On July 5, 2012, the Ontario Securities Commission, the Autorité des marchés financiers and the Financial Services Regulation Division, Service NL, Government of Newfoundland and Labrador released Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers (the Multilateral Instrument or MI 32-102) and related companion policy. On the same date, the securities regulators in the remaining jurisdictions of Canada released Multilateral Policy 31-202 Registration Requirement for Investment Fund Managers (the Multilateral Policy or MP 31-202). Subject in certain jurisdictions to approvals, the Multilateral Instrument and Multilateral Policy will come into force on September 28, 2012 along with related amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Both multilateral 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.
Changes to the Instruments
As discussed in our earlier bulletin on the topic, draft forms of these instruments were released for comment on February 10, 2012 (the 2012 Proposals). The two instruments continue to reflect a different approach on the regulation of non-resident investment fund managers. The material differences from the 2012 Proposals are as follows:
- the securities regulator in New Brunswick has adopted the Multilateral Policy (rather than the Multilateral Instrument),
- the Multilateral Instrument now includes a grandfathering clause so that a non-resident investment fund manager would not need to register in the applicable jurisdictions if it has not actively solicited clients after September 27, 2012,
- persons that are required to register as an investment fund manager shall apply for registration by December 31, 2012,
- the companion policy to the Multilateral Instrument now includes a chart to help determine registration requirements (a copy of which is attached hereto as Appendix A) (the Decision Chart), and
- MP 31-202 clarifies that functions or activities tied to the presence of security holders, solicitation of investors or the distribution of securities in a jurisdiction will not give rise to registration as an investment fund manager, unless they are directed from within the jurisdiction.
The Multilateral Instrument – Ontario, Quebec and Newfoundland and Labrador
Pursuant to the Multilateral Instrument, a non-resident investment fund manager in Ontario, Quebec and Newfoundland and Labrador is required to register if it is acting as an investment fund manager and managing one or more investment funds that have distributed securities to residents of the local jurisdiction. Please see Appendix A.
The Multilateral Instrument does not require non-resident investment fund managers to register in the local jurisdiction if there are no significant connecting factors to the local jurisdiction. Exemptions from the investment fund manager registration requirement are provided as follows:
- an exemption in circumstances where there are no security holders of any of the investment funds managed by the investment fund manager, or active solicitation, after September 27, 2012, by either the investment fund manager or any of the investment funds it manages, of residents in the local jurisdiction; and
- an exemption, available only to an international investment fund manager without a place of business in Canada, in circumstances where all of the Canadian distribution of the securities of the investment funds managed by the investment fund manager was restricted to permitted clients, subject to satisfaction of certain conditions.
The jurisdictions that have adopted the Multilateral Instrument stated that the rationale for their approach included consistent investor protection policies, treating all investment fund managers in the same manner and providing bright-line tests with determinative factors so non-resident investment fund managers can easily determine their registration requirements.
The Multilateral Policy – British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Yukon, Northwest Territories and Nunavut
Pursuant to the Multilateral Policy an investment fund manager would be required to register in the jurisdictions that adopted the Multilateral Policy, if it carries on activities of an investment fund manager 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. If the manager does not have a physical place of business or head office in that jurisdiction, registration would only be required if the manager is engaged in activities that result in the manager directing or managing the business, operations or affairs of an investment fund in that jurisdiction.
MP 31-202 provides a list of some of the functions and activities that an investment fund manager directs, manages or performs. These include marketing, establishing a distribution channel and/or fund compliance and risk management programs, overseeing of fund day to day administration, 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 in a jurisdiction, a manager should consider which activities they are directing from within the jurisdiction. However MP 31-202 notes that any single function or activity would not be expected to be determinative as registration is triggered only if the activities conducted in the jurisdiction results in them directing or managing the business operations or affairs of the investment fund in the jurisdiction. It also specifically notes that functions or activities tied to the presence of securityholders, the solicitation of investors or distribution of securities in a jurisdiction are not activities that give rise to registration unless they are directed from within the jurisdiction and result in the person directing or managing the business, operations or affairs of the investment fund in the jurisdiction.
The two instruments continue to reflect different approaches by the securities regulators to the regulation of non-resident investment fund managers. 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 December 31, 2012.