Month: April 2020
As we discussed in our October 2019 special bulletin, the Canadian Securities Administrators (CSA) have finalized their client-focused reforms (CFRs) to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). The CSA initially set an implementation deadline of December 31, 2020 for the conflict of interest provisions and related relationship disclosure information (RDI) requirements in the CFRs.
On April 16, CSA members announced that they are shifting that implementation deadline to June 30, 2021. Registrants will have to comply in the interim period with the comparable provisions in NI 31-103, as they read on December 20, 2020.
Although we expect registrants to welcome this extension of the deadline, we encourage firms to continue making steady progress toward implementation of the new requirements. In the current environment, where so many registrants and their service providers have their employees working remotely and are dealing with emerging risks resulting from the COVID-19 pandemic, projects like these may take longer than expected to complete. AUM Law is already helping many of our clients systematically prepare for the new regime and we can help you, too. Please do not hesitate to contact us.
April 30, 2020
As we discussed in our March 2019 bulletin and December 2019 bulletin, the Canadian Securities Administrators (CSA) have proposed changes to the securities regulatory framework affecting participants in syndicated mortgage markets. Last December, the CSA announced that they expected the proposed changes to take effect in July 2020. On April 16, 2020, the CSA disclosed that in light of COVID-19, they now expect the amendments to take effect on January 1, 2021. They haven’t published final rules yet, stating only that additional details will be published later this year.
As well, on April 16 the Financial Services Regulatory Authority of Ontario (FSRA) and the Ontario Securities Commission (OSC) announced a corresponding delay in the transfer of regulatory oversight over non-qualifying syndicated mortgages from FSRA to the OSC. The regulators now expect the transfer to take effect on January 1, 2021.
AUM Law is assisting clients affected by the evolving regulatory framework for mortgage investments. Please do not hesitate to contact us if you have any questions about how the proposed changes and/or delays in implementation timelines will affect your business.
April 30, 2020
As we mentioned in last month’s article on business continuity plans (BCPs), the COVID-19 pandemic has brought with it heightened cyber-security risks. Now more than ever, registered firms need to maintain robust cyber-security policies and procedures, monitor employees’ compliance with them, and adapt their policies and procedures to address emerging or changing risks. Recently, financial sector regulators have published warnings and guidance for firms about how to address cyber-security risks. This article highlights several publications that we think our readers will find useful.
- IIROC Offers Practical Tips: On April 21, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice with practical tips for advisory firms and their employees regarding the kinds of cyber-security risks they face while operating remotely during the COVID-19 pandemic. Among other things, it describes common, COVID-19 relate phishing and social engineering attacks that some firms are observing.
- FSB Consults on Cyber Incident Response and Recovery (CIRR): On April 20, the Financial Stability Board (FSB) published a consultation paper outlining 46 effective CIRR practices for financial institutions to consider. Although the FSB tends to focus more on systemically important financial institutions, we think that all capital markets participants will find it worthwhile to skim the consultation paper. The recommended CIRR practices relate to such topics as how firms organize and manage CIRR, how they ensure effective response, mitigation and recovery activities, how to coordinate and communicate with stakeholders, and how to establish processes to learn from past cyber incidents. In addition to requesting feedback on the specific practices described in its consultation paper, the FSB wants to know what firms are learning from their response to the COVID-19 pandemic. Comments are requested by July 20.
- Updated Baseline Controls for Small and Medium-sized Enterprises (SMEs): The Canadian Centre for Cyber Security (Centre), established by the federal government, updated its Baseline Controls for Small and Medium Organizations (Baseline Controls) earlier this year. Noting that some of national and global cyber-security standards likely are beyond the financial and human resource means of most SMEs, the Centre developed the Baseline Controls with the 80/20 rule (i.e. that 80% of the benefit can be achieved through 20% of the effort) in mind. We recommend that firms read Annex A, which summarizes the Baseline Controls.
Given the regulators’ growing concerns about pandemic-related cyber-threats, we believe that cyber-security is likely to become a focus area for securities regulators in compliance reviews. AUM Law can help you assess and enhance your cybersecurity policies and procedures and conduct training in this area for your employees. Please contact us to find out more about our services in this area.
April 30, 2020
In July 2019, we reported that the Canadian Government had finalized amendments (Amendments) to regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA Regulations). The Amendments provided for implementation in phases. The burden-relieving amendments (such as those permitting the use of electronic means to verify identity) came into effect in July 2019. A second set of amendments is scheduled to come into effect on June 1. These include, among other things, amendments that tighten up the deadline for submitting suspicious transaction reports (STRs) to FINTRAC.
- Out with the Old: Currently, a reporting entity has 30 days to file an STR, measured from the day it detects a fact about a financial transaction or attempted financial transaction that constitutes reasonable grounds for suspicion (RGS) that the transaction is related to the commission or attempted commission of a money laundering or terrorist financing offence.
- In with the New: Effective June 1, a reporting entity will have to file the STR as soon as practicable after it has taken measures enabling it to establish that it has reached the RGS threshold.
FINTRAC has revised its guidance What is a Suspicious Transaction Report? and Reporting Suspicious Transactions to FINTRAC (collectively, the New Guidance). Set to take effect on June 1, the New Guidance states that:
“As soon as practicable should be interpreted to mean that you have completed the measures that have allowed you to determine that you reached the RGS threshold and as such the development and submission of that STR must be treated as a priority report. FINTRAC expects that you are not giving unreasonable priority to other transaction monitoring tasks and may question delayed reports. The greater the delay, the greater the need for a suitable explanation.”
Other changes in the New Guidance are primarily stylistic or provide more detailed explanations of such matters as the importance of STRs to FINTRAC’s mandate (and why they need to be detailed and timely), examples of how context affects an assessment of potentially suspicious transactions, and the factors that FINTRAC is likely to consider if it reviews a reporting entity’s practices to determine whether it submitted an STR or STRs as soon as practicable.
AUM Law can help you implement the new requirements by, for example, updating your compliance manual to reflect the new requirements and providing training to your employees. Please do not hesitate to contact us.
April 30, 2020
April 15, the Compliance and Registrant Regulation (CRR) Branch at the Ontario Securities Commission (OSC) emailed registrants to indicate that it had enhanced and clarified its processes to lift close supervision and strict supervision terms and conditions (T&Cs) imposed on individual registrants at firms. This initiative is part of the OSC’s regulatory burden reduction program. Sponsoring firms will be able to submit requests to remove such T&Cs through an online portal. The OSC has published guidance describing the process and indicating the types of information a firm should submit to support a request for expedited review.
On the same day, the CRR Branch also released guidance on its process to reactivate the registration of an individual coming off a suspension imposed by the Mutual Fund Dealers Association (MFDA). CRR staff indicated that, provided certain criteria are met, they will apply an expedited review process that does not re-examine the facts giving rise to the MFDA’s disciplinary action and that aims to process the request within five business days of its receipt.
AUM Law has substantial experience handling individual applications for registration (including reactivations) and engaging with regulators with respect to T&Cs that have been or may be imposed on individuals. We can help you prepare submissions to have T&Cs lifted or re-activate registration. Please contact us to discuss how we can help.
April 30, 2020
In this bulletin:
- CSA Extends Deadline to Implement Conflicts-Related Client-Focused Reforms by 6 Months
- CSA and FSRA Extend Timeline for Implementing Client Comm April 2020Changes to Syndicated Mortgages Regime
- Cyber-Security During the COVID-19 Pandemic and Beyond
- Get Ready to Report Suspicious Transactions “As Soon As Practicable”
- OSC Revises Certain Registration Processes as Part of Its Burden Reduction Initiative
FAQ Corner:Can our firm use electronic signatures for subscription documents, investment management agreements and similar agreements with the firm’s clients?
In Brief: OSC Temporarily Waives Late Fees for All Market Participants ▪ CSA Temporarily Increases Short-Term Borrowing Limits for Mutual Funds ▪ OSC Scales Back Its Consultation on Business Priorities ▪ Regulators Plan Three-Year Moratorium on Trade Matching Exception Reporting
News & Events: AUM Law Participates in CAASA Podcast and Webinar ▪ Lexology Awards
Click the link to access a PDF of our full, monthly bulletin summarizing these recent developments. >> Monthly Bulletin | Working from Home Edition | April 2020
With so many registered firms operating remotely and avoiding in-person meetings with potential clients wherever possible during the COVID-19 pandemic, the question has arisen again whether electronic signatures (e-signatures) are acceptable for various agreements with the firm’s clients. The answer depends on several factors:
- What the law says: In Canada, all the provinces and territories except Québec have adopted legislation based on the Uniform Electronic Commerce Act (UCEA), which provides, in effect, that a contract, record or signature will not be unenforceable solely because it is electronic. (Québec’s legislation incorporates many of the same principles but doesn’t follow the UCEA model.) There are some provincial variations in the legislation, with some provinces having stricter requirements regarding, for example, the type of e-signature that is acceptable. For contracts governed by Ontario law, the Electronic Commerce Act (Ontario) (OECA) provides that an e-signature is acceptable if it is reliable for purposes of identifying the person signing the document and the association of the e-signature with the relevant document is reliable.
- What the parties to the contract agree to: The UCEA and similar legislation facilitate electronic contracts and e-signatures but do not require them. The parties to a contract can agree to a different arrangement. Therefore, registrants that, to date, haven’t been using e-signatures in particular contracts should check that the contract in question provides for the contract to be in electronic form and signed with e-signatures.
- The contract’s subject matter: Certain categories of contracts, such as negotiable instruments, some types of real estate agreements and some types of powers of attorney, may require a “wet ink” signature (although some of these restrictions have been relaxed during the pandemic). In Ontario, there is no prohibition on subscription agreements, investment management agreements and similar client relationship agreements using e-signatures.
- What the firm’s articles, by-laws, policies and procedures say: The registered firm should confirm that its articles, by-laws, policies and procedures do not restrict the use of e-signatures and determine if any particular form of e-signature is required. Although such restrictions are rare, it is important to verify that neither the registered firm nor any client that is an entity is subject to any restrictions on the proposed form of e-signature to be used, especially when a change in firm practice is being considered.
Of course, firms should maintain fully signed and complete electronic contracts just as they would for paper contracts with wet signatures, and they should have a contract execution policy that expressly provides for electronic contracts and e-signatures. It’s also especially important these days, when so many people are working remotely, to organize the firm’s executed contracts so that they can be easily found.
If you have any questions about whether an e-signature is acceptable for a particular type of contract or wish to update your policies and procedures to provide for electronic contracts and e-signatures, please do not hesitate to contact us.
April 30, 2020
On April 17, the Ontario Securities Commission (OSC) announced that it is waiving all late fees that would otherwise accumulate between April 17 and June 1, 2020. The OSC also signalled its willingness to consider ad hoc requests for late fee relief for the pandemic period before April 17, 2020. If your firm is interested in obtaining late fee relief for the pandemic period before April 17, please contact us to discuss your options.
April 30, 2020
On April 17, the Canadian Securities Administrators (CSA) issued blanket orders permitting mutual funds that invest a portion of their assets in fixed income securities to engage in additional short-term borrowing between April 17 and July 31, 2020. Ordinarily, mutual funds that engage in short-term borrowing to accommodate redemption requests are subject to a limit on that borrowing of 5% of the fund’s net asset value at the time of the borrowing. That limit is being temporarily increased to 10%, provided that certain conditions are met, such as having strict controls around the additional borrowing, disclosing the use of any additional borrowing to investors, ensuring that the additional borrowing is in the best interests of all investors. If you are managing a mutual fund that you think would benefit from these blanket orders, AUM Law can advise you on the criteria for exemptive relief and related matters.
April 30, 2020
This is the time of year when the Ontario Securities Commission (OSC) usually publishes a substantive consultation paper requesting feedback on its proposed statement of priorities (SOP) for the coming fiscal year. On April 30, the OSC announced that, in light of the COVID-19 outbreak and related financial market uncertainty, it has decided not to consult on a detailed SOP right now. Instead, it is using its 2019-20 SOP, its 2019 Report on Reducing Regulatory Burden in Ontario’s Capital Markets, and its ongoing engagement with stakeholders to inform its 2020-21 business plan.
People are invited, however, to provide comments by June 1 on the OSC’s current priorities. The OSC expects to publish a progress report relating to those priorities in June 2020. It also plans to conduct a substantive consultation on business priorities in the fall of 2020 to inform its 2021-22 business plan.
April 30, 2020
In late March, the Ontario Securities Commission (OSC) submitted to the Minister of Finance amendments to National Instrument 24-101 Institutional Trade Matching and Settlements (NI 24-101) to provide for a three-year moratorium on the trade match exception reporting requirement (Exception Reporting Requirement). Currently, registered dealers and advisers must file Form 24-101F if less than 90% of trades executed by or for the firm in the preceding quarter matched within the time required in NI 24-101. The OSC’s decision flows from its regulatory burden reduction initiative. OSC staff agreed with a number of commentators who viewed the Exception Reporting Requirement as burdensome and no longer a meaningful contributor to regulatory oversight.
The OSC intends that the moratorium will take effect on July 1, 2020 and run until July 1, 2023. During the moratorium, the OSC will consider whether the moratorium should become permanent and whether any other changes to NI 24-101 are appropriate. In addition, staff of other members of the Canadian Securities Administrators are recommending that the same three-year moratorium be implemented through blanket orders. If you have any questions about the impact of this amendment on your operations, please contact your usual lawyer at AUM Law.
April 30, 2020
As a proud member of the Canadian Association of Alternative Strategies and Assets (CAASA), AUM Law is pleased to contribute to CAASA’s ongoing educational programming. On April 21, our very own Stacey Long contributed her expertise to CAASA’s webinar Marketing Your Liquid Alternative Fund. And our very own Chris von Boetticher teamed up with Jason Russell, ReSolve Asset Management’s Chief Operating Officer and Chief Compliance Officer, and CAASA President James Burron for a podcast discussing regulatory compliance and operational issues for asset managers to consider while operating remotely during this “new normal” of the COVID-19 pandemic. The podcast is part of CAASA’s ongoing series Alternative Thinking: Both Sides of the Investment Coin, available on Spotify and Apple.
We are pleased to have been recognized once again by Lexology as the exclusive Legal Influencer for financial services commentary in Canada for the first quarter of 2020. These awards are designed to recognize law firms that provide subscribers with relevant, high-quality legal updates and are determined based on an algorithm that takes into account reader engagement with the law firm’s publications on Lexology. This is the fifth time that AUM Law has received the award, which has existed for seven quarters.