On February 7, 2019, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 45-325 - Filing Requirement and Fee Payable for Exempt Distributions involving Fully Managed Accounts (the “Notice”). The Notice clarifies certain obligations of issuers and/or underwriters to file reports of exempt distribution pursuant to National Instrument 45-106 – Prospectus Exemptions (“NI 45-106”) in connection with distributions to managed accounts in the various provinces and territories of Canada.
“Accredited Investor” Prospectus Exemption
When securities are distributed by issuers in reliance on the “accredited investor” prospectus exemption (“AI Exemption”) pursuant to NI 45-106, there is a reporting obligation for issuers (including investment funds) or underwriters to prepare and file Form 45-106F1 (the “Form”).
The definition of “accredited investor” in NI 45-106 includes the following categories:
- a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction (“Trust Companies”), acting on behalf of a fully managed account managed by the trust company or trust corporation; and
- a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction (“Advisers”)
(collectively referred to herein as “Managed Accounts”).
For the purposes of the AI Exemption, Trust Companies and Advisers purchasing a security on behalf of a Managed Account are deemed to be purchasing such securities as principal.
The Form is required to be be filed in every province or territory where a distribution of securities by an issuer or underwriter in reliance on the AI Exemption has occurred. The location of the distribution (and hence the requirement to file the Form and pay the applicable filing fee) is determined by the residency of the “purchaser” of the securities. Filing fees vary amongst the Canadian jurisdictions.
Schedule 1 to the Form requires disclosure of information regarding each purchaser of the securities (including name, address, phone number and email address). While the general instructions to the Form state that any references to “purchaser” are to be interpreted as a reference to the beneficial owner of the securities, Instruction 4 of the Form, also notes that for Trust Companies and Advisers purchasing on behalf of Managed Accounts, the purchaser information to be provided in Schedule 1 should be that of the Trust Company/Adviser rather than the information of the beneficial owner of the securities.
Practically, this means that the province or territory where the Trust Company or Advisor has its place of business is the jurisdiction in which the Form will be filed and the fee paid.
However, in the provinces of Manitoba and Québec, the securities regulatory authorities require the Form to be filed where the beneficial owner resides, thereby requiring issuers and/or underwriters to file the Form if the owner of the Managed Account resides in the province.
As Schedule 1 to the Form does not identify the beneficial owners of the distributed securities, issuers and/or underwriters must file a separate letter with the regulatory authority in Manitoba or Québec indicating the gross value of the securities distributed to beneficial owners residing in that province.
For Saskatchewan, the requirement to file the Form is based on the location of the distribution, thereby creating ambiguity with respect to purchases on behalf of Managed Accounts. However, the Financial and Consumer Affairs Authority of Saskatchewan has issued blanket relief to waive the filing requirements in respect of a distribution to a Managed Account where the Trust Company or Adviser are not located in Saskatchewan, thereby subjecting distributions in Saskatchewan to the same filing and fee requirements as distributions in all provinces and territories except for Manitoba and Québec.