Proposed National Instrument 31-103 Registration Requirements1 seeks to streamline, as well as to achieve harmonization and modernization of the Canadian registration regime. In working to implement these general concepts, the Canadian securities regulators propose to add new registration categories, as well as to introduce new activities requiring registration, while at the same time proposing to discontinue certain existing registration categories. These proposals will uniquely affect non-Canadian firms and individuals who do business in Canada.
Proposed NI 31-103 would eliminate the registration categories of "international dealer" and "international adviser". The registration categories contemplated under proposed NI 31-103 will be dealer, including investment dealer, mutual fund dealer and exempt market dealer, portfolio manager and investment fund manager. Non-Canadian firms may register in one or more of these categories provided that they comply with the general conditions for such registration and specific rules applicable to non-Canadian firms, including specified client notifications and custody requirements, as well as continued registration in their home jurisdictions. The proficiency requirements applicable to advising or dealing representatives, as well as to chief compliance officers are capable of being met by non-Canadian individuals (although CCOs must pass Canadian securities exams).
Entities that currently are registered as international dealers or international advisers (or in equivalent registration categories) may seek to be registered in one of the appropriate registration categories proposed by NI 31-103 as described above or they may seek to avoid registration by availing themselves of proposed new registration exemptions.
NI 31-103 proposes exemptions from dealer and portfolio manager registration requirements for non-Canadian dealers and advisers subject to compliance with certain conditions. The proposed exemptions will only be available to entities that have no establishment or representatives in Canada and which carry on the business of dealing in or advising on securities outside of Canada. The exemption will allow non-Canadian dealers and portfolio managers to deal with, or advise only prescribed lists of clients for limited purposes, which are narrower than the lists of clients and purposes that registered international dealers and registered international advisers currently have access to in Ontario and in certain other Canadian provinces.
For the purposes of the international dealer exemption, the proposed list of "permitted international dealer clients" will include Canadian financial institutions and their subsidiaries, advisers and certain dealers, Canadian government entities, pension funds, trust companies acting on behalf of fully-managed accounts, advisers registered in non-Canadian jurisdictions and investment funds that are advised by Canadian portfolio managers.
For the purposes of the international portfolio manager exemption, the proposed list of "permitted international portfolio manager clients" will include Canadian financial institutions, Canadian government entities and pension funds, but will exclude portfolio managers, brokers or investment dealers, registered charities, high net-worth individuals, large corporations and investment funds that distribute their securities in Canada. is an Ontario Limited To rely on the proposed exemptions, international dealers and portfolio managers will have to make certain prescribed filings to the appropriate securities regulators, together with prescribed disclosures to permitted clients before dealing with or advising them.
Non-Canadian portfolio managers will only be permitted to rely on the international portfolio manager registration exemption if they comply with certain onerous conditions, including no solicitation of new clients in Canada and advising only on non-Canadian securities (except on an incidental basis). In our view, these conditions will make the exemption largely unavailable to entities currently registered as international advisers in Canada.
Proposed NI 31-103 also requires registration of any person or company "who has the power and exercises the responsibility to direct the affairs of an investment fund" in the new registration category of "investment fund manager". The CSA are unclear on exactly what constitutes managing investment funds in a particular province or territory, particularly where the investment fund is only distributed in a province or territory and is managed elsewhere. Nevertheless, proposed NI 31-103 proposes a registration exemption for those investment fund managers who fall within the definition of "international investment fund managers". To qualify as an international investment fund manager, the firm must have no establishment or representatives in Canada and must engage in the business of a portfolio manager in its home jurisdiction. The exemption from the registration requirement will only be available to an international investment fund manager which is managing an investment fund whose securities are primarily offered outside of Canada, and only distributed in Canada through one or more registrants in reliance upon an exemption from prospectus requirements of securities regulation.
1 Proposed National Instrument 31-103 Registration Requirements was released for comment on February 20, 2007. The comment period ends on June 20, 2007.
For more information on proposed NI 31-103, please see BLG’s Investment Management Advisory Canadian Securities Regulators Release Comprehensive Registration Rule for Comment released by our Investment Management Group on February 20, 2007. This Investment Management Advisory is one of eight in the series: Keeping Reforms in Sight: Understanding the Registration Reform Proposals. BLG’s Investment Management Advisories are available on our Website at www.blgcanada.com [click on Publications and then select Capital Markets to search current publications].
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