The long-anticipated changes to the registration regime under Canada’s securities regulation have now been finalized with the release of National Instrument 31-103 Registration Requirements and Exemptions on July 17, 2009. The new registration regime will become effective on September 28, 2009 (subject to government approvals) and anyone applying for registration in any category on or after that date will need to comply with the new requirements. Industry participants already registered on September 28, 2009 will be expected to comply with the new regime, but will be given additional time to achieve compliance with some of the new requirements. Our July 2009 Investment Management Advisory entitled Canadian Securities Regulators Release Final Registration Rule [available here] outlines the scope of National Instrument 31-103, as well as provides an overview of the key changes (from the last published version) made by the Canadian securities regulators (CSA) in finalizing the various instruments.
Firms and individuals that participate in the marketing and sale of securities in the exempt market must be aware of National Instrument 31-103 and its implications on their securities-related activities, including the requirement for those in the business of trading in securities in reliance on prospectus exemptions to be registered as an exempt market dealer (EMD) in each province and territory in which they carry on their activities.
The new EMD registration requirements will have a significant impact on firms involved in the exempt market. For firms not currently registered as limited market dealers (LMD) in Ontario and/or Newfoundland and Labrador, the initial question will be whether their activities will trigger the registration requirements and if so, whether an exemption will be available.
Firms and individuals carrying on business in Alberta, British Columbia, Manitoba, Nunavut, the Yukon Territory and the Northwest Territories may, subject to compliance with specified conditions, be exempt from registration as an EMD when they trade in securities that are or could be distributed under the following prospectus exemptions: accredited investor, family, friends and business associates, offering memorandum, and minimum purchase. This exemption from EMD registration will not be available to firms or individuals registered in any category of registration in any Canadian or possibly any non-Canadian jurisdiction. This exemption will be subject to other specified conditions, including prohibitions on providing suitability advice about the trade, on providing other “financial services” to the client (except in British Columbia) and on holding or having access to client assets. In addition, prescribed risk disclosure about dealing with a firm or individual relying on this exemption must be given to clients and notices filed with the regulators. The regulators of these jurisdictions have indicated that they will issue blanket orders shortly providing for this registration exemption. The regulator in Saskatchewan is considering whether or not to also adopt this exemption.
The following table focuses on various provisions of National Instrument 31-103 and explains how they apply to EMDs and their representatives. Firms that are currently registered as LMDs in Ontario and/or Newfoundland and Labrador, and their representatives, will be automatically converted over to the new EMD category in those provinces and will not be required to apply for registration as an EMD. Many of the requirements that apply to EMDs will be new to existing LMDs and for the most part, must be complied with in respect of activities conducted after September 28, 2009. This table does not apply to firms entitled to rely on the exemptions from registration that will be provided for by the British Columbia, Alberta, Manitoba and territorial securities regulators.