National Instrument 31-103 Registration Requirements and Exemptions Now in Force

As was widely expected, National Instrument 31-103 Registration Requirements and Exemptions became effective on September 28, 2009. This means that the transition periods listed in Part 16 of National Instrument 31-103 commenced as of that date. Registrants need to be cognizant of all transition periods, particularly since the first major transition period ends on December 28, 2009, by which time all firms must report on the appointment of the Ultimate Designated Person (UDP) and Chief Compliance Officer (CCO) and complete the necessary filings. We emphasize that there are many new or modified requirements in National Instrument 31-103 for which there is no transition and registrants are expected to comply with those requirements as of September 28, 2009.

Our Investment Management Advisories in our eight-part series entitled Keeping Reforms in Sight: Understanding the New Canadian Registration Requirements are available [here] and on our website You can also access our National Instrument 31-103 At a Glance publication [here]. Our Advisories explain the impact of National Instrument 31-103 on the various types of financial services firms that must be registered (or rely on registration exemptions) to conduct securities-related activities in Canada. Included are What’s New commentaries for each of the key registration categories and an outline of the implications of National Instrument 31-103 for non-Canadian advisers and dealers doing business in Canada.

Since National Instrument 31-103 was published in final form by the Canadian Securities Administrators (CSA) in July 2009, we have assisted our clients with understanding the implications of the new rules on their operations and business. In so doing, we have liaised extensively with the regulators to better understand the positions taken by the CSA as reflected in National Instrument 31-103 and to raise significant issues that we believe the new regime creates, often inadvertently, for registrants and other firms in Canada.

We were successful in our submission, on behalf of clients, to the staff of the Ontario Securities Commission (OSC), as principal regulator, that it would be appropriate for the OSC to issue a broad-based form of relief for international dealers (firms registered in this category in Ontario prior to September 28, 2009), which was granted effective September 28, 2009. The OSC granted relief to allow these firms to continue to trade in specified Canadian government debt instruments with “permitted clients” and to give them additional time to make the required client disclosures about their reliance on the “international dealer registration exemption” [order available here].

We also assisted the staff of the OSC in their efforts to grant limited market dealers registered as such in Ontario and Newfoundland/Labrador on September 28, 2009 (now “mapped-over” exempt market dealers), with additional transitional relief of one year in respect of the prescribed financial reporting and of two years for the prescribed client statements set out in National Instrument 31-103 [order available here].

The CSA’s long-standing expectations that firms put in place robust compliance systems has been reinforced by National Instrument 31-103. Many of the members of the CSA release reports of their findings about compliance related matters. Please click [here] for the most recent report of the staff of the British Columbia Securities Commission and [here] for the 2009 Compliance Report of the staff of the Ontario Securities Commission.