Edited by Paul A. Dempsey

The CSA has published for comment a proposed registration and prospectus exemption which is based on compliance with the guidelines for capital accumulation plans (CAPs) released by the Joint Forum of Financial Market Regulators (Joint Forum) on May 28, 2004. The comment period for the proposed exemption ends on July 30, 2004. The proposed exemption can be viewed at:


The Joint Forum was founded in 1999 by the Canadian Council of Insurance Regulators (CCIR), the Canadian Association of Pension Supervisory Authorities (CAPSA) and the Canadian Securities Administrators (CSA) as a mechanism for coordinating the development of harmonized, cross-sectoral, cross-jurisdictional solutions to financial services regulatory issues.

In 1999 the Joint Forum established a committee to examine the adequacy of investment information and assistance provided to members of capital accumulation plans in which members are able to make investment choices. CAPs include defined contribution pension plans, group registered retirement savings plans and deferred profit sharing plans. For a more detailed discussion of the CAP guidelines please visit:


The CSA has stated that the CAP guidelines address many of its concerns about how plan members get adequate information and tools to help them make informed investment decisions. As a result, the CSA has concluded that it is appropriate to provide certain dealer registration and prospectus exemptions for trades in mutual funds that occur in CAPs provided there is compliance "with the parts of the guidelines that substitute for receiving advice from a registrant, and prospectus disclosure."

Content of exemption

The CAP exemption proposed by the CSA would only apply to trades in mutual fund securities. The exemption is subject to numerous conditions which mostly duplicate portions of the CAP guidelines. The conditions require the plan sponsor to:

  • select the menu of funds available to members in the CAP,
  • provide certain prescribed information about funds in which members invest,
  • at least annually, provide performance information (or access thereto) with respect to funds in which members invest.

Mutual funds would also be required to file annual reports identifying trades made pursuant to the exemption.

From a drafting perspective, it is interesting to note the CSA has chosen to re-state certain parts of the CAP guidelines in the proposed exemption. One could argue that it would have been more efficient to incorporate the CAP guidelines by reference. If the CAP guidelines are the primary reference document for all regulators (i.e. CSA, CCIR and CAPSA), any changes to the guidelines in the future would affect all regulators at the same time. This would be a effective way of ensuring harmonization. However, the CSA may have been concerned not to lose control of their registration and prospectus exemption i.e. they would not want the conditions of the exemption changed unless they deliberately chose to do so.

Form of Exemption

The CSA state that in most provinces the exemption will take the form of a blanket exemption. The Ontario Securities Commission does not have authority to issue blanket exemptions. Therefore, the conditions of the exemption will be set out in a staff notice to describe "the circumstances in which Ontario staff expects they could recommend that the securities regulator grant discretionary relief to a person who applied." The CSA states that at some point the proposed exemption may be incorporated into a proposed harmonized national exemptions rule, which the CSA expects to publish some time this year. The proposed national exemptions rule would consolidate and harmonize all registration and prospectus exemptions in each jurisdiction's rules and regulations into one national rule. Until this proposed rule is in place (and until the CAP exemption is included in it), those wishing to rely on the CAP exemption will have to apply to the OSC for relief.

In light of the Joint Forum's goal of harmonizing, clarifying and simplifying regulation on a national basis, it is very disappointing that the implementation proposed by the CSA does not take the form of a national rule.

Harmonization and clarity are also undermined by the CSA's reference to offering memoranda requirements. The CSA note that in some jurisdictions, such as Nova Scotia and Saskatchewan, the information and documents received by CAP members under the proposed exemption may constitute an offering memorandum as defined in the securities legislation of those jurisdictions. If the documentation does constitute an offering memorandum, it must include a statement describing the statutory rights of rescission or damages for a misrepresentation that are available under securities legislation and the time limits within which a member must commence an action to enforce those rights.

Rather than merely advise participants in the CAP market that offering memoranda requirements may apply, the securities regulators should have addressed the issue in the interests of harmonization and simplifying regulation. If prospectus requirements are not considered necessary in light of the CAP guidelines, why should offering memorandum requirements be enforced?

Requests for comments

The CSA has requested comments with respect to concerns raised by staff of the Autorité des marché financiers (Quebec) about the impact of the proposed exemption on the protection generally afforded to investors under securities legislation (such as recourse in damages for a misrepresentation in a prospectus or the right of withdrawal from a purchase under a prospectus). Obviously, some members of the CSA are not convinced that they should rely on the guidelines to ease off on the formal requirements of securities law. This may not bode well for securities market participants in the CAP market who could continue to be hindered by more detailed and restrictive requirements than their insurance industry competitors.

The CSA has also requested comment on whether plan sponsors should be able to aggregate fees when reporting to plan members as suggested by the CAP guidelines.

Existing exemptions

The CSA state that the Alberta Securities Commission (ASC) expects to repeal its existing rule and replace it with the proposed exemption. The ASC has requested comment on the impact of repealing the existing rule.

The Ontario Securities Commission expects to retain its existing exemption for corporate sponsored plans - OSC Rule 32-503. The current Ontario rule is not useful for most CAPs for a number of reasons:

- it requires employees to deal only with the employer in respect of their participation in the plan and investment choices,

- alternatively, it requires that employees not make investment choices.

- the registration exemption is only available to a "financial intermediary" (e.g. bank or insurance company), and

- it is only available in the province of Ontario.

Questions concerning proposed exemption

The CSA has not made any statements regarding who would need the proposed relief. There are a number of players in a group arrangement - employer/sponsor, service providers and their employees, HR personnel of employer etc. The question is, which persons would be considered to be "trading" (which by definition includes "acts in furtherance of a trade") and need the proposed relief? Furthermore, since the OSC will require an exemption application, will additional applications be required as a plan changes in the future (e.g. if new service providers are introduced)?

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.