Canada: What´s Ahead? At A Glance - Spring 2009

The Investment Management Group at Borden Ladner Gervais LLP consists of a team of over 50 lawyers located in offices across Canada who understand the business, regulatory and administrative issues that face participants in the Canadian investment management industry. We have the largest and most experienced investment management practice in Canada, having provided legal services to Canadian and international industry participants for over 50 years.

Our lawyers are leaders in investment funds, registrant regulation and compliance, private pooled and hedge funds and structured products. BLG's Investment Management Group is ranked Number 1 in Canada in The Best Lawyers in Canada (2008 and 2009). Several of our lawyers are recognized as leaders in the area of investment funds in industry publications, including:

• Guide to Leading 500 Lawyers in Canada (Lexpert/American Lawyer)
• Canadian Legal Lexpert Directory
• Best Lawyers in Canada
• Who's Who Legal The International Who's Who of Business Lawyers
• PLC Cross border Investment Funds Handbook

Our clients, both Canadian and international, include open and closed end investment fund complexes, providers of alternative investment, pooled and private equity products, investment advisers and dealers, financial institutions, service providers, securities regulators, self regulatory organizations and industry trade associations.

BLG is a leading, full service, integrated national law firm focusing on business law, litigation and intellectual property solutions for our clients. With more than 750 lawyers, intellectual property agents and other professionals in Vancouver, Calgary, Toronto, the Waterloo Region, Ottawa and Montréal, clients turn to BLG for assistance with their legal needs, from major litigation to corporate finance and patent registration.

WHAT'S HAPPENED

WHAT'S NEXT?

Single Securities Regulator

Creating an Advantage in Global Capital Markets Final Report and Recommendations Expert Panel on Securities Regulation January 2009.

Budget Implementation Act, 2009 Statutes of Canada 2009 c. 2

Canadian Securities Regulation Regime Transition Office Act, s. 297, being Part 5 of the Budget Implementation Act, 2009, Statutes of Canada 2009, c. 2

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Federal Minister of Finance has the authority to pay amounts aggregating up to $150 million to the provinces and territories in connection with the establishment of a single Canadian securities regulatory regime and regulatory authority. The Budget Implementation Act received Royal Assent on March 12, 2009 and section 297 of the Act (which enacts the Canadian Securities Regulation Regime Transition Office Act) will come into force on a day to be fixed by order of the Governor in Council. The Transition Office Act provides the legal authority and mandate for the establishment of a Transition Office and provincial/territorial advisory committee. $33 million has been allocated to establish the Transition Office. Transition plan covering the necessary legislation, negotiations with the provinces and infrastructure is scheduled for March 2010. The Chair of the advisory committee to the Transition Office expected to be announced shortly.

See Expert Panel on Canadian Securities Regulation Recommends a National Securities Regulator Securities and Capital Markets Alert January 15, 2009 Borden Ladner Gervais LLP.

Passport System For Provincial Securities Regulation

National Policy 11-204 Process for Registration in Multiple Jurisdictions with related consequential amendments to other instruments, including amendments to Multilateral Instrument 11-102 Passport System CSA December 2008.

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Passport system in place March 17, 2008 for prospectus filings and exemptive relief applications. OSC not participating, but interfaces provided to give Ontario-based firms the benefits of the system. Passport system for registration finalized and will come into force at the same time as proposed National Instrument 31-103.

Registration Reform

Proposed National Instrument 31-103 Registration Requirements CSA February 2008 (proposed National Instrument and Companion Policy, together with other consequential amendments including revisions to National Instrument 45-106). Client Relationship Model Notice 09-0120 Investment Industry Regulatory Organization of Canada April 2009.

MFDA Bulletin No. 0370-P Proposed Amendments to MFDA Rule 2.2 (Client Accounts), MFDA Policy No. 2 Minimum Standards for Account Supervision, Rule 2.8 (Client Communications) and Rule 5.3 (Client Reporting) Mutual Fund Dealers Association of Canada April 2009.

CSA Staff Notice 31-310 Proposed National Instrument 31-103 Registration Requirements and Proposed Companion Policy 31-103CP Registration Requirements CSA April 2009.

Bill 162, An Act respecting the budget measures and other matters, 1st Sess., 39th Leg., Ontario, 2009, Sch. 26 (amends the Securities Act (Ontario) and ordered referred to Standing Committee, after second reading April 2009).

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Second comment period on proposed National Instrument 31-103 and related amendments ended May 29, 2008. Comment period on IIROC and MFDA revised proposed rule changes ends July 23, 2009.

Comment letters on the CSA's Registration Reform initiatives, including comment letter of Borden Ladner Gervais LLP, being considered by the CSA and available on the OSC's website.

NI 31-103 expected to be published in final form by mid- July and is expected to come into force in the fall 2009. Amendments to the legislative regime in all provinces/ territories expected to come into force on the same timing.

See BLG's nine-part series Keeping Reforms in Sight: Understanding VERSION 2 of the Registration Reform Proposals — Canadian Securities Regulators Release Second Version of Comprehensive Registration Regime for Comment (March 2008), Registered Dealers and Advisers – What's New, Registration of Investment Fund Managers, Enhanced Compliance and Supervision Expectations, Impact on the Exempt Securities Market, Impact on the Hedge Fund Industry, Impact on Non-Canadian Securities Market Participants, The Client Relationship Model and Relationship Disclosure. Proposed National Instrument 31-103 At A Glance Investment Management Advisory April 2008 Borden Ladner Gervais LLP.

See Canadian Registration Reform Proposals to be Finalized in 2009 Investment Management Alert April 3, 2009 Borden Ladner Gervais LLP.

Registrant Regulatory Compliance

OSC Staff Notice 33-729 Marketing Practices of Investment Counsel/Portfolio Managers OSC November 2007.

OSC Staff Notice 33-731 2008 Compliance Team Annual Report OSC September 2008.

CSA Staff Notice 33-313 International Financial Reporting Standards and Registrants CSA September 2008.

10 Most Common Deficiencies Among Portfolio Managers OSC October 2008.

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OSC and staff notices outline common compliance deficiencies for fund managers and entities registered as advisers (investment counsel and portfolio managers).

See Ontario Securities Commission Staff Notice Released on Marketing Practices of Registered Advisers Registrant Regulation and Compliance Alert Investment Management Advisory November 2007 Borden Ladner Gervais LLP.

See Impact of International Financial Reporting Standards on Canadian Registrants Registrant Regulation and Compliance Alert Investment Management Advisory September 2008 Borden Ladner Gervais LLP.

Limited Market Dealers

OSC Staff Notice 11-758 Review of Limited Market Dealers OSC June 2006.

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National roll-out of exempt market dealer regime proposed as part of proposed National Instrument 31-103.

See OSC Staff Releases Deficiency Report on Limited Market Dealers Registrant Regulation and Compliance Alert Investment Management Advisory June 2006 Borden Ladner Gervais LLP.

Investment Fund Manager Compliance

OSC Staff Notice 11-760 Report on Mutual Fund Sales Practices under Part 5 of National Instrument 81-105 Mutual Fund Sales Practices OSC April 2007.

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See OSC Provides Guidance on Complying with Mutual Fund Sales Practices Rule Investment Management Advisory May 2007 Borden Ladner Gervais LLP.

Scholarship Plan Dealers' Business Practices

OSC News Release OSC Acts to Improve Scholarship Plan Dealers' Business Practices July 2004.

Industry Report Scholarship Plan Dealers Compliance Team, Capital Markets, Ontario Securities Commission July 2004.

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Draft rules to modernize rules for scholarship plans and to enhance disclosure expected to be published for comment during 2009/2010.

Investment Fund Governance

National Instrument 81-107 Independent Review Committee for Investment Funds CSA July 2006.

CSA Staff Notice 81-317 Frequently Asked Questions on National Instrument 81-107 Independent Review Committee for Investment Funds CSA March 2007.

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In force November 1, 2006. IRCs were to be established by May 1, 2007 and fund managers and IRCs given until November 1, 2007 for complete compliance with the rules.

OSC and AMF staff reviewing disclosure of funds and their IRCs to determine compliance with NI-107.

See Canadian Investment Fund Governance Becomes Reality: Final National Instrument 81-107 Released Investment Management Advisory August 2006 Borden Ladner Gervais LLP; and BLG's ten-part series of Practice Bulletins entitled BLG's Countdown to Governance: Getting Ready, June 2006 to September 2006.

Reminder of May 1, 2007 Deadline for Independent Review Committees Investment Management Advisory February 2007 Borden Ladner Gervais LLP.

See A Year Two Review for Independent Review Committees Investment Management Advisory December 2008 Borden Ladner Gervais LLP.

Fund Valuation

Amendments to National Instrument 81-106 Investment Fund Continuous Disclosure Form 81-106FI and Companion Policy 81-106CP and related amendments CSA June 2008.

OSC Staff Notice 11-763 A Focused Review of the Securities Valuation and Expense Allocation Practices of Fund Managers OSC July 2008.

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Amendments to NI 81-106 in force September 8, 2008.

See Amendments to National Instrument 81-106 Investment Fund Continuous Disclosure Come into Force on September 8 Investment Management Alert September 2008 Borden Ladner Gervais LLP.

Asset-Backed Commercial Paper And Investment Funds

Securities Regulatory Proposals Stemming from the 2007-08 Credit Market Turmoil and its Effect on the ABCP Market in Canada CSA October 2008.

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Comment period on consultation paper ended February 16, 2009. CSA considering comments provided on various questions posed in consultation paper, including those related to investments by mutual funds, and specifically money market funds, in ABCP.

Point Of Sale Disclosure For Mutual Funds And Segregated Funds

Framework 81-406 Point of Sale Disclosure for Mutual Funds and Segregated Funds Joint Forum of Financial Market Regulators October 2008.

CSA Notice 81-318 Request For Comment – Framework 81-406 Point Of Sale Disclosure For Mutual Funds And Segregated Funds CSA October 2008.

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Comment period on the implementation issues associated with point of sale disclosure ended December 23, 2008. Comment letters, including comment letter of Borden Ladner Gervais LLP, being considered by the CSA and available on the OSC's website. Next steps include the CSA's release for comment of proposed rules to implement the proposals later in 2009.

See Status of Point of Sale Proposals for Canadian Mutual Funds Investment Management Advisory December 2008 Borden Ladner Gervais LLP.

Capital Accumulation Plans Guidelines And Proposed Exemptions For Mutual Funds

Joint Forum of Financial Market Regulators Guidelines for Capital Accumulation Plans May 2004.

Amendments to National Instrument 45-106 Prospectus and Registration Exemptions and Adoption of Local Prospectus and Registration Exemptions for Certain Capital Accumulation Plans CSA October 2005.

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All Canadian regulators, other than the OSC and the Quebec regulator, granted "blanket" prospectus and registration exemptions to allow mutual funds to be used as investment options for CAPs. Comment period on proposed amendments to NI 45-106 ended January 19, 2006. Comment letters, including comment letter of Borden Ladner Gervais LLP, being considered by CSA.

Insider Reporting And Early Warning Reports

Proposed National Instrument 55-104 Insider Reporting Requirements And Exemptions, Companion Policy and Related Consequential Amendments, including to National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues. CSA December 2008.

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Comment period on proposed National Instrument and proposed amendments ended March 19, 2009. Comments letters, including comment letter of Borden Ladner Gervais LLP, being considered by CSA.

Straight-Through Processing

National Instrument 24-101 Institutional Trade Matching and Settlement and Companion Policy 24-101CP January 2007.

CSA Staff Notice 24-304 CSA Industry Working Group on National Instrument 24-101 Institutional Trade Matching and Settlement CSA July 2007.

CSA Notice 24-307 Exemption from Transitional Rule: Extension of Transitional Phase-In Period in National Instrument 24-101 Institutional Trade Matching and Settlement CSA April 2008.

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National Instrument 24-101 in force on April 1, 2007, but the transitional phase-in period (set previously at July 1, 2008) has been extended by blanket order and/or rule until July 1, 2010.

See October 1, 2007 Deadline for Institutional Trade- Matching by Canadian Capital Markets Participants Investment Management Advisory September 2007 Borden Ladner Gervais LLP.

See Institutional Trade-Matching and Settlement – Extension of Transitional Phase-In By 24 Months Investment Management Alert June 2008 Borden Ladner Gervais LLP.

Soft Dollars

Proposed National Instrument 23-102 Use of Client Brokerage Commissions as Payment for Order Execution Services or Research Services CSA January 2008.

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Comment period ended April 10, 2008. Comment letters, including comment letter of Borden Ladner Gervais LLP, being considered by the CSA and available on the OSC's website. Final rule expected to be released by summer 2009.

See Canadian Securities Regulators Propose Revised Rules to Regulate Use of Client Brokerage Commissions Investment Management Advisory February 2008 Borden Ladner Gervais LLP.

Best Execution And Other Trading Rules

CSA Notice on Best Execution Amendments to National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules CSA June 2008.

Proposed Amendments to National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules CSA October 2008.

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Amendments to National Instruments 21-101 and 23-101 relating to best execution came into force on September 12, 2008. Comment period on proposed changes to National Instruments to deal with trade-through protection ended January 19, 2009. CSA considering comments received. CSA also plans to re-publish for comment proposed amendments to these National Instruments that will provide for direct market access later in 2009.

Hedge Funds And Other Alternative Investment Products

Regulatory Analysis of Hedge Funds Hedge Funds Working Group Investment Dealers Association of Canada May 2005.

CSA Staff Notice 81-316 Hedge Funds CSA January 2007.

Due Diligence Guidelines on Principal-protected Notes Investment Dealers Association of Canada March 2007.

Principal Protected Notes Regulations SOR 2008 May 2008.

CSA Notice 46-305 Second Update on Principal Protected Notes August 2008.

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OSC conducting on-site reviews of representative sample of hedge funds.

See Hedge Fund Managers: Time for Your Annual Check-up? Quick Tips for a Doing a Self-Diagnosis Investment Management Advisory September 2007 Borden Ladner Gervais LLP.

See New Regulations for Principal Protected Notes Proposed by the Canadian Government Investment Management Advisory December 2007 Borden Ladner Gervais LLP.

See OSC Targets Hedge Funds – Again Investment Management Alert February 5, 2009 Borden Ladner Gervais LLP.

Regulation Of Derivatives

Final Report Ontario Commodity Futures Act Advisory Committee January 2007.

Regulatory Analysis of Contracts for Differences (CFDs) Investment Dealers Association of Canada June 2007.

Proposed Framework for Regulation of Derivatives Market in Québec Autorité des marchés financiers August 2007.

Bill 77 Derivatives Act (Québec) June 2008.

The Derivatives Regulation Autorité des marchés financiers December 2008.

Policy Statements respecting Accredited Counterparties, Hybrid Products and Self-Certification Autorité des marchés financiers January 2009.

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Derivatives Act (Québec) and related regulations and policies came into force as of February 1, 2009.

See Québec Derivatives Act in Force as of February 1, 2009 Key Considerations for Industry Participants Investment Management Alert February 2, 2009 Borden Ladner Gervais LLP.