The Ontario Budget Measures Act, 2009 includes some significant amendments to the Securities Act (Ontario). Among the changes are amendments to provide the flexibility required for Ontario to adopt the harmonized national registration regime contemplated by proposed National Instrument 31-103, Registration Requirements. The Canadian securities administrators have published a staff notice advising that they expect to publish the final version of NI 31-103 in July 2009 and that it will come into force, with applicable transition periods, at the end of September 2009, subject to receipt of all necessary government approvals.
Changes in Registration Requirements
- Dealers. As expected, the obligation to register as a dealer will be changed to a “business trigger.” Dealer firms and representatives of a dealer will only be required to register if they engage in or hold themselves out as engaging in the business of trading in securities as principal or agent. Dealer obligations may, however, be imposed on persons or companies in the context of prospectus requirements, including the right of action for rescission or damages for failure to deliver a prospectus, even if the business trigger is not met and registration is not required.
- Advisers. With few exceptions, firms and individuals engaged in the business of providing advice on securities will be required to be registered. The categories of registered advisers will be reduced and the terminology changed. Most advisers will be registered as portfolio managers, whether or not they have discretionary authority. The existing adviser registration exemption for registered dealers will be removed from the Act, although it is possible that it may be prescribed by regulation, including NI 31-103.
- Underwriters. Only investment dealers and exempt market dealers may act as underwriters, making clear that mutual fund dealers have no power and authority to act as underwriters.
- Investment fund managers. There will be no business trigger for investment fund manager registration. Unless exempt, a person who directs the business, operations or affairs of an investment fund will be required to register as an investment fund manager.
- Financial institutions. Certain Canadian financial institutions will be exempt from registration as a dealer, an adviser, an underwriter or an investment fund manager to the extent that their activities are limited to those permitted by their governing legislation, subject to any conditions prescribed by regulation.
- Foreign dealers and advisers. The amendments contemplate that the regulations will provide for exemptions from registration, although applicable conditions and restrictions have not yet been published and are expected to be in NI 31-103.
New Sources of Liability
The amendments propose new grounds for statutory liability:
- A general requirement that registrants comply with Ontario securities law, including those relating to business conduct, account opening, conflicts of interest, tied selling and referral arrangement, and client complaints. These requirements are expected to be included in NI 31-103.
- A prohibition against registrants making misrepresentations about matters that an investor would consider important in deciding whether to enter into or continue a trading or advising relationship with the person or company. It is not clear how broadly this latter prohibition will be interpreted.
Suspension of Registration
The amendments provide for suspension of registration by the Director of the Ontario Securities Commission for failure to comply with securities law or if the registration is considered unsuitable or otherwise objectionable. They also provide for automatic suspension in certain circumstances, including when a required fee remains unpaid for more than 30 days after its due date or if an individual registrant ceases to have an employment, agency or partnership relationship with the sponsoring dealer or adviser. A suspended registration will be revoked if not reinstated on the second anniversary of the suspension.