On February 29, 2008, the Canadian Securities Administrators (CSA) published their revised proposals on National Instrument 31-103 Registration Requirements (the "Instrument"), relating to registration requirements for dealers, advisers and investment fund managers. These revised proposals constitute an overhaul of registration requirements and registration exempt activities, and are intended to present a streamlined and harmonized approach to the regulation of investment activities across Canada. The proposed registration reforms represent a major restructuring of the Canadian dealer, adviser and investment fund manager registration rules and have implications for non-Canadian dealers, advisers and investment fund managers doing business on a registered or exempt basis in any province or territory of Canada, including non-Canadian dealers and advisers registered in Ontario.

Proposed changes to the dealer registration and exemption regime

The more significant features of the revised proposals as they pertain to non-Canadian dealers are:

  • the elimination of the "international dealer" registration category in Ontario and the repeal, in most provinces, of the dealer registration exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106), including the dealer registration exemption for trades with an "accredited investor";
  • the proposed introduction of a national "international dealer exemption" that would permit non-Canadian dealers to trade in "foreign securities" on a registration-exempt basis with a "permitted client", a new category of client comprised of a subset of "accredited investors" that includes individuals with net financial assets over C$5M and corporations with shareholders' equity over C$100M, subject to certain conditions; and
  • the requirement to register as an "exempt market dealer" to trade in Canadian and "foreign securities" with "accredited investors" (British Columbia and Manitoba have retained a limited registration exemption for certain dealers that trade only with "accredited investors").

Proposed changes to adviser registration and exemption regime

The more significant features of the revised proposals for non-resident advisers are:

  • the elimination of the "international adviser" registration category in Ontario and repeal of OSC Rule 35-502 Non-Resident Advisers;
  • the introduction of a national "international adviser" exemption that permits a non-Canadian adviser registered or operating under an exemption from registration under the securities legislation of its home jurisdiction to advise "permitted clients" in Canada on "foreign securities", subject to certain conditions;
  • the requirement to register as an adviser where the "international adviser" exemption and certain other limited adviser registration exemptions cannot be relied upon;
  • confirmation that investment fund managers are required to register only in the jurisdiction where the person or company that directs the management of the investment fund is located, which applies equally to Canadian and foreign investment fund managers;
  • the addition of exemptions from the dealer registration requirement for registered advisers and international advisers when distributing units of their own pooled funds, where they actively manage client accounts under discretionary authority; and
  • the removal of prohibitions on international advisers soliciting new business.

Transition

The amendments to the original proposals now also include specific transition provisions. Existing registrants will, in most cases, be deemed to be registered in the equivalent new category (and given six months to comply with new requirements, such as relationship disclosure and complaint handling). New registrants, such as exempt market dealers and investment fund managers, will have six months to apply for registration and to comply with most of the requirements of the new rules.

The revised proposals are subject to a comment period expiring on May 29, 2008. These proposals are expansive and will have a significant impact on registration issues generally, as well as on a broad range of capital markets activities, including private placements, trading and advising activities and private and public fund offerings.