On June 11, 2019, the Ontario Securities Commission (the "OSC") published Revised Approval 81-901 Mutual Fund Trusts: Approval of Trustees Under Clause 213(3)(b) of the Loan and Trust Corporations Act (PDF) (the "2019 Approval"), which grants approval to any body corporate that is an investment fund manager to act as trustee of any mutual fund trust in Ontario that it manages.
In Ontario, clause 213(2)(b) of the Loan and Trust Corporations Act (Ontario) (the "LTCA") provides that no body corporate, other than a registered trust company under the LTCA, shall act as trustee in respect of any service it provides to the public. However, this restriction does not apply to a body corporate that manages a mutual fund trust that has been authorized to act as trustee by the OSC.
In 1997, the OSC published Approval 81-901 Mutual Fund Trusts: Approval of Trustees Under Clause 213(3)(b) of the Loan and Trust Corporations Act (PDF) (the "1997 Approval") pursuant to which any body corporate that manages a mutual fund trust is authorized to act as trustee of a mutual fund trust in Ontario if (i) the body corporate is the manager of such trust; and (ii) the securities of the mutual fund trust are distributed by means of a prospectus.
Investment fund managers who wanted to act as trustee for their pooled funds could also request the OSC's approval. Such approval was often granted by the OSC provided that investment fund managers complied with various conditions including requirements to have the fund's assets held by a qualified custodian. Such requirements were integrated on June 4, 2018 in National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations (which in the province of Québec is a regulation) explaining in part why the OSC published the 2019 Approval.
The 2019 Approval replaces the 1997 Approval, which means that investment fund managers no longer have to seek the OSC's approval to act as trustee for their pooled funds established as trusts governed by the LTCA.
The situation is different in Québec. Section 1274 of the Civil Code of Québec, (the "Civil Code") provides that any natural person (individual) having the full exercise of his civil rights, and any legal person (e.g. a corporation) authorized by law, may act as trustee. The Trust Companies and Saving Companies Act (Québec) (the "TCSCA") provides that no body corporate, other than an authorized trust corporation under the TCSCA shall carry trust company activities in Québec. Legal persons that want to act as trustee for an investment fund can also seek the authorization of the Autorité des marchés financiers (the "AMF") under section 109.6 of the Securities Act (Québec) (the "QSA") and could previously, under section 7.1 of the QSA. However, the AMF has only used such power twice and not once since the Norbourg scandal in 2006.
As a result of the foregoing, investment fund managers located in Québec, who preferred to avoid the additional cost of retaining a licensed trust company to act as trustee of their pooled funds, often chose to create them under Ontario law and sought from the OSC the authorization to also act as trustee of their funds. The 2019 Approval may encourage more investment fund managers to do the same since they can now act as trustee without having to go through the additional step of seeking approval from the OSC, therefore reducing their regulatory burden.
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