On October 15, 2010 the Canadian Securities Administrators (the “CSA”) published a request for comment (the “CSA Notice”) on proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (“NI 31-103”) and its related companion policy relating to the registration of international and certain domestic investment fund managers. Currently, NI 31-103 provides temporary relief from investment fund manager registration such that an investment fund manager is only required to be registered in the Canadian jurisdiction in which its head office is located (if any).

The CSA Notice describes the effect of the proposed amendments as follows. An investment fund manager who carries on investment fund management activities from a location outside of Canada would need to register in the province or territory in which the relevant investment fund has security holders and in which the manager or the fund has actively solicited local residents to purchase securities of the fund after September 28, 2011. Similarly, a Canadian investment fund manager would also be required to register in provinces and territories other than where its head office is located if the fund has security holders in that jurisdiction and local residents were actively solicited in that jurisdiction after September 28, 2011.

Proposed amendments to the Companion Policy for NI 31 -103 provide some guidance on the meaning of “actively solicited”. Generally, it refers to “intentional actions taken…to encourage a purchase of the fund’s securities.” Since the solicitation test applies after September 28, 2011, some non-resident investment fund managers may have a “grandfathering” exemption (i.e. if they do not solicit investors after September 28, 2011).

The CSA Notice also describes a proposed exemption for international investment fund managers that would be subject to the following conditions:

  • the manager does not have a physical place of business in Canada,
  • the fund is established under the laws of a foreign jurisdiction,
  • the fund is not a reporting issuer,
  • all securities of the fund distributed in Canada were distributed by way of prospectus exemption to a “permitted client” (e.g. insititutional investor),
  • the manager submits to the regulatory authority of Canadian regulators, and
  • the manager provides prescribed disclosure to the permitted client.

This exemption would not be available if the fair value of assets of the fund attributable to securities beneficially owned by Canadian residents exceeds 10% of the value or the fund. The exemption also would not be available if the fair value of assets attributable to securities of all investment funds managed by the manager that are beneficially owned by Canadian residents exceeds $50 million. The Ontario Securities Commission (the “OSC”) and the Autorité des marches financiers have issued an additional request for comment as to whether these threshold limitations should also be applied to “grandfathered” investment fund managers (i.e. those who do not solicit investors after September 28, 2011).

The comment period ends on January 13, 2011.