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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
