Canada: What’s Ahead? At A Glance: Key Developments In Canadian Securities Regulation For The Investment Management Industry

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?

Canadian Securities Regulator

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

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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Canadian Securities Transition Office commenced work in July 2009. Doug Hyndman, the former BCSC Chair, appointed as Chair and CEO of the Transition Office. Advisory Committee to the Transition Office appointed in October 2009 consists of representatives of all provinces and territories of Canada, other than Québec, Alberta and Manitoba. In October 2009, federal Justice Minister announced that the federal government will seek the opinion of the Supreme Court of Canada as to whether Parliament has the constitutional authority to enact and implement a federal securities regulatory regime. As part of this reference, the federal government will submit to the Supreme Court of Canada draft legislation, expected to be ready in spring 2010.

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 CSA September 2009.

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Passport system in place March 17, 2008 for prospectus filings and exemptive relief applications. Passport system for registration in force as of September 28, 2009.

Registration Reform

National Instrument 31-103 Registration Requirements and Exemptions CSA September 2009 (National Instrument and Companion Policy, together with other consequential amendments including revisions to National Instrument 45-106).

Client Relationship Model Notice 090120 Investment Industry Regulatory Organization of Canada April 2009.

MFDA Bulletin No. 0370P 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.

IIROC Rules Amendments to Implement the Registration Reform Project October 2009.

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Passport system in place March 17, 2008 for prospectus filings and exemptive relief applications. Passport system for registration in force as of September 28, 2009.

NI 31-103 in force as of September 28, 2009, with various transition periods for specified rules.

Comment period on IIROC and MFDA revised rule changes to implement the Client Relationship Model ended July 2009. IIROC rule amendments to reflect NI 31-103 published, as approved by the applicable CSA members, on October 9, 2009.

See BLG's nine-part series Keeping Reforms in Sight: Understanding the New Canadian Registration Requirements Canadian Securities Regulators Release Final Registration Rule (July 2009), What's New? Investment Dealers IIROC Members; What's New? Mutual Fund Dealers MFDA Members; What's New? Exempt Market Dealers; What's New? Advisers – Portfolio Managers; What's New? Investment Fund Managers; Impact on the Hedge Fund Industry; Impact on Non-Canadian Securities Market Participants; National Instrument 31-103 At A Glance Investment Management Advisories August 2009 Borden Ladner Gervais LLP.

See Canadian Registration Regime Effective as of September 28, 2009 National Instrument 31-103 Registration Requirements and Exemptions Now in Force Investment Management Advisory October 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 11-760 Report on Mutual Fund Sales Practices under Part 5 of National Instrument 81-105 Mutual Fund Sales Practices OSC April 2007.

10 Most Common Deficiencies Among Portfolio Managers OSC October 2008.

CSA Staff Notice 33-315 Suitability Obligation and Know Your Product CSA September 2009.

OSC Staff Notice 33-732 2009 Compliance Team Annual Report OSC September 2009.

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

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

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.

International Financial Reporting Standards (IFRS) – Registrants And Investment Funds

Proposed National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards and related companion policy CSA September 2009.

Proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions CSA October 2009.

Proposed amendments to National Instrument 81-106 Investment Fund Continuous Disclosure CSA October 2009.

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Comment periods on the IFRS-related changes to the various instruments end:

• for proposed NI 52-107 – December 24, 2009
• for proposed amendments to NI 31-103 – January 21, 2010
• for proposed amendments to NI 81-106 – January 14, 2010

See CSA Releases Proposals for Canadian Registrants and Investment Funds to Comply with International Financial Reporting Standards (IFRS) Investment Management Advisory November 2009 Borden Ladner Gervais LLP.

Point Of Sale Disclosure For Mutual Funds

Proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure and related policy and forms CSA June 2009.

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Comment period on the proposed amendments to National Instrument 81-101 to implement the point of sale disclosure proposals for mutual funds ended October 17, 2009.

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

See Point of Sale Proposals for Canadian Mutual Funds Released for Comment Investment Management Advisory July 2009 Borden Ladner Gervais LLP.

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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OSC and AMF staff reviewing disclosure of funds and their IRCs to determine compliance with NI 81-107. Staff notice expected to be released in 2010 on results of review.

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.

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.

Scholarship Plan Regulation

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 rule to modernize scholarship plan disclosure expected to be published for comment during the first half of 2010. Draft rules to replace National Policy 15 expected to be published for comment thereafter.

Mergers Of Listed Investment Funds

Amendments to Part VI of The Toronto Stock Exchange ("TSX") Company Manual (The "Manual") The Toronto Stock Exchange November 13, 2009

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Amendments relate to mergers of listed investment funds and provide for conditional exemptions from securityholder approval requirements. Comments due on proposed amendments by December 14, 2009.

See TSX Proposes New Security Holder Approval Requirements for Acquisitions of Listed Investment Funds Investment Management Advisory November 2009 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 Québec 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

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 PhaseIn Period in National Instrument 24-101 Institutional Trade Matching and Settlement CSA April 2008.

Proposed amendments to National Instrument 24-101 Institutional Trade Matching and Settlement and Companion Policy 24-101CP CSA October 2009.

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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) was extended by blanket order and/or rule until July 1, 2010. Most recent amendments to NI 24-101 would extend the requirements for trade matching until July 1, 2015. Comments on these amendments are due by January 28, 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

National Instrument 23-102 Use of Client Brokerage Commissions as Payment for Order Execution Services or Research Services CSA October 2009.

Proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure and National Instrument 41-101 General Prospectus Requirements CSA October 2009.

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Final rule in force June 30, 2010. Six month transition period for prescribed disclosure to existing clients.

Comment period on proposed amendments to prospectus disclosure forms for investment funds ends on January 7, 2010.

See Rules Regulating the Use of Client Brokerage Commissions in Canada to be Effective June 30, 2010 Investment Management Advisory November 2009 Borden Ladner Gervais LLP.

Best Execution And Other Trading Rules

Amendments to National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules CSA November 2009.

Consultation Paper 23-404 Dark Pools, Dark Orders and Other Developments in Market Structure in Canada Joint Canadian Securities Administrators/Investment Industry Regulatory Organization of Canada September 2009.

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Amendments to National Instruments 21-101 and 23-101 relating to best execution came into force on September 12, 2008. Further amendments to these National Instruments to mandate order protection (previously known as tradethrough protection) finalized in November 2009. Rules regarding order protection to come into force February 1, 2011. Other rules in force January 28, 2010.

Comment period on Consultation Paper 23-404 ends December 29, 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.

OSC Staff Notice 91-702 Offerings of Contracts for Differences and Foreign Exchange Contracts to Investors in Ontario OSC October 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.

See OSC Issues Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors in Ontario Securities & Capital Market Alert October 2009 Borden Ladner Gervais LLP.