As a result of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Obligations (NI 31-103), any person or company that acts as an investment fund manager in a province or territory of Canada (each, a "Jurisdiction") is required to become registered, or exempt from registration, as such with the relevant Canadian securities regulatory authority (Securities Regulator), subject to certain transition period exemptions that have been granted for non-residents.

Transition Period

Section 16.6(1) of NI 31-103 provides that the investment fund manager registration requirement does not apply to a non-resident that is acting as an investment fund manager if its head office is not in a jurisdiction of Canada. Section 16.6(2) provides that section 16.6(1) is repealed on September 28, 2012 which would have required non-residents who act as investment fund managers in a Jurisdiction to become registered, or exempt from registration, as such on or before September 28, 2012 absent the transition exemption extension described below.

On July 5, 2012, the Securities Regulators issued CSA Staff Notice 31-330 Omnibus/Blanket Orders Extending Certain Transition Provisions Relating to the Investment Fund Manager Registration Requirement and the Obligation to Provide Dispute Resolution Services (Staff Notice 31-330) to advise, among other things, of further transitional relief that has been granted from the requirement to register as an investment fund manager. Staff Notice 31-330 advises that the Securities Regulators have issued parallel orders to extend the September 28, 2012 transition date that is contemplated by section 16.6(2) of NI 31-103 to December 31, 2012. As a result of these parallel orders, a non-resident that acts as an investment fund manager in a Jurisdiction is exempt from the investment fund manager registration requirement until the later of:

  1. December 31, 2012; and
  2. the date on which the relevant Securities Regulator accepts or refuses an application for registration as an investment fund manager that is filed with the Securities Regulator on or before December 31, 2012.

A Bifurcated Regulatory Framework

Despite the harmonization objective underlying the adoption of NI 31-103 as a national registration instrument effective September 28, 2009, the Securities Regulators have been unable to reach a consensus respecting the regulation of non-resident investment fund managers. Non-resident investment fund managers must therefore contend with two distinct regulatory frameworks that will govern their activities in Canada effective September 28, 2012. Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers (MI 32-102) will govern the activities of non-resident investment fund managers in Ontario, Québec and Newfoundland and Labrador (Instrument Jurisdictions) and Multilateral Policy 31-202 Registration Requirement for Investment Fund Managers (MP 31-202) will govern the activities of non-resident investment fund managers in all Jurisdictions other than the Instrument Jurisdictions (Policy Jurisdictions).

MI 32-102 — The Instrument Jurisdictions

MI 32-102 comprises the instrument itself, two forms and a companion policy (CP 32-102). CP 32-102 provides guidance respecting the interpretation of MI 32-102. The interpretive guidance provided by CP 32-102 includes a description of the activities which will be considered to constitute acting as an investment manager for purposes of the investment fund manager registration requirement. According to CP 32-102, a person or company will be considered to be acting as an investment fund manager if it directs or manages the business, operations or affairs of one or more investment funds by engaging in some or all of the following activities:

  • establishing a distribution channel for the fund;
  • marketing the fund;
  • establishing and overseeing the fund's compliance and risk management programs;
  • overseeing the day-to-day administration of the fund;
  • retaining and liaising with the portfolio manager, the custodian, the dealers and other service providers of the fund;
  • overseeing advisers' compliance with the investment objectives and the overall performance of the fund;
  • preparing the fund's prospectus or other offering documents;
  • preparing and delivering security holder reports;
  • identifying, addressing and disclosing conflicts of interest;
  • calculating the net asset value of the fund; and
  • calculating, confirming and arranging payment of subscriptions and redemptions and/or dividends or other distributions.

If a non-resident person or company is acting as an investment fund manager, it will become subject to the investment fund registration requirement of an Instrument Jurisdiction if one or more of the investment funds that it manages distributes, or has distributed, securities to residents of the Instrument Jurisdiction. If a non-resident person or company becomes subject to the investment fund manager registration requirement of an Instrument Jurisdiction, it must either apply to become registered as an investment fund manager in the Instrument Jurisdiction or rely upon one of two registration exemptions that are available pursuant to sections 3 and 4 of MI 32-102.

Section 3 of MI 32-102 provides that the investment fund manager registration requirement does not apply to a non-resident acting as an investment fund manager of one or more investment funds if the non-resident does not have a place of business in an Instrument Jurisdiction and if one or more of the following apply:

  • none of the investment funds has security holders resident in the Instrument Jurisdiction; and/or
  • neither the non-resident nor any of the investment funds has, at any time after September 27, 2012, actively solicited residents in the Instrument Jurisdiction to purchase securities of an investment fund.

Section 4(1) of MI 32-102 is more broadly cast than section 3 and provides for an exemption that is comparable to the international dealer and international adviser exemptions that are also available to non-resident dealers and advisers pursuant to NI 31-103. Section 4 provides that the investment fund manager registration requirement does not apply to a nonresident investment fund manager if all securities of the investment funds managed by it that are distributed in an Instrument Jurisdiction are distributed in reliance upon a prospectus exemption to "permitted clients" only, as that term is defined in NI 31-103 (International Investment Fund Manager Exemption).

The International Investment Fund Manager Exemption contemplated by section 4(1) of MI 32-102 is not available unless all of the following apply:

  • the non-resident investment fund manager does not have its head office or principal place of business in Canada;
  • the non-resident investment fund manager is incorporated, formed or created under the laws of a foreign jurisdiction;
  • none of the investment funds is a reporting issuer in Canada;
  • the non-resident investment fund manager has submitted to the relevant Securities Regulator(s) a completed Form 32-102F1 Submission to Jurisdiction and Appointment of Agent for Service for International Investment Fund Manager;
  • the non-resident investment fund manager has provided each of its permitted clients with notice in writing of the following:
    • the investment fund manager is not registered in the relevant Instrument Jurisdiction to act as an investment fund manager;
    • the foreign jurisdiction in which the head office or principal place of business of the investment fund manager is located;
    • all or substantially all of the assets of the investment fund manager may be situated outside of Canada;
    • there may be difficulty enforcing legal rights against the investment fund manager as a result of the foregoing; and
    • the name and address of the agent for service of process of the investment fund manager in the relevant Instrument Jurisdiction(s).

Within 10 days of the date on which a non-resident investment fund manager first relies on the International Investment Fund Manager Exemption in an Instrument Jurisdiction, the non-resident must file a completed Form 32-102F2 Notice of Regulatory Action with the Securities Regulator of the Instrument Jurisdiction. If there is any change to the information previously provided on a Form 32-102F2, notice of the change must be provide to the Securities Regulator with 10 days of the change.

A non-resident investment fund manager that has relied on the International Investment Fund Manager Exemption at any time during the 12 month period preceeding December 1 of a year must provide the Securities Regulator in the relevant Instrument Jurisdiction with notice of the following by December 1 of that year:

  • the fact that it relied on the International Investment Fund Manager Exemption; and
  • for all investment funds for which it acts as an investment fund manager, the total assets under management, expressed in Canadian dollars, attributable to securities beneficially owned by residents of the Instrument Jurisdiction as at the end of the most recently completed month.

MP 31-202 — The Policy Jurisdictions

Unlike MI 32-102, MP 31-202 adopts a principles based approach to the regulation of investment fund managers that places primary emphasis on actually acting as an investment fund manager within a Policy Jurisdiction rather than having security holders resident in the Policy Jurisdiction. MP 31-202 does not provide any "bright line" exemptions from registration. Accordingly, for purposes of the investment fund manager registration requirements of the Policy Jurisdictions, a non-resident person or company that acts as an investment fund manager must simply decide whether it is, or is not, required to register as such based on the guidance provided by MP 31-202.

Like CP 32-102, MP 31-202 begins by identifying those functions or activities that are indicative of a person or company that directs or manages the business, operations or affairs of an investment fund and thereby acts as an investment fund manager for purposes of the investment fund manager registration requirements of the Policy Jurisdictions. The functions or activities that are identified by MP 31-202 are the same as the activities identified by CP 32-102 that are set out above.

MP 31-202 then goes on to provide that an investment fund manager is required to register in a Policy Jurisdiction if it directs or manages the business, operations or affairs of an investment fund from a physical place of business in the Policy Jurisdiction or if its head office is located in the Policy Jurisdiction. If it does not have a physical place of business or head office in the Policy Jurisdiction, it will still be required to register if it engages in activities that result in its directing or managing the business, operations or affairs of an investment fund in the Policy Jurisdiction.

According to MP 32-102, in determining whether registration is required, a non-resident investment fund manager must consider what functions or activities, if any, that it is directing from within a Policy Jurisdiction, and, for such purpose, no single function or activity is determinative. In particular, functions or activities that are tied to the presence of security holders, the solicitation of investors or the distribution of securities in a Policy Jurisdiction are not activities that would give rise to investment fund manager registration, unless they are directed from within the Policy Jurisdiction and result in the person directing or managing the business, operations or affairs of an investment fund in the Policy Jurisdiction.