On February 29, 2008, the Canadian Securities Administrators
(CSA) published their revised proposals on National Instrument
31-103 relating to registration requirements for dealers,
advisers and investment fund managers. Over 260 comment letters
were received on the original proposals (published in February
of 2007). These proposals constitute an overhaul of
registration requirements and registration exempt activities,
and are intended to present a streamlined and harmonized
approach to the regulation of investment activities across
Canada. The revised proposals are open for comments until May
29, 2008. These proposals are expansive and will have a
significant impact on registration issues generally, as well as
on a broad range of capital markets activities, including
private placements, trading and advising activities and private
and public fund offerings.
Some of the more significant amendments presented in the
revised proposals include the following:
Expanded category of permitted clients
The revised proposals now include a broader category of
super-accredited investors called "permitted
clients". These permitted clients are a subset of the
"accredited investor" category and include
institutional and similar entities as well as qualified high
net worth individuals (net financial assets over C$5M),
entities legally and beneficially owned by qualified
individuals and qualified corporations (shareholders equity
over C$100M). The amendments would also relax "know your
client" obligations and certain "fit and proper"
requirements for certain registrants when dealing with
permitted clients. Activities permitted to be carried on by
international dealers on a registration exempt basis have also
been expanded to include trading with this broader category of
permitted client. Qualified international advisers would also
be exempt from registration requirements when advising
permitted clients with respect to non-Canadian securities.
Expanded exemptions and elimination of
"look-through" analysis for fund managers
While the proposed categories of registration presented in
the original proposals have not been amended, the CSA have
clarified that investment fund managers would have to register
only in the jurisdiction where the person or company that
directs the management of the fund is located. This applies
equally to domestic and foreign investment fund managers. As
set out in the proposed Companion Policy, if an investment fund
manager is located outside of Canada, the CSA have stated there
would be no requirement to register in Canada unless the
management of the fund is directed from within Canada.
Exemptions from dealer registration have also been added for
registered advisers (and those falling under the international
adviser exemption) when distributing units of their own pooled
funds. Prohibitions from investment advisers soliciting new
business have also been removed, and additional registration
exemptions have been added for certain types of government
guaranteed debt and self-directed RESPs.
As set out in the original proposals, the registration
trigger for dealer registration is proposed to be changed
generally to a business trigger. The proposed amendments
include a trigger based on being in the "business of
trading" in securities, as opposed to "dealing".
The Companion Policy has also been amended to reflect that
acting in an intermediary or market-maker capacity will
constitute trading for a business purpose.
Significant amendments have also been made to the "fit
and proper" and to the conduct requirements. These include
amendments to certain solvency requirements as well as changes
to proposed rules governing conflicts of interest and
information sharing, and the relaxation of requirements to
deliver relationship disclosure documents to clients. Exempt
market dealers are, for example, proposed to be exempt from
requirements relating to maintenance of capital and insurance
and delivery of financial statements if they do not hold,
handle or have access to cash. As well, registrants which are
members of a self-regulatory organization have been given
broader relief from a range of the "fit and proper"
requirements under the revised proposals.
The amendments to the original proposals now also include
specific transition provisions. Existing registrants will, in
most cases, be deemed to be registered in the equivalent new
category (and given six months to comply with new requirements,
such as relationship disclosure and complaint handling). New
registrants, such as exempt market dealers and investment fund
managers, will have six months to apply for registration and to
comply with most of the requirements of the new rules.
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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