Canada: Registration Reform Timing Announced

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Securities Regulation, June 2009

The Canadian Securities Administrators (CSA) have published the timing and steps for transition into the new registration regime. The CSA announced they expect to publish National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) in final form on July 17, 2009. NI 31-103 would come into force on September 28, 2009 (the effective date).

In CSA Staff Notice 31-311, the regulators have given advance notice of the transition timelines that will be in NI 31-103, as well as some important practical administrative steps they plan to take which will affect both existing and pending registrations.

Applications Not Approved by Effective Date must be Resubmitted Under New Rules

One important consideration is that any new applications which have been submitted to regulators but not finally approved by the effective date will have to be re-submitted using the new forms as prescribed under revised National Instrument 33-109. Firms and individuals applying (or re-applying) for registration after the effective date will be required to comply with the new requirements under NI 31-103. For example, if a firm's registration application is approved before the effective date, the currently existing capital, insurance and proficiency requirements will apply and that firm will benefit from the transition periods discussed below for moving to comply with the new requirements. On the other hand, if the firm has not been registered by the effective date, when it submits the new application, no transition would be available and the firm will have to comply with the new capital, insurance and proficiency requirements under NI 31-103.

The CSA staff have suggested that to increase the likelihood that applications could be processed before NI 31-103 comes into force, applications should be submitted no later than June 26, 2009 for firm registrations; July 15, 2009 for individual registrations with an adviser; or August 14, 2009 for individual registrations with dealers. These are not firm deadlines, as the CSA will still try to process applications before the effective date, but these dates are useful guidelines.

NRD Freeze Period

The National Registration Database (NRD) would be shut down from September 25 to October 12, 2009, in order to convert existing registrations. Firms that are currently registered would only need to make certain critical paper filings during the NRD freeze period covering re-instatements (transfers), termination notices and notices of changes to civil, criminal and financial information. After the freeze period is over, any such paper notices would have to be refiled on the NRD no later than November 10, 2009. All other notices that would normally have been filed during the NRD freeze period will have to be submitted to the NRD no later than November 24, 2009. During the NRD freeze period, new applications could be made on paper although those applications may not be processed during that period. If an application made on paper is approved during the NRD freeze period, it must be re-filed on the NRD no later than November 10, 2009.

Highlights

  • New Registration Reform Rules to be published July 17 and effective September 28, 2009
  • NRD frozen for conversion September 25 - October 12, 2009
  • Applications not approved by the effective date must be re-submitted under the new rules
  • Transition timing provided for compliance with the new requirements

Transitions of Categories for Firms

The CSA will convert existing categories of registration automatically for firms and individuals to new categories under NI 31-103. Other categories, such as securities issuer or international dealer, will be eliminated. The former proposal that international dealers would be converted to exempt market dealers has been changed, so that if an international dealer wishes to become an exempt market dealer, it must apply for that registration.

Limited market dealers registered in Ontario or Newfoundland will become exempt market dealers in those provinces. If a firm that will now need to be registered as an exempt market dealer was active prior to the effective date, but not registered in Ontario or Newfoundland as a limited market dealer, that firm will have 12 months to apply for registration and comply with requirements.

International dealers will no longer be required to be registered after the effective date, but will be required to submit a completed Form 31-103 F2 Submission to Jurisdiction and Appointment of Agent for Service within one month after the effective date in each of the provinces where the international dealer is carrying on business in Canada.

International advisers will automatically be converted to the category of portfolio manager. They will have a 12-month transition period to decide if they wish to continue to operate under the full registration requirements for a domestic portfolio manager or if they wish instead to rely upon the exemption for international advisers that will be provided under NI 31-103. During the 12-month transition period, Ontario-registered international advisers would operate under the conditions of OSC Rule 35-502 Non-Resident Advisers. If a foreign adviser was registered in other provinces under other registration categories, such as portfolio manager & investment counsel (foreign), they may continue to operate for 12 months under those registration conditions, but should consider whether they wish to continue that or operate under the international adviser exemption. In order to rely upon the new exemption in NI 33-103, international advisers will be required to file Form 31-103F2 by September 28, 2010.

Investment fund managers with a head office in Canada that have been active prior to the effective date will have 12 months to apply for registration in the jurisdiction where their head office is located, and 24 months in the other applicable Canadian jurisdictions. The CSA announced they plan to publish a proposal for comment during the next year to explain under what circumstances an investment fund manager that has a head office outside Canada would need to register.

Deregistering Officers

One of the changes under NI 31-103 is that non-trading or non-advising officers would no longer be required to be registered unless they were "permitted individuals", such as directors, CEOs, CFOs, COOs or shareholders owning 10% or more of the voting securities of a firm. CDS will generate lists of registered officers which will be sent by the regulators to firms after the effective date to assist firms in removing from the NRD those officers that are no longer required to be registered. Those individuals should be removed from the NRD by December 31, 2009 to avoid being charged the NRD user fees for those individuals. CSA Notice 31-311 sets out a variety of methods for dealing with the registration of these officers.

Timing forTransition to New Requirements

CSA Notice 31-311 sets out the time that will be allowed to comply with the new business conduct, capital and proficiency requirements. A summary table is reproduced on page 3 as an Appendix to this bulletin. These timelines are generally longer than was initially proposed.

Transition Timelines

For firms registered prior to September 28, 2009 (Effective Date of NI31-103)

Requirement

Investment Dealer (IIROC members)

Mutual Fund Dealer (MFDA members)

Scholarship Plan Dealer

Exempt Market Dealer (ON& NL only)

Portfolio Manager (except international advisers)

Firms must apply for registration for their Ultimate Designated Person

3 months

3 months

3 months

3 months

3 months

Firms must apply for registration for their Chief Compliance Officer

3 months

3 months

3 months

3 months

3 months

Firms must satisfy new insurance requirements

SRO rules apply

SRO rules apply

6 months

6 months

6 months

Firms must have policies for referral arrangements

6 months

6 months

6 months

6 months

6 months

Firms must satisfy new capital requirements

SRO rules apply

SRO rules apply

12 months

12 months

12 months

Firms must provide clients with relationship disclosure information

SRO rules apply

SRO rules apply

12 months

12 months

12 months

Firms must satisfy requirement for client statements

No exemption for IIROC and no transition

24 months

No transition available

No transition available

No transition available

Firms must have policies and procedures for complaint handling

24 months

24 months

24 months

24 months

24 months

Representatives must satisfy new proficiency requirements

SRO rules apply

Grandfathered

12 months

12 months

Grandfathered

Chief Compliance Officers must satisfy new proficiency requirements

SRO rules apply

Grandfathered

Grandfathered

12 months

Grandfathered

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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