The long-anticipated changes to the registration regime under Canada’s securities regulation have now been finalized with the release of National Instrument 31-103 Registration Requirements and Exemptions on July 17, 2009. The new registration regime will become effective on September 28, 2009 (subject to government approvals) and anyone applying for registration in any category on or after that date will need to comply with the new requirements. Industry participants already registered on September 28, 2009 will be expected to comply with the new regime, but will be given additional time to achieve compliance with some of the new requirements. Our July 2009 Investment Management Advisory entitled Canadian Securities Regulators Release Final Registration Rule [available here] outlines the scope of National Instrument 31-103, as well as provides an overview of the key changes (from the last published version) made by the Canadian securities regulators (CSA) in finalizing the various instruments.
National Instrument 31-103 introduces a new category of registration in each Canadian province and territory: investment fund manager. This registration category will apply to managers of all types of investment funds managed in Canada, whether reporting issuers or not, including mutual funds, pooled funds, closed-end funds, exchange-traded funds and hedge funds.
The question of where an investment fund manager will be required to be registered has been clarified somewhat in the final version of National Instrument 31-103. An investment fund manager must apply for registration (for existing fund managers, by September 28, 2010) in its “principal jurisdiction”, which will be the province or territory where its head office is located. National Instrument 31-103 gives an investment fund manager a two-year exemption from having to register in any other jurisdiction, if it applies for registration and becomes registered in its principal jurisdiction. Similarly, an investment fund manager that distributes its funds in Canada, but does not manage the funds or have its head office in Canada, will not be required to register in Canada for at least another two-year period (until September 28, 2011). The CSA indicate that they intend to publish an amendment to National Instrument 31-103 for comment, during the next year that will explain under what circumstances a fund manager will need to register in more than one Canadian province or territory and under what circumstances a fund manager with its head office outside Canada would need to register. An investment fund manager that also is “in the business” of trading in securities, in addition to
its principal business as an investment fund manager, must be registered as a dealer, in which case it must also comply with the requirements of National Instrument 31-103 applicable to that category of registrant. An investment fund manager that carries out “wholesaling” activities with registered dealers in the course of promoting its funds, generally will not have to be registered as a dealer, unless it also trades in securities of the funds directly with investors. Investment fund managers that are “in the business” of trading in securities that are or could be distributed pursuant to a prospectus exemption must register as an exempt market dealer by the prescribed deadlines and comply with the requirements of National Instrument 31-103 applicable to that category of registrant. Similarly, an investment fund manager that is in the business of advising others in securities (that is, acting as a portfolio manager) must be registered as a portfolio manager, in which case it must also comply with the requirements of National Instrument 31-103 applicable to that category of registrant.
Firms acting as investment fund managers, including those that are registered in other categories, must be aware of National Instrument 31-103 and its implications. The following table focuses on the various provisions of National Instrument 31-103 that apply to investment fund managers and explains how they apply to these registrants.