The Canadian Securities Administrators ("CSA") published for comments on June 25, 2010 proposals to amend National Instrument 31‑103 Registration Requirements and Exemptions ("NI 31‑103") and related instruments to clear issues and concerns that arose during the initial application of NI 31‑103 and to codify omnibus/blanket relief orders addressing transition issues raised by the new registration regime across Canada. The comment period will end on September 30, 2010.
You will find below a brief Summary of the draft proposed changes contained in the CSA notice:
1. Proficiency Requirements
Know Your Product
A requirement would be added in Section 3.4 of NI 31‑103 to emphasize the requirement that a registered representative understand the structure, features and risks of securities recommended to a client.
A change to Section 3 of NI 31‑103 codifying a February 26, 2010 omnibus/blanket relief order would extend the transition / grandfathering provisions on proficiency granted to chief compliance officers of portfolio managers who register in the categories of mutual fund dealer, exempt market dealer or investment fund manager and appoint the individual to the same position.
Proposed changes also extend the transition /grandfathering provisions to these persons in another jurisdiction when their firms register in that jurisdiction.
Finally, the changes provide relief from dealing representative proficiency requirements for portfolio managers adding a registration in the mutual fund dealer or exempt market dealer category.
Individual Registration in More Than One Firm
The change will add to the existing prohibition in Section 4.1 for an individual registrant as officer, director or partner of another firm that is not an affiliate, a prohibition against being registered with any other firm, affiliated or not.
The Section 8.6 Dealer Registration Exemption for Advisers
It is proposed to expand the current exemption in Section 8.6 of NI 31‑103 from non-prospectus qualified investment funds securities, to all investment fund securities.
International Dealer and International Advisor Categories
Certain similar technical changes would be made in respect of the international dealer and international adviser categories, as well as clarifications concerning the Canadian residency requirement for permitted clients and the client notice requirement.
Notice to Clients – Non-Resident Registrants
Section 14.5 of NI 81‑103 would be amended so that registered firms whose head office is in Canada would only be required to send the notice it prescribes to clients in jurisdictions where the firm does not have a place of business.
The exemptions granted to MFDA members will be harmonized with those awarded to IIROC members under Sections 9.3 and 9.4 where MFDA member rules are similar. Additional exemptions are proposed to be granted to members of both SROs where their member rules are compatible with those of NI 31-103.
Account Activity Reporting
Several amendments are contemplated both to align reporting requirements for all registered firms to general practice, such as allowing a dealer to send a trade confirmation directly to the portfolio manager in respect of accounts managed by it, and an investment fund manager to send a trade confirmation to a security holder after executing a redemption order.
Investment fund managers would also have to send an account statement at least once every 12 months to security holders who do not have a dealer of record on their files.
Fair valuing under IFRS would be required in client statements.
Finally, the CSA is considering having registered firms to include in their periodic account statements to clients securities they have sold to clients which they hold and control as well as those which they do not hold and control (such as securities "in client name"). This would provide a more complete picture of the client's portfolio, but also an extra burden on registered firms to seek the information.
References to IFRS
In anticipation of the changeover to International Financial Repertory Standards (IFRS), references to "market value" in NI 31‑103 will be replaced by references to "fair value".
Other technical changes are proposed throughout the instrument to provide greater clarity. Consequential changes are also proposed to the companion policy, 31-103 CP, as well as to Regulation 33-109 Registration Information and its forms.
The CSA is still considering matters such as:
- applying the investment fund manager registration requirements to non-resident entities directing the operation of investment funds from outside the jurisdictions;
- the exemption for sub-advisers in Section 7.3 of OSC Rule 35-502 Non-Resident Advisers and equivalent relief in other jurisdiction;
- the exemption for capital accumulation plans; and
- certain proposed requirements and guidance as part of the CSA's client relationship model ("CRM").