On December 5, the Canadian Securities Administrators
("CSA") proposed changes to the regulatory framework for
dealers, advisers and investment fund managers. The changes range
from technical adjustments to more substantive changes that limit
the extent of activities of certain registrants.
The majority of the proposed changes would affect National
Instrument 31-103 Registration Requirements, Exemptions and
Ongoing Registrant Obligations ("NI 31-103").
Specifically, some of the key amendments include:
Sub-adviser exemption. Registered advisers acting as
sub-advisers to a registered adviser or dealer would be exempt from
certain registrant obligations so long as certain conditions are
met; such conditions include that the sub-adviser has no direct
contact with the registered adviser or dealer's clients unless
such registered adviser or dealer is present in person or over the
telephone or other real-time communications technology.
International sub-adviser exemption. This exemption
would be available to international sub-advisers on the same terms
as the sub-adviser exemption discussed immediately above, with the
added requirements that: (i) the sub-adviser's head office or
place of business is in a foreign jurisdiction; (ii) the
sub-adviser is authorized in the foreign jurisdiction to carry on
activities that registration in the local jurisdiction would
permit; and (iii) the sub-adviser engages in the business of an
adviser in the foreign jurisdiction.
Short-term debt exemption. Under this new exemption,
which would replace blanket orders already in place in every
jurisdiction except Ontario (where it is provided for in
legislation), dealer registration requirements would not apply to
trades by specified financial institutions in short-term debt
having a prescribed credit rating. The exemption would be limited
to trades with permitted clients.
Limitation of activities of exempt market dealers.
Exempt market dealers would not be permitted to conduct brokerage
activities (i.e. to trade securities on an exchange in foreign or
Canadian markets) or trade freely tradeable exchange-traded
securities off marketplace, and would only be permitted to
underwrite securities in a private placement, not in a prospectus
Experience requirements for CCOs. The CSA
proposes to add an experience requirement for chief compliance
officers of dealer firms. Chief compliance officers would be
required to have 12 months of relevant securities experience in the
36 month period prior to applying for registration.
The CSA also propose to prohibit registrants from relying on
exemptions for activities their category of registration
In addition, the CSA propose to provide clarification or
additional guidance on the following:
Application of the "business trigger" test to
start-up issuers. In response to concerns that a start-up
issuer may be required to register as a dealer if, in its early
stage of business, the issuer does not appear to qualify as an
active non-securities business (e.g. issuer focuses on raising
capital), the CSA propose additional guidance. Under this proposal,
the start-up issuer would not be required to register as a dealer
if it is raising capital to advance a bona fide business
Trades through or to a registered dealer. The CSA
propose to clarify the exemption for trades made through a
registered dealer to confirm that such exemption is not available
if the person relying on the exemption solicits or contacts any
purchaser in respect of the trade.
Subordination agreements. In response to the failure
of some firms to comply with requirements regarding subordination
agreements, the CSA intend to clarify that subordination agreements
must be delivered to the regulator before subordinated long term
debt can be excluded from working capital calculations. In
addition, the CSA propose to clarify that only non-current related
party debt can be excluded from such calculations.
Aside from NI 31-103 and its Companion Policy, the proposed
amendments will also affect NI 33-109 Registration Information, NI
52-107 Acceptable Accounting Principles and Auditing
Standards, and related policies and forms.
The CSA is seeking comments on the proposed amendments until
March 5, 2014.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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