Month: May 2021
In this bulletin:
- BLG Transaction – New Beginnings
- All Together Now – OSC Joins DSC Ban
- Titles, Titles and More Titles – Notice of Changes and Request for Further Comment on Financial Professionals Title Protection Rule
Important Reminders: CFR Requirements Reminder ▪ Investment Fund Managers (IFM) Form Deadlines
In Brief: CSA Proposed Amendments to Designated Benchmarks and Benchmark Administrators ▪ CSA Proposed Amendments to NI 14-101 Definitions and Consequential Amendments ▪ IIROC Seeks Expert Views on Its Proposed IIROC Expert Investor Issues Panel ▪ A Summer for Consideration – CSA Proposes Amendments to Continuous Disclosure Obligations and Semi-Annual Reporting for Venture Issuers ▪ To Promote or Not to Promote – Proposed New Disclosure Requirements in BC ▪ Sixth Year Review of Women on Boards and in Executive Officer Positions
FAQ Corner: Can a Registrant Act as a Trustee, Executor, or Under a POA for a Client? When Are Such Activities Reportable as an OBA? ▪ How Often Should a Registered Firm Conduct Ongoing Monitoring of Their Clients’ Accounts for the Purposes of Complying with Their Anti-Money Laundering (AML) Requirements?
BLG’s Resource Corner: BLG’s Client Focused Reforms Communication Series Surging through 2021 to 2022 and More
News: Lexology Awards ▪ AUM Law Presented at PMAC Conference ▪ AUM Law Speaks at Compliance Officers’ Network
Click the link to access a PDF of our full, monthly bulletin summarizing these recent developments. >> Monthly Bulletin | To the Future and Beyond Edition | May 2021
The British Columbia Securities Commission has released for comment Proposed BCI 51-519 Promotional Activity Disclosure Requirements which sets out a framework for required disclosure relating to promotional activities. The proposals stem from problematic promotional activities by certain issuers that were identified by the CSA back in 2018, including campaigns that provided unbalanced or unsubstantiated material claims about reporting issuers. Other concerns expressed related to the lack of disclosure about compensation paid to others for promotional activities, the absence of conflict of interest disclosure, as well as inadequate oversight of promotional activities on behalf of issuers. The proposals would require issuers to include specified information about promotional activities when they are undertaken, such as a description of the compensation paid to third parties, any interest in any security or derivative that is the subject of the promotional activity, and each platform or medium through which the activity is being conducted. Certain of such information must also be provided in response to an inquiry relating to promotional activities when a third party is retained or compensated to conduct promotions. Venture issuers would have additional obligations, such as a requirement to include specific information about promotional expenses in their MD&A if total expenditures on promotional activities exceed 10% of the issuer’s total operating expenses in any annual or interim period. Venture issuers would also have to issue and file a news release that includes specified information if they retain or compensate a person to engage in promotional activity. Certain activities would be excluded from the application of the instrument, including promotional activity conducted by directors, officers and employees (who identify themselves as such), registrants when conducting registerable activities, and activities of investment funds or persons engaged in promotional activity in respect of such funds. If you wish to comment on the proposals, please contact your usual lawyer at AUM Law prior to the deadline of July 26.
May 31, 2021
On May 18, 2021, the securities regulatory authorities in Ontario, Manitoba, New Brunswick, Nova Scotia, Quebec and Saskatchewan (the “participating securities regulators”) published the underlying data used to prepare the sixth-year review of women on boards and in executive officer positions. The data was compiled from public documents filed on SEDAR for the 610 non-venture issuers who were included in the review sample. Previously, on March 10, 2021, the participating securities regulators published CSA Multilateral Staff Notice 58-312 summarizing the underlying data (the “Notice”). The Notice revealed the following:
- 20% of board seats were held by women;
- 79% of issuers had at least one woman on their board;
- 5% of issuers had a woman CEO;
- 15% of issuers had a woman CFO;
- 65% of issuers had at least one woman in an executive officer position; and
- 54% of issuers adopted a policy relating to the representation of women on their board.
The notice indicates that the Canadian Securities Administrators will continue to monitor trends in this area and will be considering its role in the broader diversity conversation. We look forward to following these discussions and important initiatives with interest.
May 31, 2021
Answer: Registrants are often asked by their clients, as trusted advisors, to act as their trustee under family trusts, executors under their will or as powers of attorney. The potential issue with accepting any of these roles for a registrant is that they may present a material conflict of interest. For instance, if a client is deceased and the advisor takes on the role of the executor of the estate, he or she will be required to review the registrant’s work and decide if the investments are still appropriate, and potentially whether the executor should even keep the assets with the advisor or the advisor’s firm. The conflict becomes most obvious if the registrant is responsible for reviewing his or her own work.
While the CSA chose not to explicitly prohibit such relationships in the Client Focused Reforms, personal financial dealings are referenced in certain IIROC and MFDA rules. For example, in IIROC rule 3115. Personal financial dealings, there is a prohibition on acting as a power of attorney, trustee, executor or otherwise having full or partial control or authority over the financial affairs of a client except in limited circumstances, such as when the client is a related person as defined in the Income Tax Act (Canada) and control is exercised in accordance with firm policies and procedures, or in the case of certain control granted in a discretionary account. The CSA is also of the view that a registrant having full control or authority over the financial affairs of a client may create a material conflict of interest. So, if a firm is not going to avoid this conflict, it should create a specific procedure to ensure that these conflicts are identified and are addressed in the client’s best interest. For example, specific pre-approval from the CCO could be obtained, based on a justification of why such activity would be in the best interests of the client in the specific instance, and procedures to manage the potential conflict such as having the individual advisor recuse himself or herself on matters involving the appointment of an investment manager could be implemented, where possible.
We understand that simply being appointed an executor in a will does not currently amount to a disclosable OBA in Form 31-103F4, and will only become disclosable once a registrant steps into that role and is vested with the powers of the office of an executor. We believe the same logic could apply to other powers of attorney as well, depending on the type of powers granted.
May 31, 2021
Answer: While it may be considered industry standard to conduct ongoing monitoring annually, FINTRAC allows registrants to determine the frequency with which a registrant will monitor its clients’ accounts. Accordingly, every firm should have policies and procedures that reflect what they have determined to be a reasonable process for conducting ongoing monitoring. In general, the frequency of ongoing monitoring will depend on the types of services provided to the clients, the type of relationship the firm has with its clients, and the risk level of the clients.
Of course, FINTRAC rules can not be viewed in isolation, and registrant firms must also consider the requirements set out in the Client Focused Reforms Amendments to NI 31-103 and Companion Policy 31-103CP (CFR Amendments) relating to know-your-client (KYC) information which come into force at the end of the year. For managed accounts, a review should occur at least every 12 months; if the registrant is an exempt market dealer (EMD), the review should occur within 12 months before making a trade for, or recommending a trade to, the client. In any other case, reviews are expected to occur no less frequently than once every 36 months.
For any high-risk client, FINTRAC would expect monthly or quarterly monitoring, as well as the close monitoring of all of that client’s transactions.
We recommend that firms make explicit note of the fact that AML information was considered as part of the client’s information update. For more specific guidance regarding what other information should be collected from clients as part of the AML ongoing monitoring requirements, please do not hesitate to contact us.
May 31, 2021
Our friends at BLG invite you to scan information from their CFR Communication Series – Surging through 2021 to 2022, starting with a conflicts of interest summary and the new rules relating to titles and misleading communications that are coming into force on December 31, 2021. For more information, please visit the following links:
BLG is hosting a webinar on June 24, 2021 “Understanding the Green Regulatory Landscape” – please use this link to locate the registration details. For more information on regulatory activities in this space, see Canadian Securities Regulators Conduct a “Green Sweep” of ESG Products and Practices.
May 31, 2021
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 2021. 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 seventh time that AUM Law has received this award.
May 31, 2021
On May 12, AUM Law’s Chris Tooley participated as a speaker at the Portfolio Management Association of Canada (PMAC) Spring Regulatory & Compliance Webcast on FINTRAC audits and Richard Roskies spoke on the topic of OSC audits. If you are interested in a copy of our Regulatory and FINTRAC Audits presentation, please contact us.
May 31, 2021
Richard Roskies and Chris Tooley will be participating as panelists at the Compliance Officers’ Network hosted by PMAC and Borden Ladner Gervais (BLG) on various topics related to client focused reforms and AML changes. This event will take place on June 2 for members of PMAC’s compliance officers network and will have other BLG speakers.
May 31, 2021
On May 20, the CSA proposed amendments to NI 51-102 Continuous Disclosure Obligations in order to streamline and clarify continuous disclosure requirements for reporting issuers other than investment funds. The proposed amendments would include consolidating the MD&A form with the AIF form and financial statements into new annual and interim disclosure statements. The proposed amendments would eliminate some disclosure requirements found to be duplicative or redundant, such as the current MD&A requirement to disclosure summary information for the last 8 quarters, as that information can be located in previous filings. A few new requirements are proposed to be added to address perceived gaps in disclosure as well. The final amendments are expected to be effective December 15, 2023 and various transition provisions have been proposed. The CSA expects the amendments will streamline reporting and increase reporting efficiency for reporting issuers while increasing the quality of the disclosure for investors. Of particular interest, at the same time the CSA has proposed a framework for future consideration that would allow venture issuers (on a voluntary basis) to report semi-annually instead of quarterly, if they are not SEC issuers and provide alternative disclosure for interim periods where financial statements and MD&A are not being filed. The comment period on the proposals close on September 17, and we expect that market participants will want to review the extensive changes closely.
May 31, 2021
IIROC is currently seeking input into a proposed framework for its new Expert Investor Issues Panel, including with respect to the panel’s creation, structure, and operation. The panel is intended to enhance IIROC’s current robust investor outreach efforts and help it accomplish its goal of investor protection. The framework includes provisions addressing membership composition, meetings, and responsibilities. Of note, the notice includes an appendix with an interesting comparative study of similar panels of other public interest regulators. Comments will be accepted on the proposal until June 30.
May 31, 2021
The CSA has proposed certain amendments to the National Instrument which sets out definitions that apply across various other national instruments, including the definition of “Canadian financial institution”, and consequential amendments resulting from the change. The revised definition would exclude foreign banks listed in Schedule III to the Bank Act (Canada), and adds a reference to a central credit union, financial services cooperative, credit union league or federation that is incorporated or authorized to carry on business under an Act of the legislature of a jurisdiction. The change will ensure that the definition is uniform across the relevant national instruments. In addition, a change is proposed to the definition of “Handbook” only to reflect that CPAC has different publications for accounting and assurance. Comments on the proposal are due on July 21.
May 31, 2021
Certain of the securities regulatory authorities are proposing changes to Multilateral Instrument 25-102 Designated Benchmarks and Benchmark Administrators to provide for a securities regulatory regime for commodity benchmarks and administrators. MI 25-102, which was published in final form on April 29, for the first time designates and regulates benchmarks and their administrators. Under the rule, Refinitiv Benchmark Services (UK) Limited is the only designated administrator and only CDOR is designated as a benchmark. The proposed amendments would provide for the designation and regulation of commodity benchmarks, including those dually designated as designated critical benchmarks and designated commodity benchmarks, and benchmarks dually designated as designated regulated-data benchmarks and designated commodity benchmarks, as well as their administrators. For example, a “designated commodity benchmark” would be defined as a benchmark that is determined by reference to or an assessment of an underlying interest that is a commodity, but does not include a benchmark that has, as an underlying interest, a currency or a commodity that is intangible. Depending on the designation, administrators would have to comply with a number of requirements, similar to those under the existing rules but modified as needed for the commodity markets. The changes are intended to protect the Canadian commodity markets and also establish an EU equivalent regime to allow EU institutional market participants to use any Canadian designated benchmark under their equivalency provisions. The amendments are generally based on the principles for Oil Price Reporting Agencies published by IOSCO which is used in the EU regulations. There is no current intention to designate any commodity benchmarks or administrators, but the CSA members believe it is important to establish a regime because such benchmarks are subject to vulnerabilities, particularly with respect to the voluntary reporting of input data and low liquidity in physically-settled contracts.
Similar proposals have been published by the OSC to OSC Rule 25-501 (Commodity Futures Act) Designated Benchmarks and Benchmarks Administrators. Comments on both proposals are due July 28.
May 31, 2021
For clients who are registered as investment fund managers, a friendly reminder that your initial investment funds survey responses are due on May 31. Additionally, your completed fund data spreadsheet will be due on July 30. Please contact us if you have any questions on how to complete this survey.
May 31, 2021
A number of new regulatory requirements regarding conflicts of interest, including referral arrangements, come into effect on June 30. These requirements are part of the Client Focused Reforms initiative and require new internal processes and disclosure to clients. If you have not started working on these changes, please contact your usual lawyer at AUM Law as soon as possible to discuss how we can assist you.
May 31, 2021