The Canadian Securities Administrators have confirmed that proposed National Instrument 31-103 Registration Requirements, and the various related instruments can be expected to come into force by the end of September 2009, subject to necessary CSA and governmental approvals.
CSA Staff Notice 31-310 dated April 3, 2009 available here sets out the proposed implementation timeline for NI 31-103. The CSA will not be seeking further comments on the instruments.
The CSA's target dates are
- end of June 2009 for CSA approvals of the final version of NI 31-103
- mid-July 2009 for publication of the final version of NI 31-103
- end of September 2009 for implementation of NI 31-103.
We expect that the final versions of the various instruments will have changes that the CSA made in response to the over 200 comment letters, including from Borden Ladner Gervais LLP available here, received during this most recent comment period.
With the transition periods expected to be in the final version of NI 31-103, it will be necessary for industry participants to take steps to comply with the new regime during 2009 and 2010, although some implementation dates may be pushed back into 2011.
As we have pointed out in our earlier bulletins on registration reform, implementation of NI 31-103 is subject to legislative changes being made to the securities legislation in many of the provinces and territories. Except in Ontario and Québec, we understand that all of the other provincial/territorial governments have made (or are in the final stages of making) the changes considered necessary to so implement, although we note that no uniform approach has been taken in the various provinces.
Implementation of NI 31-103 and the related instruments in Ontario and Québec within the time-lines suggested by the CSA is now more certain.
On March 26, 2009, Ontario's Minister of Finance tabled in the Legislative Assembly Bill 162, which in Schedule 26 contains amendments to the Securities Act (Ontario) that are necessary in order to implement NI 31-103 in Ontario. The amendments include not only registration-related amendments, which are similar to those set out in the consultation draft of the amendments released for comment in April 2008, but also various other provisions, including amendments to prospectus exemptions. Please click here for a copy of Bill 162.
The registration-related amendments provided for in Bill 162 include
- the business trigger giving rise to the need for the registration of dealers
- the requirement to register as an investment fund manager
- the specific firm and individual registration categories, including chief compliance officer and ultimate designated person
- a duty on registrants to comply with Ontario securities laws, including all regulations and rules relating to proficiency standards, business conduct, account opening, record-keeping, custody, conflicts of interest, client complaints, tied selling and referral arrangements and other specified areas
- a requirement for registrants to establish and maintain specified compliance systems
- exemptions from registration for trades in government guaranteed debt, and for trading made by federal and Ontario financial institutions in specified circumstances (other exemptions will be permitted in Ontario through regulations and rules)
- revised "front-running" prohibitions that have been expanded from its current scope covering mutual funds, to include investment portfolios managed by portfolio managers and
- a repeal of section 118 of the Act, which prohibits certain related party transactions by portfolio managers, presumably because NI 31-103 will provide this prohibition.
Bill 162 reflects some positive changes made by the Minister of Finance from the 2008 consultation draft in response to comments, although Ontario's legislation in this area will still be one of the most detailed in Canada. For example, the amendments no longer include a list of factors that would give rise to whether or not a person is in the business of trading or advising and therefore requiring registration. Guidance on this issue will presumably be left to the CSA to provide.
In addition to providing for the legislative framework for NI 31-103, Bill 162 contains new provisions giving the Ontario government and the Ontario Securities Commission the authority deal with extraordinary circumstances, such as a major market disturbance or a major disruption in the functioning of capital markets. Among other powers, the OSC will have the ability, without notice or a hearing, to suspend trading in any security or to suspend all trading on any recognized stock exchange or otherwise. The explanatory notes to Bill 162 suggest that these new provisions are necessary in order to protect the public interest in the event of market disruptions, particularly in light of the current economic conditions.
As well, Bill 162 includes prospectus exemptions related to the registration exemptions that will now be set out in the Act. We note the definition of "accredited investor" for purposes of the accredited investor exemption in the Act will be different from that currently used in National Instrument 45-106 Prospectus and Registration Exemptions. The definition in Bill 162 is much narrower and includes primarily governments and institutions and no individuals unless designated by the OSC. It is not clear from reading Bill 162 how the legislated prospectus and registration exemptions will operate in conjunction with NI 45-106. We will need to review the final version of the proposed amended version of NI 45-106 in order to determine the entire universe of registration and prospectus exemptions that will be available in Ontario.
On March 11, 2009, Bill 8 available here was tabled in the National Assembly of Québec. Bill 8 contains proposed legislative amendments to Québec's securities legislation that are necessary to allow the implementation of NI 31-103.
We will continue to monitor and keep you advised of developments in this area. BLG's series of bulletins on the second version of proposed NI 31-103 are available on our website www.blgcanada.com. Please click here for a copy of our Proposed National Instrument 31-103 At a Glance.
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.