Canada: Proposed National Instrument 31-103: Registration Of Investment Fund Managers

Last Updated: March 13 2007
Article by Rebecca A. Cowdery and Kathryn M. Fuller

Most Read Contributor in Canada, September 2016

Proposed National Instrument 31-103 Registration Requirements1 introduces a new category of registration in each Canadian province and territory: investment fund manager. This registration category will apply to managers of all types of investment funds, other than private investment clubs. This means that once proposed NI 31-103 is in effect, all domestic and foreign managers of funds that are reporting issuers and non-reporting issuers (including mutual funds, pooled funds and hedge funds) must become registered.

The term "investment fund manager" is defined in Ontario securities regulation as "a person or company who has the power and exercises the responsibility to direct the affairs of an investment fund". We expect further clarifications from the CSA on the scope of the phrase "investment fund manager" will be necessary.

The commentary to proposed NI 31-103 is unclear as to whether general partners of investment funds formed as limited partnerships would fall under the definition of "investment fund manager". We would expect that many general partners function in a capacity that is similar to that of a trustee of a fund organized as a trust, particularly where the general partner has delegated all administrative and operational responsibility for the fund to another party. In our view, it would not be appropriate to require the registration of the general partner, but it may be more appropriate to register the administrative manager to whom those functions have been delegated.

We note that proposed NI 31-103 does not clarify where a fund manager will be required to be registered. That is, should the fund manager be registered in all provinces where the fund is distributed or only in that province where the fund is actually managed? In the notice to proposed NI 31-103, the Canadian securities regulators explain that the manager must be registered in the Canadian province or territory in which the fund is "located". However, no discussion is provided as to how one determines the location of a fund, particularly where the fund manager manages its funds in jurisdictions outside of Canada. We would expect that the jurisdiction of the fundís formation to be one of the factors governing this determination. However, until amendments are made to the securities legislation of each province and territory to introduce this new registration category, it is difficult to determine the full impact of this proposed registration requirement. NI 31-103 proposes to exempt discretionary portfolio managers from the dealer registration requirement where these portfolio managers invest the assets of clients for which they have discretionary investment management authority, in securities of a pooled fund managed by them. If this exemption were available, the firm would be registered in two categories: portfolio manager and investment fund manager. The CSA makes it clear that this dealer exemption is not available in situations where the firmís primary business is managing pooled funds and not managing fully-managed accounts. The origins around this proposed rule can be traced back to the troubles with Portus Alternative Asset Management, which firm was alleged to have created fully-managed accounts solely to have those clients invest in Portus-managed pooled funds or products.

Under proposed NI 31-103, only two individuals will require registration on behalf of a registered investment fund manager. Managers will need to designate an individual to be the "ultimate designated person" responsible for ensuring that the fund manager develops and implements policies and procedures necessary to discharge the firmís obligations under securities legislation. Fund managers will also be required to designate an officer or partner to be the "chief compliance officer" responsible for discharging the firmís obligations under securities legislation. The person designated as chief compliance officer must meet certain proficiency requirements, including specified professional designations, such as lawyer or chartered accountant, successful completion of specified Canadian securities exams, coupled with specified work experience. We suspect that the experience of many otherwise qualified individuals currently acting in the role of chief compliance officer of a fund manager may not fit with the requirements articulated under proposed NI 31-103, since industry experience gained at a fund manager is not specifically designated as acceptable work experience for these purposes. These proposed requirements will require modification for investment fund managers in further publications of proposed NI 31-103.

Many of the conduct rules and "fit and proper" requirements of proposed NI 31-103 that will apply to other registrants will also apply to registered investment fund managers, with some modifications specific to this registration category, including those set out below.

Working capital

Minimum working capital of at least $100,000, to be calculated within 20 days of each month end.


Financial institution bond in the greater of: (a) 1% of assets under management or $25,000,000, which ever is less; (b) $200,000 or (c) the amount the directors of the fund manager determine necessary.


Appoint an auditor and direct the auditor, in writing, to conduct any required audit or review. Copy of this direction to be filed with registration package and within 5 business days of any change in auditor.

Financial Information

Deliver quarterly and annual audited financial information to the regulators (within 30 days after quarter end and 90 days after year end), including financial statements, working capital reports and a description of any net asset value adjustment (as defined in proposed NI 31-103) made during the period.

Client Assets

Ensure any clientsí assets held are held in trust, segregated from its own property. Cash held on behalf of a client (for example pending subscription in a fund), must be held in a designated trust account with specified types of financial institutions. Additional safekeeping requirements for fund managers holding securities of its funds for its clients.


Maintain sufficient records to accurately record business activities, financial affairs and client transactions, as well as to demonstrate compliance with applicable securities law requirements. Keep an activity record and a relationship record for specified periods (7 years).

Trade Confirmations

Dealers have responsibility for providing trade confirmations. However, exemption available for dealers if the fund manager sends confirmations containing required information.


Establish, maintain and enforce a compliance system with written policies and procedures to achieve compliance with securities legislation and to manage the risks associated with its business in conformity with prudent business practices. Chief compliance officer must report directly to the fund managerís board of directors at least annually regarding the firmís compliance with securities legislation.

Complaint Handling

Document and deal with complaints made about products or services. Establish policies and procedures concerning complaints and resolving disputes. Acknowledge receipt of complaints in writing within 5 business days. Within 2 months of year end, submit a report to the regulators concerning its complaint handling policies that includes the number and nature of the complaints filed as at the end of the year.


Identify each potential and actual conflict of interest within the firm, with other entities, with a client and between clients. Deal with each such conflict of interest in a fair, equitable and transparent manner, exercising responsible business judgement influenced only by the best interest of the client or clients. Provide prior written disclosure of a conflict of interest to a client if there is a reasonable likelihood that the client would consider the conflict important when entering into a proposed transaction. Those fund managers that are governed by National Instrument 81-107 will have started a conflict identification process. However, the definition of a conflict in proposed NI 31-103 is broader than the conflicts regulated by NI 81-107 and will apply to funds that are not reporting issuers.


1 Proposed National Instrument 31-103 Registration Requirements was released for comment on February 20, 2007. The comment period ends on June 20, 2007.

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For more information on proposed NI 31-103, please see BLGís 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. BLGís Investment Management Advisories are available on our Website at [click on Publications and then select Capital Markets to search current publications].

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.

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