On February 10, 2012, the securities regulatory authority in each of Ontario, Quebec, New Brunswick and Newfoundland and Labrador (the “MI 31-102 Jurisdictions”) published for comment proposed Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers (MI 32-102) and its related Companion Policy.  

On the same date, the securities regulatory authorities in the remaining provinces and territories of Canada released Multilateral Policy 31-202 Registration Requirements for Investment Fund Managers (MP 31-202). The two instruments reflect a different approach on the regulation of non-resident investment fund managers.  

Both multi-lateral instruments relate to the registration of the following non-resident investment fund managers:  

  • those that do not have their head office or their principal place of business in a jurisdiction of Canada; and
  • those that do not have a place of business in the local jurisdiction.  

Ontario, Quebec, New Brunswick and Newfoundland & Labrador

MI 32-102 would require an investment fund manager to register with a MI 32-102 Jurisdiction unless it does not have a place of business in the applicable MI 32-102 Jurisdiction and one or more of the following apply: (a) the fund has no securityholders resident in the jurisdiction; and (b) the fund or the manager has not actively solicited residents in the jurisdiction to purchase securities of the fund. Active solicitation refers to intentional actions taken by the investment fund or its manager to encourage a purchase of the fund’s securities, such as proactive, targeted actions or communications that are initiated for the purpose of soliciting an investment (including direct communications with potential investors, advertising or purchase recommendations made by a third party that will be compensated for the recommendation or sale). Active solicitation does not include actions taken at the request of, or in response to, an existing or prospective investor who initiates contact with the investment fund manager.  

MI 32-102 would exempt an investment fund manager from registration requirements if the applicable fund’s securities were distributed under an exemption from prospectus requirements to a permitted client, the manager does not have its head office or principal place of business in Canada, the manager is established under the laws of a foreign jurisdiction and the fund is not a reporting issuer in Canada. Permitted clients include certain financial institutions, governments, investment funds and high-net worth persons.  

Investment fund managers that intend to rely on this exemption from registration requirements would be required to, among other things: (1) notify the securities regulator of this intent and provide disclosure of the assets under management attributable to securities beneficially owned by residents of the jurisdiction. (This information is for monitoring purposes); (2) file with the securities regulators a notice of regulatory action and any changes thereto; and (3) notify permitted clients that the investment fund manager is not registered in the local jurisdiction together with certain prescribed disclosure. This requirement would come into effect on March 31, 2013.  

As a result of the foregoing, a Canadian investment fund manager of a fund that has securityholders in any of Ontario, Quebec, New Brunswick and Newfoundland and Labrador or actively solicits investors in any such jurisdiction will be required to register in the jurisdiction. It will also need to register in those jurisdictions in which it manages the business, operations or affairs of a fund. The proposed MI 32-102 contemplates a temporary transition until December 31, 2012 by which time non-exempt investment fund managers would have to apply for registration.

British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia, Yukon Territory, Northwest Territories and Nunavut Territory

The MP 31-202 Jurisdictions took a different approach to the regulation of non-resident investment fund managers. They focused on the definition of “investment fund manager” in their respective securities legislation. The securities regulators in the MP 31-202 Jurisdictions note through MP 31-202 that an investment fund manager would only be required to register in a MP 31-202 Jurisdiction if it directs or manages the business, operations or affairs of an investment fund in that jurisdiction. Hence, if the manager directs or manages the business operations or affairs of an investment fund from a physical place of business in the jurisdiction or its head office is in a jurisdiction, registration would be required in that jurisdiction. The policy specifically notes that the mere presence of securityholders and the solicitation of investors in a jurisdiction would not automatically require an investment fund manager to register, unlike the approach taken by the MI 32-102 Jurisdictions. The requirement to register in a jurisdiction is triggered by the manager’s actions in the jurisdiction. The proposed MP 31-202 lists a set of activities which, if carried out by a non-resident investment fund manager in a MP 31-202 Jurisdiction may require registration by such manager in the jurisdiction. These including marketing, oversight of fund day to day administration, establishing a distribution channel and/or fund compliance and risk management programs, retaining and liaising with service providers, preparation of offering documents or unitholder reports, calculating net asset value and handling subscriptions and redemptions. In determining whether registration is required, a manger should consider which activities are taking place in the jurisdiction. The policy indicates that not any single function or activity would be determinative.  

The temporary exemptions from the registration requirements for non-resident investment managers contained in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, will expire on September 28, 2012. The notice which accompanies MP 31-202 indicates that the MP 31-202 Jurisdictions plan to issue parallel orders so that investment fund managers will not need to register by September 28, 2012, but will need to apply for registration by that date.

Conclusion

As noted above, the two instruments reflect different approaches by the securities regulators to the regulation of non-resident investment fund managers. Unless the regulators resolve the differences in approach, non-resident investment managers will need to consider whether they are caught under either approach and take necessary actions in the appropriate jurisdictions to address the registration requirements by the deadlines noted above.