In draft amendments to National Instrument 31-103 Registration Requirements and Exemptions published for comment in October 2010, the Canadian Securities Administrators (CSA) set out proposed rules that would require registration of both international and Canadian-based investment fund managers as “investment fund managers” (IFM) in potentially multiple Canadian jurisdictions. The draft amendments supplement the current requirements that Canadian IFMs register as an IFM in the province or territory where they have their head office. At the present time, international IFMs are not required to register in this category of registration, pursuant to transition provisions contained in NI 31-103 that expire on September 28, 2011.

The CSA signalled that they were considering additional registrations for Canadian and international IFMs when NI 31-103 was first implemented in September 2009. With this most recent proposal, the CSA explain that the policy reasons for requiring IFM registration in a province or territory – i.e. to ensure that IFMs have sufficient proficiency, integrity and solvency to adequately carry out their functions - extend to all fund managers whose investment funds are distributed in the province or territory regardless of where the IFM’s head office is located.

Comments are due on the proposals described in the CSA’s Notice of and Request for Comment on Proposed Amendments to National Instrument 31-103 Registration Requirements and Exemptions - Registration of International and Certain Domestic Investment Fund Managers [available here] by January 13, 2011.


Under the CSA’s proposals, unless one or more of the proposed exemptions discussed below applies, registration would be required by an international IFM in each province and territory where

  1. residents of that province or territory are securityholders of the investment funds managed by the international IFM and/or  
  2. the IFM or the investment funds it manages have actively solicited residents to purchase securities of the investment funds.  

This registration requirement would apply to international fund managers notwithstanding that the fund manager and the investment funds may be regulated by another regulator and regardless of the jurisdiction where the investment funds are organized and actually managed.  

Registration would also be required of a Canadian IFM in each province and territory, in addition to the province where its head office is located, where  

  1. residents of that province or territory are securityholders of the investment funds managed by the Canadian IFM and/or  
  2. the Canadian IFM or the investment funds it manages have actively solicited residents to purchase securities of the funds.  

With these proposals, the CSA appear to have resurrected a regulatory concept that was abandoned when NI 31-103 came in force. Prior to the implementation of NI 31-103, certain members of the CSA, and most notably the Ontario Securities Commission, took the position that non-resident portfolio managers of non-resident investment funds that were distributed in their jurisdiction had to be registered in that province or territory in the category of adviser (portfolio manager). This was referred to by some as the “look-through” or “flow-through” theory of advice, in that the applicable regulators “looked through” the fund and determined that the securityholders residing in the particular province were acquiring the advisory services of the non-resident portfolio manager despite the fact that the advice was provided to the fund outside of the province (in many cases, outside of Canada) in question. This regulatory principle was not carried forward under NI 31-103 for portfolio managers. Under the current proposals, by distributing investment funds in a particular province or territory, the manager of that fund will be considered to be “acting as an investment fund manager” in that province or territory, notwithstanding that the firm and the funds are situate and are actually managed in another jurisdiction – Canadian or international. This means that while non-resident portfolio managers of non-Canadian investment funds that are distributed in a Canadian province or territory will not be subject to registration as an adviser, the non-resident IFM of those same investment funds will likely become subject to registration as an IFM – a peculiar result.  


The CSA propose two limited registration exemptions for IFMs.  

International IFMs will be able to rely on a de minimis exemption in respect of non-resident investment funds where  

  • the IFM does not have a physical place of business in Canada  
  • the investment funds managed by the IFM are incorporated, formed or organized under the laws of a non-Canadian jurisdiction and are only distributed to permitted clients (primarily institutions and very high net worth individuals) under an exemption from the prospectus requirements and the permitted clients receive prescribed information about the non-registered and non-resident status of the IFM  
  • the fair value of all of the assets attributable to Canadian security holders of any investment fund for which the IFM acts as investment fund manager is not more than 10% of the fair value of all the assets of the fund as at the end of the IFM’s most recently completed financial year  
  • the fair value of the assets of all funds managed by the IFM that are attributable to Canadian security holders is not more than CDN $50 million as at the end of the IFM’s most recently completed financial year; and  
  • the IFM submits annual filings in each applicable province and territory.  

A “grandfathering” exemption has also been proposed for both international and Canadian IFMs if they (and their investment funds) do not actively solicit investors in a Canadian jurisdiction after September 28, 2011 and they manage investment funds that are not reporting issuers in Canada. Accordingly, IFMs that have Canadian investors in their pooled funds as at September 28, 2011 can continue to permit their funds to issue securities to Canadians without IFM registration, so long as they do not actively solicit investors for those funds in any jurisdiction of Canada after September 28, 2011. Notably, all managers of publicly offered investment funds in Canada would be required to be registered as IFMs in each province and territory where those funds are reporting issuers, since the exemptions are only available where the funds are not reporting issuers.

It would appear that the Ontario Securities Commission (OSC) and the Autorité des marchés financiers (AMF) are concerned about the scope of this grandfathering exemption. The OSC and the AMF published jointly a request for comments [available here] on whether it would be appropriate to apply to the proposed “grandfathering” exemption the same threshold limitations – i.e. size of the investment fund attributable to Canadian security holders – as are proposed for the proposed “de minimis” exemption. We understand that the OSC and the AMF are concerned about the potential for “systemic risk” to the Canadian capital markets in the event that an unregistered IFM has a significant number of Canadian investors in its investment funds. The OSC and AMF proposals would undoubtedly reduce the number of international IFMs who would be able to rely on the proposed “grandfathering” exemption.


The CSA propose guidance on what they consider to be “active solicitation”. In their view “active solicitation” refers to intentional actions taken by an investment fund or its IFM to encourage a purchase of the fund’s securities. Included would be such things as

  • direct communication to encourage residents of a province or territory to purchase securities  
  • advertising in Canadian media (including through the Internet), if the advertising is intended to encourage the purchase of the fund’s securities and  
  • purchase recommendations made by a third party (e.g. a dealer) if the third party is entitled to compensation from the IFM or the fund for the recommendation or subsequent purchase.  


International IFMs that are not otherwise registered in any category in any Canadian jurisdiction and, if the proposals are adopted, would be required to be registered and will be subject to the proficiency and conduct requirements associated with being an IFM registrant. The IFM category is primarily a “firm” registration category with the ultimate designated person (UDP) and chief compliance officer (CCO) being the only registered individuals. The CCO is subject to Canadian-based proficiency requirements. As a firm, registered IFMs are subject to, among other things

  • capital ($100,000 minimum) and insurance requirements  
  • financial reporting obligations (annual and quarterly financial statements)  
  • conflicts of interest management  
  • record keeping obligations and  
  • compliance system requirements including having written policies and procedures.  

A Canadian IFM is already subject to these requirements as a result of being registered as an IFM in its head office jurisdiction.

International and Canadian IFMs that do not have a physical place of business in a province or territory will also be required to provide a specified notice to fund security holders about their “non-resident” status. This notice requirement as it applies to Canadian fund managers is particularly inconsistent with the national scope of most fund offerings and the push towards a more national system of securities regulation. In addition, under the proposed “First Year” amendments to NI 31-103 (referred to in the text box above), the CSA have proposed that registered IFMs be required to provide specified trade confirmations and account statements to investors who deal directly with them, including those investors who place redemption orders directly with them.

IFM registration in multiple jurisdictions also raises issues related to

  • extra-provincial corporation registra tion requirements  
  • the costs associated with IFM registration and whether they can be paid by the applicable investment funds and  
  • the status in other provinces for financial institutions that rely on the IFM registration exemption available in Ontario (section 35.1 of the Securities Act (Ontario)).  

International and Canadian IFMs will be able to rely on the “passport” system for registration applications in Canada – and would therefore designate a principal regulator which would take carriage of reviewing the application and ensuring continuing compliance. Registration fees will be payable in each province and territory where the firm is registered.