On July 17, 2009, the Canadian Securities Administrators (the CSA) released National Instrument 31-103 Registration Requirements and Exemptions (NI 31- 103) in final form, which will come into force on or about September 28, 2009. NI 31-103 is part of the registration reform project of the CSA and is designed to streamline and harmonize the registration requirements for dealers and advisers across the country. Although NI 31-103 is a positive step forward, it still has issues and is not as unified as one would have hoped for.
NI 31-103 represents a major change for dealers by moving from a “trade trigger” to a “business trigger”1, like advisers, and means that anyone who is in the business of trading must be registered. Investment fund managers must also become registered and will be subject to proficiency, capital and insurance requirements.
Exempt market dealers (formerly, limited market dealers in Ontario and Newfoundland and Labrador) must also get registered depending on where their clients reside and whether or not they are registered in some other capacity2.
A new registration regime has also been imposed for international dealers and international advisers, who may be able to avoid the need for registration depending on the scope of their activities and who they interact with.
The process of becoming registered is also being modified, except in Ontario, to a passport system of registration, which coupled with the harmonized registration requirements in NI 31-103, should make registrations easier to process.
However, there are still differences in how NI 31-103 is being implemented, and whether or not registration in a particular category will be required across the country (e.g., exempt market dealers). Hopefully, these differing approaches will not prove to be significant obstacles for market participants that want to operate in more than one jurisdiction.
An important aspect of the new registration regime for dealers is the move to a “business trigger” which will require a person that is in the business of trading in securities to become registered as a dealer. This is the same trigger that applies to advisers (i.e., a person that is in the business of advising others about securities must become registered as a portfolio manager). The business trigger for dealers is being adopted across Canada, except in British Columbia, Manitoba and New Brunswick. However, in those jurisdictions, an exemption is being adopted which will exempt a person from the need to be registered as a dealer if they are not in the business of trading.
In moving to a “business trigger” market participants will need to consider whether or not they are in the “business of trading” in securities. In trying to assist with this determination, the CSA has suggested that the following factors be considered:
- is the person engaging in activities similar to a registered dealer or adviser;
- is the person acting as an intermediary with respect to a trade between a buyer and a seller or acting as a market maker;
- is the person carrying out the activity, directly or indirectly, on a repetitious, regular or continuous basis;
- is the person being, or expecting to be, compensated for undertaking the activity; and
- is the person soliciting others, directly or indirectly, with respect to a securities transaction or offering advice.
By adopting a “business trigger” registration regime for dealers, the dealer related exemptions in National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) will be repealed and will be replaced by new registration exemptions in NI 31- 103.
The one exception to the “business trigger” is the new category of registration for investment fund managers, which requires all persons directing the business, operations or affairs of an investment fund to become registered as an investment fund manager. The “business trigger” is also not intended to apply to securities issuers and other persons who periodically deal in securities for their own account. However, this result could change if a security issuer is frequently trading in securities, soliciting investors actively or acting as an intermediary.
The CSA have also suggested that venture capital and private equity investment vehicles may not need to be registered if the intent of such entities is to be actively involved in the management of the companies they have invested in, and capital is only raised occasionally for no compensation. If this is not the case, as in the situation of a typical limited partnership, then registration of the general partner may be required depending on the nature of its activities.
Firm Registration Categories
One of the intents of NI 31-103 is to simplify and reduce the number of registration categories. Going forward, dealers will be registered as either investment dealers, mutual fund dealers, scholarship plan dealers, exempt market dealers (new) or restricted dealers (new). Advisers will also now be known as portfolio managers or restricted portfolio managers (new), and investment fund managers (new) will also now have to be registered. Each category of registration is subject to its own proficiency, capital and insurance requirements.
The registration categories of securities dealer, international dealer, foreign dealer, limited market dealer (replaced by the exempt market dealer category), investment counsel, securities adviser, international adviser and foreign adviser have all been eliminated.
An investment dealer is a dealer that is permitted to trade in any security and must be a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC). A company that is currently registered as an investment dealer will continue to be registered in that category when NI 31-103 comes into force.
Mutual Fund Dealer
A mutual fund dealer is a dealer that is permitted to trade in any security that is a mutual fund, or except in Québec, an investment fund that is a laboursponsored investment fund corporation or a laboursponsored venture capital corporation. Mutual fund dealers can also sell exempt mutual funds and will usually, outside of Québec, be a member of the Mutual Fund Dealers Association of Canada (the MFDA). Under NI 31-103, mutual fund dealers will have to deliver client statements to their clients every three months, with no monthly delivery obligations, and will have 24 months to comply with this new requirement. A company that is currently registered as a mutual fund dealer will continue to be registered in that category when NI 31-103 comes into force.
Scholarship Plan Dealer
A scholarship plan dealer is a dealer that is permitted to trade in a security of a scholarship plan, educational plan or educational trust. Under NI 31- 103, representatives of scholarship plan dealers will be required to meet enhanced proficiency requirements (existing representatives will have one year to meet these requirements). Scholarship plan dealers will also only have to provide client statements on an annual basis. A company that is currently registered as a scholarship plan dealer will continue to be registered in that category when NI 31-103 comes into force.
Exempt Market Dealer
An exempt market dealer is a dealer that is permitted to trade in securities on an exempt basis with qualified investors (e.g., accredited investors), including both prospectus and non-prospectus securities. Unlike limited market dealers in Ontario and Newfoundland and Labrador, exempt market dealers will have proficiency, capital and insurance requirements, including filing audited annual financial statements. A company that is currently registered as a limited market dealer in Ontario and/or Newfoundland and Labrador will become an exempt market dealer when NI 31-103 comes into force.
Alberta, British Columbia, Manitoba, the Northwest Territories, Nunavut and the Yukon Territory have all decided to exempt a company and its representatives from the need to become registered as an exempt market dealer if:
- trades are only made pursuant to certain exemptions (i.e., accredited investor, family, friends and business associates, offering memorandum exemption and minimum investment amount); and
- the following conditions are satisfied:
i) not registered in any category of registration in any jurisdiction;
ii) not providing any suitability advice;
iii) except in British Columbia, not providing any other financial services to the purchaser;
iv) not holding or having access to the purchaser’s assets;
v) providing a risk disclosure form to the purchaser; and
vi) filing information reports with the applicable Canadian securities regulatory authorities.
Saskatchewan is also considering whether or not it will adopt this approach.
A restricted dealer is a dealer that is only permitted to trade a security in accordance with the terms, conditions, restrictions or requirements that have been imposed on its registration. The category is intended to allow a person to carry out limited dealing activities that do not fit within one of the other categories. Certain companies that are currently registered as dealers in Alberta, British Columbia and Québec will be registered in this category when NI 31-103 comes into force.
An international dealer is a dealer that has its head office or principal place of business in a foreign jurisdiction, is registered and carrying on business as a dealer in such jurisdiction in a capacity equivalent to a dealer in Canada, is acting as principal or agent for the issuer of securities, for a permitted client (see below) or for a non-resident, and has advised the applicable Canadian securities regulatory authorities as to who is its agent for service of process in Canada. A company satisfying these criteria is exempt from registration in Canada when trading with permitted clients if it provides such clients with certain disclosure and it is:
- carrying on activities, other than a sale of a security, that are reasonably necessary to sell securities that are primarily offered in a foreign jurisdiction;
- trading in a foreign debt security with a permitted client during the security’s distribution, if the security is primarily offered in a foreign jurisdiction and no prospectus has been filed in Canada;
- trading in a foreign debt security with a permitted client, other than during the security’s distribution;
- trading in a foreign security with a permitted client, unless the trade is part of a distribution pursuant to a prospectus that has been filed in Canada;
- trading in a foreign security with an investment dealer; or
- trading in any security with an investment dealer that is acting as principal.
A permitted client is a defined term in NI 31-103 and includes a Canadian financial institution, a Schedule III bank, the Business Development Bank of Canada, an adviser or dealer (other than a scholarship plan dealer or a restricted dealer), a pension fund, the Government of Canada, a person or company that is appropriately registered that is acting on behalf of a managed account, an investment fund that is either managed by a Canadian investment fund manager or advised by a Canadian adviser, a registered charity under certain circumstances, an individual with a certain net worth, and a person or company, other than an investment fund, that has net assets of at least $25 million.
In relying on the exemptions in NI 31-103, the international dealer must notify each permitted client that it is not registered in Canada, the location of its home jurisdiction, the name and address of its agent for service of process in the local jurisdiction and that there may be difficulty enforcing legal rights against it as it does not reside or have assets in Canada.
The international dealer must also annually advise the applicable Canadian securities regulatory authorities that it is continuing to rely on this exemption.
A portfolio manager is an adviser that can act in respect of any security, and is responsible for allocating investment opportunities fairly among its clients and avoiding certain conflicts of interest. A company that is currently registered as an investment counsel and/or a portfolio manager or in an equivalent capacity will continue to be registered as a portfolio manager when NI 31-103 comes into force.
Restricted Portfolio Manager
A restricted portfolio manager is an adviser that can act in respect of any security in accordance with the terms, conditions, restrictions or requirements applied to its registration. Certain companies that are currently registered as advisers in British Columbia and Québec will be registered in this category when NI 31-103 comes into force.
An international adviser, similar to an international dealer, is exempt from registration in Canada if it is only advising permitted clients, other than an adviser or dealer, and it does not provide investment advice about Canadian securities, unless such advice is incidental to its advice about foreign securities. To be able to rely on this exemption, all of the following conditions must be satisfied:
- the adviser’s head office or principal place of business is in a foreign jurisdiction;
- the adviser is registered, or exempt from registration as an adviser, and carries on such business in its home jurisdiction, that is comparable to what an adviser can do in Canada;
- during its most recently completed financial year, not more than 10% of the aggregate consolidated gross revenue of the adviser and its affiliates were derived from portfolio management activities in Canada;
- before advising a client, the adviser notifies the client that it is non-resident, where it resides, the name and address of its agent for service of process, and that there may be problems enforcing legal rights against it as it does not reside or have assets in Canada; and
- the adviser has notified the applicable Canadian securities regulatory authorities as to who is its agent for service of process in Canada.
The international adviser must also notify the applicable Canadian securities regulatory authorities on an annual basis if it wants to be able to continue to rely on this exemption.
Unlike the previous draft of NI 31-103, the exemption permitting an unregistered sub-adviser to give investment advice to a registered adviser, subject to certain conditions, has not been included in NI 31-103 at this time. In Ontario, this exemption continues to reside in section 7.3 of OSC Rule 35- 502 Non-Resident Advisers. The CSA have indicated that this change is temporary and will be dealt with later on.
Investment Fund Manager
One of the most significant aspects of NI 31-103 is the new requirement that a person or company in Canada carrying on the activities of a manager of an “investment fund” must become registered as an investment fund manager in the jurisdiction in which its head office is located. An existing fund manager must become registered as an investment fund manager within one year in its principal jurisdiction and within two years in any other Canadian jurisdiction in which it operates. A two year exemption from the requirement to become registered as an investment fund manager has also been given to foreign investment fund managers that do not have a head office in Canada.
Like dealers and advisers, an investment fund manager must have a registered ultimate designated person and a chief compliance officer (see below). It must also have capital equal to at least $100,000 and adequate insurance unless an exemption is available, and will be required to file its audited annual financial statements, and quarterly unaudited financial statements, with its calculation of excess working capital. An investment fund manager must also advise the applicable Canadian securities regulatory authorities of any net asset value adjustments made during the relevant financial period.
The CSA have also indicated that an investment fund manager will be required to send a trade confirmation to any client that is dealing directly with the investment fund manager, holds its securities in client name and requests that such securities be redeemed.
If a person or company is registered in one or more categories of registration, it will be expected to comply with the most stringent requirements contained in NI 31-103.
Individual Registration Categories
NI 31-103 also significantly reduces the number of individual registration categories, and at the same time imposes the requirement that each registrant have an ultimate designated person (UDP) and a chief compliance officer (CCO), which can be the same person.
The UDP is responsible for promoting compliance at the registrant and overseeing the effectiveness of its compliance system, but does not have any proficiency requirements. The UDP must be the chief executive officer of the registrant or its equivalent.
The CCO is an operating officer responsible for monitoring and overseeing a registrant’s compliance system, including establishing appropriate policies and procedures, and reporting to the UDP and the board of directors of the registrant, at least annually. The CCO must also satisfy certain proficiency requirements.
Under NI 31-103, the following individuals must be registered:
- Dealing Representative – an individual acting on behalf of a dealer in either a trading and/or an underwriting capacity in respect of any security that the dealer is permitted to trade or underwrite;
- Advising Representative – an individual acting on behalf of a portfolio manager who can give advice on any security the portfolio manager is permitted to advise on; and
- Associate Advising Representative – an individual acting on behalf of a portfolio manager who can only give advice on a supervised basis, on any security the portfolio manager is permitted to advise on (the applicable Canadian securities regulatory authorities must be notified within seven days of who will be supervising the individual).
However, the individuals who act for an investment fund manager, other than the UDP and the CCO, do not need to be registered.
An individual seeking registration in one of the foregoing categories, except an UDP, must satisfy certain proficiency requirements set out in NI 31- 103. Usually, the individual must have passed the requisite course within 36 months of applying for registration subject to certain exemptions. The proficiency requirements for each category of registration have also been modified to some degree.
For example, in the case of an advising representative of a portfolio manager, the individual must have either completed his or her CFA Charter and have 12 months of relevant investment management experience in the last 36 months before applying for registration or have received their Canadian Investment Manager designation and have 48 months of relevant investment management experience, 12 months of which was in the 36 months before applying for registration.
The CSA has indicated that exemptions from the requirements of NI 31-103 will be given in appropriate circumstances.
With certain exceptions, individuals registered with existing registrants will usually be grandfathered from these proficiency requirements.
Individuals registered in more than one capacity must meet the proficiency requirement of each category of registration. However, the proficiency requirements are not cumulative and the individual will usually only have to meet the most stringent of the relevant registration requirements.
Unlike the current registration system where all officers and directors of a registrant had to be registered, changes to National Instrument 33-109 Registration Information only require the mind and management of the registrant (i.e., who have direct influence or control over the registrant) to submit regulatory filings as “permitted individuals”. This will typically mean the directors of the registrant and the chief executive officer, chief financial officer and chief operating officer of the registrant or anyone else performing a similar function, and any shareholders holding, directly or indirectly, more than 10% of the voting shares of the registrant.
Contemporaneous with the implementation of NI 31-103, the CSA, except for Ontario, will be implementing the passport system of registration pursuant to National Policy 11-204 Process for Registration in Multiple Jurisdictions for companies that want to register in more than one jurisdiction. Depending on where the head office of the company is, this will mean that the company will only have to deal with its principal regulator, and Ontario, if the company’s head office is in another jurisdiction. Hopefully, this will streamline the registration process and in conjunction with NI 31-103 make registration applications easier to process.
Once registered, a registrant’s registration will continue until it is suspended or revoked. A registrant will no longer need to continue to annually renew its registration, although it will still be required to pay annual fees in the applicable jurisdictions.
A registrant’s registration may be suspended if the applicable Canadian securities regulatory authorities have a serious concern about the registrant’s fitness for registration. A registrant’s registration will also be automatically suspended if they no longer work for a registered firm, if the registered firm’s registration has been suspended or the registrant voluntarily surrenders their registration. If a registrant’s registration is suspended it may be reinstated at a later time.
If a registrant’s registration has been suspended and has not been reinstated, it will be revoked on the second anniversary of the suspension. If a registrant’s registration is revoked, a new application must be made if the registrant wants to become registered again.
Under NI 31-103, an individual will be able to automatically transfer their registration from one registered firm to another, provided the transfer occurs within 90 days of the person leaving the first registered firm. They can only do this if there is no change in their registration category and the new registered firm is registered in the same category of registration as their former employer in the same jurisdiction.
The automatic transfer will not apply if the person was dismissed or was asked to resign.
IIROC / MFDA Membership
In applying for registration after NI 31-103 comes into force, an investment dealer must be a dealer member of IIROC and a mutual fund dealer, except in Québec, must be a member of the MFDA. In implementing NI 31-103, the CSA have expanded somewhat the scope of the aspects of NI 31-103 from which investment dealers and mutual fund dealers will be exempt on the basis that such requirements will be governed by the rules of IIROC and the MFDA, respectively.
The existing registration exemptions in NI 45-106 will be repealed after NI 31-103 comes into force, and to varying degrees, depending on the application of the “business trigger” have been replaced by registration exemptions in NI 31-103. Included in these registration exemptions are a number of new provisions:
Non-Prospectus Qualified Investment Funds
Portfolio managers that establish a non-prospectus qualified investment fund (i.e., a pooled fund) where they act as both the fund’s investment fund manager and adviser, will be exempt from the need to be registered as a dealer when selling securities of the fund to a managed account of a client of the portfolio manager. However, the exemption will not be available if the managed account or the fund was created or is used primarily for the purposes of taking advantage of this exemption. A portfolio manager relying on this exemption must also notify the applicable Canadian securities regulatory authorities within seven days of its first use of this exemption.
A person or company will not need to register as a portfolio manager if the advice that the person or company is giving does not purport to be tailored to the needs of the person or company receiving the advice. If the person or company giving such generic advice has an interest in the security being recommended, this must be disclosed.
Under NI 31-103, a person or company registered as a dealer or an adviser in its principal jurisdiction will not have to be registered in the same capacity in another jurisdiction provided the person or company has 10 or fewer eligible clients in that other jurisdiction. Similarly, an individual registered as a dealing, advising or associate advising representative in their principal jurisdiction, does not need to be registered in the same capacity in another jurisdiction provided the individual has five or fewer eligible clients in that other jurisdiction, and the person in the other jurisdiction has been advised that the individual is relying on this exemption.
No Flow Through Advice
In implementing NI 31-103, the CSA have done away with the concept that the investment advice given to an investment fund by an adviser flowed through to its investors and that the adviser to the fund either had to be registered or exempt from registration in the jurisdiction where the securities of the fund were sold. Going forward, the portfolio manager will only need to be registered as an adviser in the jurisdiction in which the investment fund was created.
Existing Exemptive Relief
A person or company that previously obtained exemptive relief from the applicable Canadian securities regulatory authorities with respect to a registration matter, will be able to continue to rely on that relief to the extent it applies to a substantially similar provision in NI 31-103 when it comes into force.
Client Relationship Model
In implementing NI 31-103, the CSA have imposed a more rigorous client oriented registration regime which will require dealers and advisers to more proactively interact with their clients, which are all premised on a registrant’s duty to deal fairly, honestly and in good faith with its clients.
Know Your Client and Suitability
Dealers and advisers under NI 31-103 will generally have to collect know your client (KYC) information from, and make a suitability determination for, each client. This will involve establishing the identity of the client, whether or not they are an insider, understanding the client’s investment needs and objectives, financial circumstances and risk tolerance. For a corporate client, this will also entail understanding the company’s business and any shareholders holding more than 10% of the company’s voting securities. Dealers and advisers will also be required to keep this information current.
In ensuring that a product is suitable for a client, dealers and advisers will be required to have an indepth knowledge of the products that they buy and sell (i.e., know your product obligation). These suitability obligations cannot be delegated to another party and cannot be satisfied by merely describing the risks that a product involves.
The one exemption from the foregoing requirement, is if the client is a permitted client who has waived in writing such requirements. However, this exemption cannot be relied on by an adviser with respect to a managed account of the permitted client.
Under NI 31-103, dealers and advisers will be required to provide to clients, except permitted clients, in one or more documents all information that a reasonable investor would consider important about their relationship with the dealer or adviser. At a minimum, a client must be provided with the following information before the dealer or adviser acts for the client:
- a description of the nature or type of the client’s account;
- a discussion that identifies the products or services the dealer or adviser offers its clients;
- a description of the types of risks that the client should consider when making an investment decision;
- a description of the risks to the client of using borrowed money to finance a purchase of a security;
- a description of any applicable conflicts of interest;
- disclosure of all costs to the client for the operation of an account;
- a description of the costs the client will pay in making, holding and selling investments;
- a description of the compensation paid to the dealer or adviser in relation to the different types of products that the client may purchase through the dealer or adviser;
- a description of the content and frequency of reporting for each account or portfolio of the client;
- disclosure of the complaint handling procedures which the dealer or adviser has adopted (see below), which will be provided to the client at the dealer’s or adviser’s expense;
- a statement that the dealer or adviser has an obligation to assess whether a purchase or sale of a security is suitable for the client prior to executing the transaction; and
- the dealer’s and adviser’s KYC obligations.
The actual form of how this information is presented to a client, is left to the dealer’s or the adviser’s discretion. The information must be kept current, and clients are required to be notified of any significant changes.
Investment fund managers are not subject to these requirements.
Conflicts of Interest
NI 31-103 also attempts to harmonize the conflicts of interest provisions that registrants must consider, and requires registrants to take reasonable steps to identify any existing or potential material conflicts of interests and to respond to such conflicts of interest by avoiding, controlling or disclosing them. Registrants will be expected to have developed procedures to deal with conflicts of interest on this basis, including with respect to related and connected issuers. Disclosure to clients must also be done on a timely basis and will have to adequately disclose the nature and extent of the conflict of interest (i.e., generic disclosure will not suffice).
These requirements do not apply to an investment fund manager in respect of an investment fund that is subject to National Instrument 81-107 Independent Review Committee for Investment Funds.
Under NI 31-103, all registrants must disclose to their clients all referral arrangements and the compensation being paid to a referring party. A written referral agreement must exist between the registrant and the referring party, and the disclosure to the client must contain certain prescribed information (e.g., the names of the parties to the referral arrangement, the purpose and material terms of the referral arrangement, any potential conflicts of interest and the method of calculating the referral fee), which must be kept current.
The referral provisions of NI 31-103 will also apply to all referral arrangements that existed before NI 31-103 came into force, if a referral fee is paid under such arrangement after NI 31-103 comes into force.
All registered dealers and advisers outside of Québec, are required under NI 31-103 to document and to respond, in a manner that a reasonable investor would consider is fair and effective, to all complaints about the registered firm and the products or services that it offers. This includes making available to such clients an independent dispute resolution or mediation service at the registrant’s expense. In Québec, dealers and advisers are already subject to a similar complaint handling regime.
Investment fund managers are not subject to these requirements.
Account Activity Reporting
Usually a written confirmation must be provided by a dealer to each client for each transaction undertaken for that client. In addition, a dealer and an adviser must provide a client with a statement at least one every three months. The only exception is an scholarship plan dealer, if a statement is provided to its clients on at least an annual basis. Clients of investment dealers can also request that statements be provided on a monthly basis.
Investment fund managers are not subject to these requirements, except for confirmations for trades on behalf of a client name account.
Every registrant is required to establish and maintain policies and procedures that establish a system of controls and supervision that provides reasonable assurance that the registrant and its representatives are acting in accordance with applicable securities laws, and managing risks associated with its business in conformity with prudent business practices. An essential element of each registrant’s compliance system is their UDP and CCO. However, compliance is a firm-wide responsibility and everyone associated with a registrant is expected to be acting in the best interests of the registrant’s clients.
Registrants are also responsible for all functions that they outsource to service providers.
Registrants are expected to have an effective record system that accurately records its business activities, financial affairs and client transactions. Certain types of records that should be maintained by a registrant are stipulated (e.g., financial statements, compliance with capital and insurance requirements, identifying and segregating client assets, documenting the opening of client accounts and compliance with KYC, suitability and complaint handling requirements), but how this is achieved is left up to the registrant. In addition, the distinction between “activity records” and “relationship records” has been eliminated, and registrants now only need to keep a record for seven years from the date the record is created. In addition, the CSA do not expect a registrant to save every voicemail or email, only those that may have an impact on a client’s account or their relationship with the registrant.
Most existing registrants will automatically be transitioned to their new category of registration when NI 31-103 comes into force. NI 31-103 also provides various transitional provisions, including the following:
- Exempt market dealers (other than in Ontario and Newfoundland and Labrador) will have one year to register, one year to satisfy NI 31-103’s capital requirements and six months to satisfy NI 31-103’s insurance requirements;
- International dealers that are currently registered will have their registration revoked when NI 31- 103 comes into force, but will have one month to notify the applicable Canadian securities regulatory authorities if they are going to rely on the registration exemption in NI 31-103; c) International advisers that are currently
- registered will have their registration revoked one year after NI 31-103 comes into force and can notify the applicable Canadian securities regulatory authorities if they are going to rely on the registration exemption in NI 31-103 during that time;
- Investment fund managers that are currently acting as an investment fund manager will have one year to register as such in the jurisdiction in which their head office is located, and two years to register in other jurisdictions. If the investment fund manager is also registered as a dealer or adviser, it will have 12 months to satisfy NI 31-103’s insurance and capital requirements;
- Except as set out above, existing registrants will also have three months in which to register their UDP and CCO, one year to comply with NI 31- 103’s capital requirements, six months to comply with NI 31-103’s insurance requirements, one year to prepare their relationship disclosure documents, six months to properly document their referral arrangements and two years to comply with NI 31-103’s complaint handling requirements.
To assist with the transition to NI 31-103, the National Registration System (the NRD) will be shut down from 5:00 pm on September 25, 2009 until 11:59 pm on October 12, 2009. During that time, registrants will have to file all reinstatements, termination notices and notices of changes in paper format, which will then have to be refiled on NRD once the system is back up on or before November 10, 2009. Registrants will also have until November 24, 2009 to file all other notices that should have otherwise been filed on NRD during the freeze period.
In implementing NI 31-103, the CSA are also making a number of consequential amendments to other pieces of legislation including National Instrument 31-102 National Registration Database, National Instrument 33-109 Registration Information, NI 45-106, OSC Rule 31-501 Registrant Relationships, OSC Rule 31-502 Proficiency Requirements for Registrants and OSC Rule 35-502 Non Resident Advisers.
NI 31-103 is a positive step forward as it attempts to harmonize Canada’s registration requirements and to streamline and simplify Canada’s registration processes. Investment fund managers must become registered, as must exempt market dealers depending on where their clients reside and the scope of their activities. NI 31-103 also creates a simpler registration regime for international dealers and international advisers. NI 31-103 also stresses the importance of compliance and formalizes how clients are to be dealt with, including with respect to referrals and complaints. However, further harmonization and uniform application of the registration requirements in NI 31-103 would be advantageous to truly create a national registration platform. Various interpretational and operational aspects of NI 31-103 will also have to be dealt with and will probably require amendments to NI 31-103 in the future.