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.
1) Amendments for Registrants Generally
The CSA made several technical changes in the Amendments which formalize or clarify registrant duties with respect to risk management, disclosure, communication, reporting and supervisory obligations. A description of the Amendments which affect particular categories of market participants and their business activities is available by clicking the relevant topic link set out below. For more details about the Amendments for Registrants Generally click here.
The Amendments prohibit dual registration by restricting registered representatives from being registered with more than one firm even if the firms are affiliated, unless the registered individual is acting as an officer, partner or director of an affiliated firm or unless dual registration is granted before July 11, 2011. The CSA have stated that relief from this restriction will be available on a case-by-case basis.
2) Amendments for Advisers
The dealer registration exemption for registered advisers and those relying on the international adviser exemption when trading in a security of an investment fund for which they are acting as the fund's adviser and investment fund manager where the fund's securities are distributed to their clients' legitimate managed accounts has been extended to prospectus qualified investment funds.
3) Amendments for Dealers
Registered mutual fund dealers are no longer restricted in Quebec from acting as dealers of labour sponsored investment funds and labour sponsored venture capital funds.
4) Amendments for Investment Fund Managers
The Amendments extend the exemption from the requirement to
register for foreign investment fund managers and for Canadian
investment fund managers in jurisdictions other than where their
head office is located to September 28, 2012.
The CSA have added to and revised their guidance in the Companion Policy on how the investment fund manager registration requirement applies to various fund structures.
5) Amendments for International Dealers and International Advisers
Non-Canadian dealers and advisers relying on the international dealer or international adviser exemptions in NI 31-103 will be restricted to dealing or advising only in respect of "permitted clients" that are "Canadian permitted clients". A "Canadian permitted client" includes an individual resident in Canada, a trust whose terms expressly provide that the trust is governed by the laws of a Canadian province or territory, or an entity that is incorporated, organized or continued under Canadian federal, provincial or territorial laws.
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.
An express exemption has been added to NI 31-103 which provides an adviser registration exemption for a person relying on the international dealer exemption. The exemption is restricted to advice provided to the client in connection with trading activities permitted under section 8.18 but does not extend to a managed account of a client.
6) Future CSA Review of Registrant Regulation
The CSA have indicated that the following issues may be reviewed at a later date:
- alternative proficiency requirements, including the possible recognition of additional examinations or the inclusion of alternative or local proficiency requirements;
- further exemptions from the requirements of NI 31-103 for IIROC and MFDA members; and
- the publication of specific proposals for comment with respect to additional dispute resolution service requirements.
There are also a number of issues not addressed in the Amendments, including:
- a harmonized exemption for sub-advisers in all provinces and territories;
- the proposals published in October 2010 for comment regarding the registration of non-Canadian and certain domestic investment fund managers; and
- an exemption for capital accumulation plans.
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.