario Securities Commission (OSC) published a request for comments on a second set of proposed amendments to NI 45-106 Prospectus and Registration Exemptions, OSC Rule 45-501 Ontario Prospectus and Registration Exemptions and NI 45-102 Resale of Securities (collectively, the “Prospectus and Registration Rules”). This second set of amendments has been proposed in connection with proposed amendments to the Securities Act (Ontario) (OSA) under Bill 162 An Act respecting the budget measure and other matters (specifically Schedule 26 relating to the OSA). The second set of amendments is required in order to remove or modify certain provisions of the Prospectus and Registration Rules that are proposed to be superseded by specific provisions of the OSA under Bill 162. 

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IIROC publishes proposals on Client Relationship Model

IIROC has recently published a notice proposing rules and amendments in order to address various regulatory objectives under the Client Relationship Model Project, specifically: relationship disclosure, management and disclosure of conflicts of interest, account suitability and account performance reporting. Proposed rule changes were initially published in February 2008 by the IDA and the current proposals incorporate feedback received through the comment process as well as through subsequent consultations held with industry associations, the MFDA and provincial securities regulators. Comments are invited for a period of 90 days from the date of publication of the notice.

CSA release staff notice regarding registration requirements

The CSA have recently released a Staff Notice indicating that they expect to publish National Instrument 31-103 Registration Requirements (NI 31-103) in July 2009. If approved by the appropriate government authorities in each jurisdiction, the CSA expect NI 31-103 to come into force at the end of September 2009.

TSX extends temporary relief with respect to remedial review process

On March 26, 2009, the TSX published a notice continuing temporary relief to listed issuers with respect to the Remedial Review Process. Originally granted on November 3, 2008 due to "extraordinary market conditions", the relief extends the maximum time period that an issuer has to remedy deficiencies that triggered a delisting review from 120 to 210 days. Unless further extended, the relief continues until September 30, 2009.

CSA announce extension of Passport system to registration matters

Pursuant to their earlier Notice, the CSA have now announced that proposed NP 11-204 Process for Registration in Multiple Jurisdictions and amendments to other Passport-related instruments and policies have been approved. The new National Policy sets out the processes for registration in multiple jurisdictions, while the amendments to existing Passport rules address issues that have arisen since Phase II of Passport was implemented in March 2008.

Today's notice by the CSA states that, since implementation of passport for registrants is dependent on the adoption of proposed NI 31-103 Registration Requirements, the changes described in the immediate notice will only be implemented once NI 31-103 comes into effect, which is expected to occur by the end of April 2009.

CSA extend comment period on ABCP consulation paper

The CSA have announced that they are extending the time for public comment on their consultation paper regarding the effects of recent credit market turmoil on ABCP markets in Canada to February 16, 2009. For more information on the consultation paper, see our post of October 6, 2008. The comment period was originally set to expire on December 20, 2008.

TSX Venture announces temporary relief for issuers

The TSX Venture Exchange recently announced that given current market conditions, it will consider granting issuers temporary relief from certain policies on a case-by-case basis until March 31, 2009. Specifically, the Exchange may refrain from downgrading an issuer if it fails to meet continued listing requirements; capital pool companies may apply for an extension to complete a Qualifying Transaction; and issuers may be able to issue shares at a price of less than $0.05 per share under certain circumstances. The Exchange also announced that it would be making changes to a number of its policies in order to streamline them and to remove certain differences between Tier 1 and Tier 2 issuers. The latter changes are effective December 15, 2008.

CSA announce delay in implementing registration reforms

On November 14, 2008, the Canadian Securities Administrators (CSA) published CSA Staff Notice 31-309 to provide an update on the status of proposed National Instrument 31-103 Registration Requirements. NI 31-103 represents the CSA's proposal to reform the registration regime across the country by harmonizing and streamlining registration and related requirements. An earlier version of proposed NI 31-103 was published by the CSA in February 2007 and after industry comments were considered, the CSA introduced an amended version in early 2008.  Both proposals were subject to a great deal of interest by various market participants, as demonstrated by the 300 comment letters generated from the most recent version of proposed NI 31-103.

As such, the CSA has stated that they will need more time to develop their final proposal as they are still in the process of reviewing the many comments submitted.  The target date for implementation of NI 31-103 has, therefore, been delayed and will no longer occur on March 30, 2009.  The CSA expect their work to be completed by April 2009, at which time they plan to provide a timetable for the implementation of the new regime. 

For more information on registration reform, see our Registration Reform information page.

CSA publish proposals relating to credit market turmoil issues

 PDF Version

On October 6, 2008 the Canadian Securities Administrators (the CSA) published CSA Consultation Paper 11-405 entitled “Securities Regulatory Proposals Stemming from the 2007 – 08 Credit Market Turmoil and its effect on the ABCP Markets in Canada” (the Consultation Paper). The Consultation Paper is divided into two parts, with the first part providing a narrative overview of the background to the credit market turmoil in the United States, its spread into Canada and its impact on the non-bank sponsored portion of the asset-backed commercial paper (ABCP) market in Canada. The second part of the paper sets out proposals made under the Concept Paper to deal with the credit market turmoil and related issues in Canada. 

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MFDA publishes proposed amendments to Rule 2.6

The MFDA is publishing for comment proposed amendments to Rule 2.6 Borrowing for Securities Purchases. The proposed amendments would require leverage risk disclosure only when an Approved Person makes a recommendation to invest using borrowed funds or becomes aware of a client borrowing for investment. The proposed amendments would also exempt RRSP loans from the disclosure requirements of Rule 2.6. In conjunction with the proposed amendments, MFDA staff will be revising the prescribed risk disclosure language in MR-0006 to provide a brief explanation of key risks and relevant considerations in plain language. The comment period expires November 3, 2008.

Proposed Revocation and Replacement of OSC Rule 13-503 (Commodity Futures Act) Fees and Companion Policy

The OSC is publishing for a 90-day comment period (ending January 3, 2009) OSC Rule 13-503 (Commodity Futures Act) Fees and the corresponding Companion PolicyThe Rule and Companion Policy are intended to replace, and are consistent with, the current rule and policy. The proposed changes include the following:

  • relying on historical data, as opposed to forecasted data in determining the size of market participants for the purpose of calculating participation fees;
  • making changes governing the calculation of late fees;
  • clarifying the calculation of a CFA registrant's Ontario percentage;
  • changing and clarifying timing references;
  • making adjustments to the participation fees; and
  • make adjustments to activity fees.

Proposed Revocation and Replacement of OSC Rule 13-502 Fees and Companion Policy

The OSC is publishing for a 90-day comment period (ending January 3, 2009) OSC Rule 13-502 Fees and the corresponding Companion Policy. The Rule and Companion Policy are intended to replace, and are consistent with, the current rule and policy. The proposed changes include the following:

  • relying on historical data, as opposed to forecasted data, in determining the size of market participants for the purpose of calculating participation;
  • eliminating special participation fees for those becoming or ceasing to be reporting issuers;
  • making changes governing the calculation of late fees;
  • changing and clarifying timing references;
  • expanding the exemption from participation fees for reporting issuers that are subsidiaries;
  • eliminating rule allowing certain reporting issuers to pay provisional participation fees;
  • clarifying the calculation of a market participant's Ontario percentage;
  • making adjustments to participation fees;
  • making adjustments to late fees associated with the late filing of documents; and
  • making adjustments to activity fees.

OSC Rule 13-502 does not include proposed fee changes reflected in proposed National Instrument 31-103 Registration Requirements. If the reform of the registration requirements is implemented in Ontario, further fee changes will need to be made.

IIROC publishes notice on IFRS

On September 30, IIROC published a notice setting out its position and providing guidance to its Dealer Members regarding the adoption of IFRS. As they are considered to be "publicly accountable enterprises", Dealer Members will also be subject to  the Canadian Accounting Standards Board's decision to move from Canadian GAAP to IFRS as of January 1, 2011.  This notice sets out IIROC's views on some of the transition issues raised by the move to IFRS for Dealer Members, including  IIROC's decision not to permit early adoption prior to January 1, 2011.  The notice also reminds Dealer Members that they are required to conduct their own firm-specific impact assessments and conversion planning (which may require the input of outside expertise), and that they will be required to submit progress reports on their conversion plans, with the first report to be due by April 1, 2009.  While the conversion date is January 1, 2011, as set out in the notice, Dealer Members will need to start planning for and implementing necessary changes well prior to 2011, including running parallel IFRS-based accounting records for up to a year prior to conversion.  Some of the critical and regulatory reporting dates are also set out in the notice.

CSA Staff Notice 33-313 - International Financial Reporting Standards and Registrants

CSA Staff Notice 33-313 was published on September 12, 2008 and details the impact of the changeover to IFRS for registrants that are not members of an SRO (non-SRO registrants).

Under the current plans of the Canadian Accounting Standards Board (the AcSB), IFRS will replace Canadian GAAP effective January 1, 2011 for publicly accountable enterprises (PAEs). While many registrants are considered PAEs and will have to move to IFRS according to the AcSB’s implementation plan, others, mainly non-SRO registrants, do not fall under the definition of PAE and are technically not covered by the AcSBs implementation plan. These include investment counsel and portfolio managers, limited market dealers, exchange-contracts dealers, scholarship plan dealers and, if amendments to the registration regime are adopted under proposed NI 31-103, will also include new categories of exempt market dealers and investment fund managers.  

For all of these registrants, the Staff Notice identifies that if they hold or have access to any client assets, the CSA will expect them to comply with IFRS, which includes preparing both financial statements and working capital calculations in accordance with IFRS as opposed to Canadian GAAP. The Staff Notice also cautions that the move from Canadian GAPP to IFRS may also affect certain business functions, thus, planning for the changeover should be started soon, if not already underway. For those who do not hold or have access to any client assets, the CSA are still reviewing whether they should be mandated to use IFRS, and if so, what the appropriate implementation date should be for such a change.

IIROC proposes new financial planning rule

The Investment Industry Regulatory Organization of Canada (IIROC) is proposing a new rule to create a basic regulatory framework for the provision of financial planning services. The proposed rule would define "financial planning" and establish minimum industry standards by setting out proficiency and supervision requirements. Public comments on the proposal will be accepted for 30 days from the publication of the notice on August 8, 2008.

SEC announces new AML compliance initiatives

On August 7, 2008, the U.S. SEC announced two new anti-money laundering compliance initiatives. The first, an online reference site, was originally developed for the benefit of SEC examiners and provides links to relevant laws, rules and guidance to assist mutual funds in AML compliance efforts. The second initiative, a centralized SEC SAR Alert Message Line, will allow the reporting of Suspicious Activity Reports that may require immediate attention by the SEC.

Notice of Amendment to OSC Rule 31-502

The OSC has made an amendment to Rule 31-502 Proficiency Requirements for Registrants, which is expected to come into force on October 24, 2008. The amended rule revises post-registration proficiency requirements for salespersons of brokers, securities dealers and investment dealers and is intended to harmonize the rule with Rule 2900 of IIROC's Dealer Member Rules.

CSA publishes proposed extension of Passport to registrations

All members of the CSA, other than the OSC, have published their proposed rule and policy for extending the Passport system to registrations. The proposals also include a new proposed national policy for all jurisdictions setting out how the process for registration in all jurisdictions will work.

Along with the proposed passport system for registrations, this notice also includes proposed rule and policy amendments to the existing Passport rules and policies to deal with issues that have arisen since Phase II of Passport was implemented.

These proposals are open for comments until October 17, 2008.

Registration Reform in Canada: The Critical Path

Registration Reform Client
April 3, 2008

 

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On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals relating to national registration requirements for dealers, advisers and investment fund managers.  Over 260 comment letters were received on the original proposals (published in February of 2007). These proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada. The revised proposals were open for comments until May 29, 2008.

Update: The CSA have recently released a Staff Notice indicating that they expect to publish National Instrument 31-103 Registration Requirements (NI 31-103) in July 2009. If approved by the appropriate government authorities in each jurisdiction, the CSA expect NI 31-103 to come into force at the end of September 2009.


  Round Two (2008) Articles: Round One (2007) Articles:

Round Two of Canada's National Registration Reform Proposal: Impact on "International Dealers" registered in Ontario

Kenneth G. Ottenbreit, Ralph A. Hipsher and Terence W. Doherty | Version française

On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals on National Instrument 31-103 Registration Requirements ("the Instrument"), relating to registration requirements for dealers, advisers and investment fund managers. The proposed registration reforms represent a major restructuring of the Canadian dealer, adviser and investment fund manager registration rules and have implications for non-Canadian dealers, advisers and investment fund managers doing business on a registered or exempt basis in any province or territory of Canada.

The Instrument is intended to create a streamlined and harmonized approach to the regulation of investment activities across Canada. Canada does not have a national or federal securities regulator; securities activities are regulated by Canada's thirteen provincial and territorial securities regulators (the CSA is their umbrella organization).

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Registration Reform in Canada: The Critical Path

Registration Reform Seminar

registration.bmp 

VIEW WEBCAST

On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals relating to national registration requirements for dealers, advisers and investment fund managers.  Over 260 comment letters were received on the original proposals (published in February of 2007). These proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada.

On April 3, 2008, Stikeman Elliott hosted a seminar on the impact of registration reform. To watch the webcast, please click "View Webcast", right.

Registration Reform Round Two: Key features for investment fund managers, foreign funds and private equity funds

Alix d'Anglejan-Chatillon, Jennifer Northcote and Kenneth G. Ottenbreit | Version française

On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals relating to national registration requirements for dealers, advisers and investment fund managers.  Over 260 comment letters were received on the original proposals (published in February of 2007). These proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada. The revised proposals are open for comments until May 29, 2008.

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Round Two of Canada's National Registration Reform Proposal: An international perspective

Ken Ottenbreit, Ralph Hipsher and Terence Doherty | Version française

On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals on National Instrument 31-103 Registration Requirements (the "Instrument"), relating to registration requirements for dealers, advisers and investment fund managers. These revised proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada. The proposed registration reforms represent a major restructuring of the Canadian dealer, adviser and investment fund manager registration rules and have implications for non-Canadian dealers, advisers and investment fund managers doing business on a registered or exempt basis in any province or territory of Canada, including non-Canadian dealers and advisers registered in Ontario.

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Proposed Canadian registration regime for dealers, advisers, fund managers: Registration Reform round two

Alix d'Anglejan-Chatillon, Jennifer Northcote and Ramandeep Grewal | Version française

On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals on National Instrument 31-103 relating to registration requirements for dealers, advisers and investment fund managers.  Over 260 comment letters were received on the original proposals (published in February of 2007). These proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada. The revised proposals are open for comments until May 29, 2008.  These proposals are expansive and will have a significant impact on registration issues generally, as well as on a broad range of capital markets activities, including private placements, trading and advising activities and private and public fund offerings.

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Passport Phase II: How Ontario Will Fit Into the Multilateral System

Canada moves towards implementing the next phase of the Passport System to further simplify securities regulation, despite the OSC’s lack of participation.

Ramandeep Grewal and Alex Colangelo

In September, 2004, the provincial and territorial Ministers responsible for the regulation of securities in Canada, other than Ontario, agreed to a memorandum of understanding with the intent of providing market participants with a single window of access in a harmonized securities regulatory regime. To that end, Phase I of the Passport System was introduced with Multilateral Instrument 11-101 (“MI 11-101”), which came into force on September 19, 2005. Phase I of the Passport System was considered an interim step towards the greater harmonization and streamlining of securities regulations across Canada. The proposed Phase II of the Passport System builds upon the system’s foundations by, amongst other things, further harmonizing the regulation of prospectus reviews and processes for obtaining exemptive relief.

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CSA's proposed registration reform: what it means for investment fund managers

Proposed NI 31-103 - Registration Requirements requires investment fund managers to register and to comply with prescribed proficiency, capital and conduct standards.

Currently, investment fund managers that administer an investment fund but do not advise or trade are generally not required to be registered. However, the Canadian Securities Administrators (CSA) are proposing an investment fund manager registration that encompasses the managers of all public and private mutual funds and non-redeemable investment funds, labour-sponsored investment funds, scholarship plans, pooled funds and hedge funds.

The key elements of this new category of registration include: (a) a registration requirement for a person or company acting as an investment fund manager; (b) two new categories of individual registration requiring all registered firms to designate an individual as the ultimate designated person (UDP) and the chief compliance officer (CCO); (c) proficiency requirements for the CCO (but not the UDP) of an investment fund manager; (d) insurance requirements; (e) a $100,000 minimum excess working capital requirement (for non-SRO members); and (f) conduct rules for investment fund managers.

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CSA's proposed registration reform: what it means for limited market dealers

Proposed NI 31-103 - Registration Requirements removes current limited market dealer category and introduces exempt market dealer category in its place.

In late February, 2007, the CSA published for comment proposed NI 31-103 - Registration Requirements (the Proposed Registration Rule) and accompanying companion policy (Companion Policy). The impetus for the Proposed Registration Rule is the harmonization and streamlining of the registration regime across all of the CSA jurisdictions by, among other things, moving away from the "trade trigger" towards a "business trigger" for dealer registration, and introducing several new categories of registration while removing others. One of the implications of these changes is that the current limited market dealer (LMD) category will cease to exist, and (except perhaps in British Columbia) an exempt market dealer (EMD) category will take its place. Further, in conjunction with moving towards a "business trigger" for dealer registration, the CSA propose to repeal the dealer registration exemptions currently contained in NI 45-106 - Prospectus and Registration Exemptions, including (except perhaps in British Columbia) the accredited investor exemption which will, however, remain available for prospectus exemption purposes.

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National Registration Reform Proposal - Impact on non-Canadian investment funds

On February 20, 2007, the Canadian Securities Administrators (CSA) published for comment Proposed National Instrument 31-103 - Registration Requirements (Proposed Registration Rule). The comment period will expire on June 20, 2007.

The Proposed Registration Rule is one phase of the CSA Registration Reform Project which is intended to harmonize and streamline registration requirements across Canada. It represents a major restructuring of the Canadian dealer, adviser and investment fund manager registration rules, and has implications for Canadian and non-Canadian dealers, advisers and investment fund managers doing business on a registered or exempt basis in any province or territory of Canada.

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National Registration Reform Proposal: Impact on international dealers registered in Ontario

On February 20, 2007, the Canadian Securities Administrators (the CSA) published for comment Proposed National Instrument 31-103 - Registration Requirements (the Proposed Registration Rule). The comment period will expire on June 20, 2007.

The Proposed Registration Rule is one phase of the CSA Registration Reform Project which is intended to harmonize and streamline registration requirements across Canada. It represents a major restructuring of the Canadian dealer, adviser and investment fund manager registration rules, and has implications for Canadian and non-Canadian dealers, advisers and investment fund managers doing business on a registered or exempt basis in any province or territory of Canada, including non-Canadian dealers registered in Ontario in the category of "international dealer."

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CSA to overhaul adviser, dealer and investment fund manager registration

Kathleen Ward, Alix d'Anglejan-Chatillon, Ramandeep Grewal, Jennifer Northcote, Darin Renton and Simon Romano

The Canadian Securities Administrators (CSA) have now released for comment the much anticipated proposed NI 31-103 - Registration Requirements (the Proposed Registration Rule), along with the accompanying companion policy (the Companion Policy) and forms. The Proposed Registration Rule represents a major overhaul of the current registration regime by moving from a "trade trigger" to a "business trigger" to require registration for those not only advising (as is currently the case) but also dealing in securities and by imposing a new registration requirement for investment fund managers.

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