On July 17, 2009, the Canadian Securities Administrators (the CSA) published in final form their reforms to the registration regime in National Instrument 31-103 – Registration Requirements and Exemptions (NI 31-103), along with certain consequential amendments to other securities laws (collectively, the new rules). Subject to ministerial approval requirements, NI 31-103 will come into force on September 28, 2009 (the effective date).

Did You Know?

  • The investment fund manager (IFM) registration category involves proficiency, capital and insurance requirements.

These and other important changes in the regulation of the investment fund sector under NI 31-103 are discussed below in this issue.

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Proficiency Requirements for the CCO

The chief compliance officer (CCO) is the only individual within an IFM who is subject to a proficiency requirement. The CCO must meet one of the following three proficiency options.

Option A

  • A CFA Charter or professional designation as a lawyer, Chartered Accountant, Certified General Accountant or Certified Management Accountant in a jurisdiction in Canada, a notary in Quebec, or the equivalent in a foreign jurisdiction;
  • Successful completion of the following exams —
  1. the Canadian Securities Course Exam of CSI Global Education Inc. (CSI), and
  2. the “PDO Exam”;1 and
  • Either of the following —
  1. 36 months of relevant securities experience while working at a registered dealer, a registered adviser or an investment fund manager, or
  2. provided professional services in the securities industry for 36 months and worked for an investment fund manager for 12 months.

Option B

  • Successful completion of the following exams —
  1. any of
  1. the Investment Funds Institute of Canada (IFIC) Canadian Investment Funds Exam,
  2. CSI’s Canadian Securities Course Exam, or
  3. CSI’s Investment Funds in Canada Course Exam; and
  1. (ii) the PDO Exam; and
  • Five years of relevant securities experience while working at a registered dealer, registered adviser or an investment fund manager, including 36 months in a compliance capacity.

Option C

  • Meeting the proficiency requirements for a CCO of a portfolio manager.2

Exemptions from the proficiency requirements may be obtained in cases where the regulator is satisfied that an individual’s qualifications are equivalent to, or more appropriate in the circumstances than, the prescribed criteria.

Capital Requirements

IFMs are subject to capital requirements. An IFM’s excess working capital (calculated as prescribed and certified by management) must not be less than zero for two consecutive days, and the IFM must maintain minimum capital of $100,000 at all times. Negative excess working capital at any time must be reported to the regulator as soon as possible.

Insurance Requirements

IFMs must maintain bonding or insurance coverage containing the following clauses — fidelity, on premises, in transit, forgery or alternations and securities. The coverage must include either a double aggregate limit or a full reinstatement of coverage provision, and coverage must be in the greater of the following amounts for each clause:

  • 1% of assets under management or $25,000,000, whichever is less;
  • 1% of the IFM’s total assets or $25,000,000, whichever is less;
  • $200,000; and
  • the amount determined to be appropriate by a resolution of the directors (or individuals acting in a similar capacity).

Changes to, claims under, or cancellation of such insurance policy must be reported in writing to the regulator as soon as possible.

Other Registration Reforms

NI 31-103 and the new rules include other significant changes to registration requirements for dealers, advisers and investment fund managers in Canada.