Canada: Canadian Securities Administrators Release Staff Notice 31-315 Regarding Orders Exempting Registrants From Certain Provisions Of National Instrument 31-103 - Registration Requirements And Exemptions

Last Updated: March 11 2010
Article by Tracy L. Hooey and Gina Yee

The Canadian Securities Administrators ("CSA") released Staff Notice 31-315 on February 26, 2010. Since the coming into force of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), the CSA have received applications requesting exemptions from certain provisions of the Instrument. CSA members have issued omnibus and blanket orders for relief as set out below. A copy of the Staff Notice and referenced orders can be found at http://www.osc.gov.on.ca/en/Dealers_nrr_20100302_omnibus-csa.htm.

1. Continuation of transition/grandfathering provisions for persons and companies adding a jurisdiction

Part 16 of NI 31-103 provides transitional exemptive relief to a person or company from certain registration requirements of NI 31-103. However, as drafted, the exemptive relief is only available if the person or company was registered in that provincial or territorial jurisdiction when NI 31-103 came into force. Each regulator has now issued an order that provides exemptive relief in the jurisdiction of the regulator if the person or company is exempt from the same requirement in another jurisdiction due to the application of a section in Part 16.

2. Relief from CCO proficiency requirements for portfolio managers adding a category

Paragraphs 3.6(b), 3.10(b), and 3.14(c) of NI 31-103 provide that an individual may be designated as a registrant's chief compliance officer (CCO) if the individual has met the proficiency requirements for a CCO of a portfolio manager in section 3.13 of NI 31-103. Subsection 16.9(2) provides relief from the proficiency requirements provided the individual was registered as the CCO of the portfolio manager when NI 31-103 came into force. However, as drafted, the subsection 16.9(2) relief is not available to a CCO of a portfolio manager firm that has added the categories of mutual fund dealer, exempt market dealer or investment fund manager to its registration.

Each regulator has issued an order that allows a portfolio manager that has added the category mutual fund dealer, exempt market dealer or investment fund manager to its registration to be able to designate its CCO for those additional categories where the individual is designated as the portfolio manager firm's CCO due to the application of subsection 16.9(2) of NI 31-103.

3. Relief from dealing representative proficiency requirements for portfolio managers adding registration in the mutual fund dealer or exempt market dealer category

Paragraphs 3.5(b) and 3.9(c) of NI 31-103 provide that an individual may act as a dealing representative of a mutual fund dealer and exempt market dealer if the individual has met the proficiency requirements of an advising representative of a portfolio manager in section 3.11. Subsection 16.10(3) provides relief from the proficiency requirements for an advising representative of a portfolio manager provided the individual was registered in that category when NI 31-103 came into force and remains registered in the category. However, as drafted, the subsection 16.10(3) relief is not available to an advising representative of a portfolio manager seeking to act as a dealing representative in the added categories of mutual fund dealer or exempt market dealer.

Each regulator has issued an order that allows an advising representative of a portfolio manager to act as a dealing representative in the added categories of mutual fund dealer or exempt market dealer if the individual is exempt from the proficiency in section 3.11 due to the application of section 16.10(1) of NI 31-103.

4. Relief from the time limits on examination requirements for dealing representatives of scholarship plan dealers and, in Ontario and Newfoundland and Labrador only, exempt market dealers, who were registered when NI 31-103 came into force

Section 3.3 of NI 31-103 provides that an individual is deemed not to have passed an examination or successfully completed a program unless having done so within the time period set out in the section. This section applies to dealing representatives of scholarship plan dealers in all jurisdictions and exempt market dealers in Ontario and Newfoundland only who, due to subsections 16.10(2) and (3), have a one year exemption from the proficiency requirements under sections 3.7 and 3.9.

Therefore, in order for these dealing representatives to be in compliance with their category's proficiency requirements on September 28, 2010 they must have met the examination or course requirements under those sections within the time period specified in section 3.3 of NI 31-103.

Each regulator has issued an order that exempts a dealing representative of a scholarship plan dealer from section 3.3 if the individual was registered as a dealing representative in that jurisdiction when NI 31-103 came into force and has remained registered since that date. The order in Ontario and Newfoundland and Labrador also exempts a dealing representative of an exempt market dealer if the individual was registered as a dealing representative in those jurisdictions when NI 31-103 came into force and has remained registered since that date.

5. Relief from client notification requirements under section 14.5 (Notice to clients by non-resident registrants) of NI 31-103 for certain Canadian registrants with head offices outside of the local jurisdictions

Section 14.5 of NI 31-103 provides that, unless a registered firm's head office is located in the same jurisdiction as a client of the firm, the firm must provide the client with a written statement disclosing certain prescribed information. The purpose of this section is to ensure clients are given information that may be relevant to their ability to obtain civil remedies against a non-resident registrant. Each regulator has issued an order that exempts a registered firm from section 14.5 if the firm's head office is in another jurisdiction of Canada and the firm has a physical place of business in the jurisdiction of the regulator.

6. Relief from the requirement to establish whether a client is an insider under paragraph 13.2(2)(b)(Know your Client) of NI 31-103 for mutual fund dealers

Paragraph 13.2(2)(b) of NI 31-103 provides that a registrant must take reasonable steps to establish whether a client is an insider of a reporting issuer or any other issuer whose securities are publicly traded. The purpose of this requirement is to guard against abusive insider trading. Each regulator has issued an order that exempts a mutual fund dealer from this paragraph so long as the registrant is not registered in any other category specified in section 7.1 of NI 31-103.

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