Registration Of Non-Resident Investment Fund Managers

Edited by Paul A. Dempsey

In a previous Investment Funds@Gowlings we discussed proposals published by two separate groups within the Canadian Securities Administrators (the "CSA") with respect to the registration of non-resident investment fund managers.  On July 5, 2012 both groups of regulators published notices of their response to the comments received on their proposals.

Ontario, Quebec and Newfoundland and Labrador

Securities regulators in Ontario, Quebec and Newfoundland and Labrador published in final form Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers ("MI 32-102").   The most notable change from the previously published version of MI 32-102 is that it is no longer being implemented by New Brunswick, which has adopted the position taken by the rest of the CSA on this issue (see below).  Subject to all necessary approvals, MI 32-102 will come into force on September 28, 2012.

The final version of MI 32-102 is not materially different from what was published for comment.  Registration would not be required if an investment fund manager does not have a place of business in the local jurisdiction and there are no security holders of the investment fund, or there has been no active solicitation of residents by the investment fund manager (or any of the investment funds it manages), in the local jurisdiction after September 27, 2012.  There would also be a registration exemption for international investment fund managers without a place of business in Canada where all of the securities of the investment funds managed by the investment fund manager are distributed under a prospectus exemption to permitted clients only (e.g. institutional investors) (the "Permitted Client Exemption").

In order to rely on the Permitted Client Exemption, certain notice requirements must be satisfied:

• notice of reliance on the exemption to securities regulatory authority, including disclosure of assets under management attributable to investors in the local jurisdiction;
• notice of regulatory action to securities regulatory authority regarding disciplinary history, settlement agreements and ongoing investigations of the investment fund manager; and
• notice to permitted clients that the investment fund manager is not registered in the local jurisdiction together with certain prescribed disclosure.

Also, starting March 31, 2013, MI 32-102 will require registered international investment fund managers to provide notice to investors that is substantially the same as the non-resident registrant cautionary disclosure prescribed by section 14.5 of  NI 31-103 (which section does not apply to investment fund managers by virtue of section 14.1 of NI 31-103). 

The Rest of the CSA

The rest of the CSA (now including New Brunswick) published Multilateral Policy 31-202 Registration Requirement for Investment Fund Managers ("MP 31-202") in final form.  This group of regulators has maintained the position that the need to register as an investment fund manager will depend on what activities are taking place in the jurisdiction and the presence or solicitation of security holders of an investment fund does not automatically trigger the requirement to register.  Registration will be required in a jurisdiction if investment fund manager activities take place in the jurisdiction.  MP 31-202 will become effective on September 28, 2012.

Transition

As part of the implementation of MI 32-102 and MP 31-202, the CSA issued parallel orders to extend the transition provisions in the following sections of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations:

• section 16.5 [Temporary exemption for Canadian investment fund manager registered in its principal jurisdiction]
• section 16.6 [Temporary exemption for foreign investment fund manager]
• section 16.16 [Complaint handling].

The transition provisions in sections 16.5 and 16.6 are being extended to December 31, 2012.  This gives Canadian and foreign investment fund managers a 3 month extension to apply for registration, if required as a result of MI 32-102 or MP 31-202.

Section 16.16 provides a temporary exemption from the requirement to provide for independent dispute resolution or mediation services for clients.   Since the CSA is considering amendments to that requirement, it is extending the temporary exemption until the earlier of September 28, 2014 or the coming into effect of amendments to those requirements.   This extension does not apply in Quebec because of the existing regime in that jurisdiction.

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.