The Canadian Securities Administrators (the “CSA”) published, on December 19, 2008, regulatory amendments to simplify the registration process in Canada. The CSA, with the exception of the Ontario Securities Commission (“OSC”), agreed to amend Multilateral Instrument 11-102 – Passport System (“MI 11-102”) and the related Companion Policy (“CP 11-102”), in order to simplify the passport system and to extend it to registrants.
These amendments are made with the goal of simplifying the regulatory process applicable to registered persons and implementing a system in which a registered person may have clients in several jurisdictions while dealing only with its principal regulator and complying with the provisions of a single set of harmonized rules throughout Canada.
Overview of the Passport System
In September, 2005, the CSA implemented Multilateral Instrument 11-101 – Principal Regulator System (“MI 11-101”), which constituted phase I of the passport system. This first phase purports to cause National Instrument 31-101 – National Registration System (“NI 31-101”) to interact with the mobility exemptions provided for in MI 11-101.
On March 17, 2008, the adoption of MI 11-102 constituted phase II of the passport system. The implementation of this phase was initially proposed in two stages. The first stage, targeting continuous disclosure, prospectuses and applications for exemption came into force on March 17, 2008. The second stage, targeting registration, depends on the coming into force of proposed National Instrument 31-103 – Registration Requirements (“NI 31-103”). This proposed national instrument aims at harmonizing most of the local regulatory requirements applicable to registered persons. For further information, please consult our March 2008 bulletin on NI 31-103.
As the OSC did not adopt MI 11-102, the CSA created a streamlined interface for registered persons wishing to deal with clients both in jurisdictions under the passport system (“passport jurisdictions”) and in Ontario.
The passport system for registration and the interface with Ontario will replace NI 31-101 as soon as they come into force.
Outline of Proposals
The CSA proposes to simplify the registration regime throughout Canada mainly as follows:
Under the new passport system intended to replace NI 31-101, any firm or individual that is registered in its principal jurisdiction may register in another passport jurisdiction under the system by filing certain data. In the case of a firm, the data only need to be filed with its principal regulator. In the case of an individual, the data must still be filed through the National Registration Database (“NRD”).
Given the absence of a uniform system of requirements applicable to firms registered in the category of restricted dealer, the automatic registration system is not applicable for that category. To register in a non principal jurisdiction, the restricted dealer must apply directly with the regulator in each of the jurisdictions involved.
Automatic Application of the Terms and Conditions Imposed by the Principal Regulator
Under the new system, the terms and conditions imposed by the principal regulator (such as the application of specific conditions, restrictions or requirements) with regards to a firm or an individual registered in a passport jurisdiction, will automatically apply in all other passport jurisdictions in which the firm or the individual is registered. The regulatory actions taken by a regulator other than the principal regulator in a non-principal jurisdiction will cease to apply after a 30-day transition period, with the exception of Ontario, where the OSC may decide, in the context of registration under a dual system, to adopt its own terms and conditions. Any registration that is suspended or revoked in the principal jurisdiction will also be suspended or revoked in each of the other passport jurisdictions where the firm or the individual is registered.
However, transitional provisions are included in MI 11-102 to defer the automatic application of regulatory actions taken by the principal regulator for a period of 30 days following the coming into force of this rule. A registered firm or individual will thus benefit from this 30-day period to apply for an exemption from the application of this rule.
Interface with the OSC
By means of the new National Policy 11-204 – Process for Registration in Multiple Jurisdictions, the CSA will implement new pan-Canadian decision-making procedures relating to registration. These procedures provide for a streamlined interface through which persons registered in a passport jurisdiction will be able to register in Ontario and persons registered in Ontario will be able to register in passport jurisdictions.
Firms or individuals applying for registration or that are already registered in their principal jurisdiction (including Ontario) and who apply for registration in another passport jurisdiction will proceed by means of a “registration under the passport system”.
Firms or individuals applying for registration or that are already registered in their principal jurisdiction and who apply for registration in Ontario will proceed by means of a “registration under the dual system”.
For a registration application under the passport system, the principal regulator alone will examine the application, and the firm will deal only with its principal regulator. A firm sponsoring an individual will only deal with that individual’s principal regulator.
An application for registration of a firm or an individual sponsored by a firm under the dual system must be filed by the firm concurrently with the principal regulator and with the OSC. The firm will deal only with the principal regulator. The principal regulator will examine the application and then submit a draft decision under the dual system to the OSC. The OSC will inform the principal regulator whether it wishes to adhere to the decision or withdraw from it within a period of one business day from receipt of the draft decision.
Registration fees will be payable in each jurisdiction, as is currently the case. Changes will be made to the NRD however, in order to allow registered firms to pay the required fees in each of the jurisdictions directly through the NRD instead of paying by cheque, as is currently the case.
Discretionary Exemption Applications
The CSA also amended MI 11-102 and CP 11-102 in order to allow the principal regulator to address customary exemption applications filed with applications for registration. An amendment is also proposed which would include a list of provisions from which a registered person may automatically obtain discretionary relief in all passport jurisdictions.
Coming into force
Since the passport system essentially relies on the existence of a harmonized body of regulatory provisions interpreted and applied uniformly throughout Canada, the coming into force of the passport system for registration depends on the coming into force of NI 31-103. That date on which NI 31-103 comes into force has not yet been determined.