Deal Provides Investment Industry with Flexible, Innovative Approach to ManageRisk
Toronto, ON – May 6, 2021– AUM Law today announced the acquisition of our firm by Borden Ladner Gervais LLP (BLG). The transaction combines BLG’s deep expertise and long-standing counsel in the investment management industry with AUM Law’s fixed-fee regulatory compliance offerings, providing clients with an efficient, innovative approach to help them manage a wide array of legal and regulatory compliance obligations. Financial terms of the transaction were not disclosed.
“Our clients rely on us to stay ahead of change and help them navigate the complex business landscape,” said John Murphy, National Managing Partner and CEO, BLG. “This acquisition, which is the first of note in our sector in several years, is evidence of our commitment to embrace innovation to transform the practice of law and bring new services to our clients as quickly as possible.”
BLG’s investment in AUM Law will allow the firm to expand and automate its regulatory compliance services to clients across Canada as part of the BLG Beyond portfolio of alternative legal services. With over 60 years of experience through lawyers located in all offices across Canada, BLG’s Investment Management Group holds the number one place in Chambers Canada’s legal rankings and is the largest practice group focusing exclusively on the investment management industry in Canada. Established in 2009 to coincide with the introduction and roll-out by the Canadian Securities Administrators of the new cross-Canada registration regime, AUM Law has developed a systematic, predictable approach to regulatory compliance and general counsel requirements, as well as one-off fixed fee services and modules.
“Since inception, we have developed strong client relationships while developing our model to proactively support our clients with managing risk and compliance in a rapidly changing environment,” said Kevin Cohen, President, AUM Law. “This is an opportunity to expand our platform across Canada and bring our alternative legal services model to new clients as part of BLG, attract the finest talent to our team, and leverage BLG’s investment in technology to further enhance the client experience. It’s an exciting moment for our firm, our people and our clients.
In February 2021, FINTRAC updated its guidance on politically exposed persons (PEP) and heads of international organizations (HIO), as well as related guidance for account-based reporting entity sectors, including “securities dealers” (i.e. dealers and advisors). This guidance comes into effect on June 1, 2021.
The fundamental obligation of a registrant to make a PEP and HIO determination remains unchanged. The new guidance adds additional specificity and clarity regarding the duration of being a PEP/HIO and who constitutes a family member or close associate of a PEP or HIO. It also sets out some exceptions to the requirement to make a PEP or HIO determination.
Prior to the new guidance taking effect in June 2021, registrants should reflect the revised guidance in their compliance manuals and review their account opening documents to ensure that the PEP and HIO questions accurately capture those who meet the definitions.
The general FINTRAC guidance regarding a PEP and an HIO can be found here and the account-based information can be found here. Please don’t hesitate to contact your usual lawyer at AUM Law.
On May 12, AUM Law’s Chris Tooley will participate as a speaker at the Portfolio Management Association of Canada (PMAC) Spring Regulatory & Compliance Webcast on FINTRAC audits and Richard Roskies will also be speaking on the topic of OSC audits.
On March 31, 2021, the Alberta Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan adopted, on an interim, three-year basis, a new prospectus exemption entitled the Self-Certified Investor Prospectus Exemption, as outlined in Multilateral CSA Notice of Implementation Alberta and Saskatchewan Orders 45-538 Self-Certified Investor Prospectus Exemption. The new exemption allows individual investors in Alberta and Saskatchewan who do not qualify as an accredited investor to invest alongside accredited investors, provided that they meet other criteria to demonstrate their financial and investment knowledge. There are a number of conditions to the exemption, including an extensive prescribed risk disclosure as part of the self-certification, and limits on investments to $10,000 in the last 12 months per issuer, with an aggregate cap of $30,000 in the last 12 months for all issuers. The investment limits do not apply for ‘Listed Issuer Investments’, or those issuers listed on certain exchanges in Canada, provided the investor receives suitability advice respecting the investment from a registrant. Guidance is provided on the distribution of securities by private issuers to self-certified investors and special purpose vehicles comprised in part of self-certified investors.
In January 2021, the Capital Markets Modernization Taskforce published its final report after completing its review of the status of Ontario’s capital markets. In its most recent provincial budget, the Government of Ontario indicated that it will proceed with certain of the recommendations made in the report, including to expand the Ontario Securities Commission’s mandate to include fostering capital formation and competition in the markets. The OSC’s current mandate is to provide protection to investors from unfair, improper, or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk.
As reported in our December 2020 bulletin, on December 7, the Ontario Securities Commission (OSC) released the final amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions (Amendments). The Amendments form part of the changes across Canada which, in Ontario, will have as one of their effects the transfer from the Financial Services Regulatory Authority of Ontario (FSRA) to the OSC of regulatory oversight over the distribution of non-qualified syndicated mortgages (NQSMIs) to persons that are not permitted clients.
On February 25, 2021, the Canadian Securities Administrators (CSA) published CSA Staff Notice 45-328 Update on Amendments relating to Syndicated Mortgages. In that notice, the CSA confirmed that the Amendments and the amendments in the local jurisdictions to the syndicated mortgage rules, took effect in all jurisdictions on March 1, 2021, except in Ontario and Quebec where the amendments are expected to take effect on July 1, 2021.
Accordingly, if a firm trading syndicated mortgages is operating only in Ontario or Quebec, they have until July 1, 2021 to comply with the Amendments. Firms operating in all other Canadian jurisdictions needed to comply with the Amendments by March 1, 2021.
Furthermore, on March 10, 2021, FSRA released final approach guidance (the “SMI Guidance”) for supervising mortgage brokerages and administrators that engage in NQSMIs. FSRA consulted on the proposed guidance in August-September 2020. The SMI Guidance will apply to: (a) mortgage brokerages dealing and/or trading in NQSMs with permitted clients on or after July 1, 2021; (b) mortgage brokerages acting on behalf of the borrower in NQSMIs with investors/lenders that are non-permitted clients; (c) mortgage brokerages that dealt and/or traded in legacy NQSMIs (conducted prior to July 1, 2021); and (d) mortgage administrators administering NQSMIs. The SMI Guidance highlights the division of regulatory oversight of NQSMIs, risk profile factors for mortgage brokerages, administrators and NQSMIs, information required for the quarterly data report for NQSMIs with permitted clients and data collection for legacy NQSMIs. Firms in Ontario dealing and/or trading in NQSMIs or mortgage administrators administering NQSMIs will want to review the final guidance in detail. Please don’t hesitate to contact your usual lawyer at AUM Law.
The British Columbia Securities Commission recently announced that it will be contacting clients more routinely as part of its compliance reviews (a practice adopted by the Ontario Securities Commission). Historically, the BCSC has only contacted clients in “exceptional cases,” but in a recent report it has “found that client contact can be a valuable method of assessing the firm’s compliance with BC securities law.”
In response to the recently released report by Ontario’s capital markets modernization taskforce containing 70 plus recommendations (summarized in our January bulletin), the Canadian Securities Administrators (CSA), excluding the Ontario Securities Commission (OSC), recently issued an open letter expressing concern about a number of the taskforce recommendations. In particular, the CSA letter raises concern that certain recommendations could negatively affect harmonization efforts across Canada, that a “harmful imbalance” could result from the recommended expansion of the OSC’s authority in certain areas, and have (again) called for the OSC to join the CSA’s passport regime.
On February 4, the Portfolio Management Association of Canada (PMAC) will be hosting a virtual webcast. AUM Law’s Kevin Cohen will participate as a panellist to discuss the importance of succession planning from a client, regulatory and business continuity perspective.
One of the five core requirements of a registered firm’s anti-money laundering and anti-terrorist financing (AMLTF) compliance program is to conduct a risk assessment of its business activities and relationships. The business-based risk assessment must assess the risks linked to a registered firm’s business activities and the relationship-based risk assessment must assess the risks linked to the nature and type of business of a registered firm’s clients. During an audit, FINTRAC may review these risk assessments, in part to verify if they consider certain risk factors. The risk assessments are not to be confused with the requirement to complete an independent two-year effectiveness review, which is a separate obligation that must be completed by registered firms every two years.
In January of 2021, FINTRAC published updated risk assessment guidance to include legislative amendments from June 2017 and legislative amendments that will come into force on June 1, 2021.
The key take away for registered firms is that you should review your risk assessments to ensure that the following are included among the risk factors that are considered: new developments, technologies and the activities of any affiliates. Registered firms should review the updated risk assessment guidance and reach out to their usual lawyer for assistance, as applicable. The updated risk assessment guidance can be found here. For any questions, please contact Chris Tooley or a member of our team.
On September 28, the Canadian Securities Administrators (CSA) published guidance in the form of responses to frequently asked questions (FAQs) about how to interpret and implement the client-focused reforms (CFRs) to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). As our readers already know, the conflicts-related CFRs must be implemented by June 30, 2021 and the remaining CFRs must be implemented by December 31, 2021. If you need a refresher on the CFRs, you can download our recently updated publication In a Nutshell: Implementing the Client-Focused Reforms.
The CSA recently released additional FAQs on December 18, 2020. We have noted with interest the following topics:
KYC 2.0 Timing: In what can only help alleviate registrant stress, CSA Staff have made it explicitly clear that registrants do not need to both: (i) update their KYC and suitability process; and (ii) re-paper all their client accounts by December 2021. Registrants must only update their KYC and suitability process based on the CFR requirements by December 2021. Re-papering client accounts can occur after that date based on when a specific registrant is obligated to conduct a KYC update.
Conflicts of Interest and Disclosure: The CFRs require registrant firms to compile an inventory of all their material conflicts and how they will mitigate those conflicts. Subsequently, the registrant firm must then disclose those conflicts in their relationship disclosure. CSA Staff have now clarified that where a registrant firm addresses a conflict by avoiding the conflict altogether, they do not need to include this conflict in their relationship disclosure. This clarification gives registrant firms some control over their required disclosure to clients and makes their choice of approach to conflict mitigation all that more important.
Registrant Employee Oversight: For registrant firms that seek to provide a multi-discipline offering to their clients (e.g. a family office that provides services such as financial planning, securities advisory and insurance), CSA Staff have clarified that registrants have a broader due diligence obligation that just securities law oversight. CSA Staff have indicated that if a registrant employee holds themselves out as appropriately registered with another regulator, registrant firms have an ongoing obligation to ensure that this license is appropriate and that the registrant employee is in good standing with that regulator. This expectation may broaden existing due diligence procedures for registrant firms.
Implementing the CFRs will require changes to your policies, procedures, internal controls, record-keeping protocols, client-facing documentation and compliance training. Giving our clients practical advice on compliance with NI 31-103 is one of our core services. We can help you develop a project plan, work with you to systematically review and make any needed changes, and train your employees so that you are ready as the CFRs are phased in. In fact, our very own Richard Roskies is part of the Portfolio Management Association of Canada (PMAC) CFRs implementation committee. If you have any questions about the Guidance, please do not hesitate to contact us.
In our July 2020 Bulletin we reported on the Consultation Report of Ontario’s Capital Markets Modernization Taskforce. On January 22, the Taskforce released its Final Report after engaging with over 110 stakeholders and receiving over 130 stakeholder comment letters in response to the Consultation Report.
Background: The Taskforce was appointed by Ontario’s former Finance Minister to review the capital markets regulatory framework and make recommendations to modernize Ontario’s capital markets regulation. One of the Taskforce’s main objectives was to amplify growth and competitiveness in Ontario’s capital markets.
As we did in our July 2020 Bulletin when we last reported on the Consultation Report, in this month’s bulletin we have highlighted the proposals that we think will be of particular interest to readers who are following this initiative.
Improving Regulatory Structure: The Final Report sets out a number of recommendations which the Taskforce believes will lead to a more modern and efficient securities regulator including:
Replacing the Securities Act (Ontario) and Commodity Futures Act (Ontario) with the Capital Markets Act (CMA). The recommendation is to see the implementation of the CMA by the end of 2021. As for this timing … we’re betting on the Over.
Expanding the mandate of the OSC to include fostering capital formation and competition in the markets in order to encourage economic growth and help facilitate capital raising.
Enhancing collaboration between the Ontario Securities Commission (OSC) and Financial Services Regulatory Authority of Ontario (FSRA) to achieve efficiencies including examining the potential of back-office efficiency opportunities.
Introducing a single self-regulating organization (SRO) that covers all advisory firms, including investment dealers, mutual fund dealers, portfolio managers, exempt market dealers (EMDs) and scholarship plan dealers. In the short term the new SRO would regulate both investment and mutual fund dealers. In the long term this SRO would replace IIROC and MFDA and would also regulate exempt market dealers, portfolio managers and scholarship plan dealers and ultimately the OSC would delegate more registration responsibilities to the new SRO.
Speed up the SEDAR+ project to create a more modern, centralized and user-friendly electronic filing/document retrieval system with the first phase to be complete in 2021. We’d love to see this happen in 2021 but again, don’t see this as being likely considering the heavy regulatory agenda this year.
Improving Regulations and Enhancing Investors Protection: Based on the Taskforce’s findings, capital markets participants are in favour of reducing regulatory burden and streamlining regulatory requirements. The Final Report recommends streamlining regulatory requirements and enhancing investor protection including:
Lowering to 30 days the current four-month hold period for securities issued by a qualified reporting issuer using the accredited investor exemption and eliminating the hold requirement altogether after two years.
Providing the Director of Corporate Finance at the OSC with power to impose terms and conditions on issuers similar to the power the Director of Compliance and Registrant Regulation has regarding registrants.
Expanding civil liability for offering memorandum misrepresentation to extend to parties other than the issuer such as its board of directors, promoters, influential persons and experts.
Allowing the OSC to adapt prospectus liability to address regulatory gaps resulting from new and evolving financing structures.
For consistency with other jurisdictions, decreasing the ownership threshold for early-warning reporting disclosure from 10 to 5 per cent for non-passive investors.
Designating a dispute resolution services organization that would have the power to issue binding decisions.
The Rise of Private Markets, Exempt Market Activities and Ensuring a Level Playing Field: The Taskforce included recommendations that aim to increase capital raising opportunities for small intermediaries and increase the variety and quality of independent products available to retail investors, such as:
A dealer registration safe harbour for issuers that wish to distribute their own securities without an intermediary. We agree that this would be incredibly helpful to market participants.
A finder category of registration which would impose fewer obligations compared to those imposed on EMDs or investment dealers (such as lower capital requirements) and eliminate the need for a finder to have an ultimate designated person or chief compliance office in certain instances. We also think this is a good idea, provided there’s clarity regarding when one crosses into being a registrable finder.
The OSC and TMX to re-allow EMDs to act as “selling group members” in the distribution of securities made under a prospectus offering. This door was closed to EMDs a few years ago due to various policy concerns, so will be interesting to monitor this proposal.
Additional accredited investor categories to include individuals that have passed relevant proficiency requirements.
Improving access to the shelf system for independent product through guidance to address product shelf issues and the makeup of New Product Committees, title clarification for proprietary product to ensure a level playing field for all products gaining action to a distribution channel and that conflicts are addressed in the best interest of clients.
Fostering Innovation: The Taskforce made recommendations to help support stakeholders request for a more nimble and flexible regulator in order to foster innovation in the Ontario capital markets including:
Foster an Ontario Regulatory Sandbox to benefit entrepreneurs and in the longer-term, consider developing a Canadian Super Sandbox where the OSC and FSRA should design an approach that would offer rapid exemptive relief or use other available regulatory tools to permit companies with innovative business models operating across the financial services sector in Ontario to test new financial services and products.
Encourage access to retail investors in less liquid private equity and debt markets by introducing an appropriate retail investment fund structure (e.g. Interval Funds in the U.S.)
Other Recommendations: The summary above highlights only a handful of the Taskforce’s 70 plus recommendations. The Final Report also included other proposals such as:
A fully electronic or digital delivery in relation to documents mandated under securities law requirements within six months.
Name change of the Ontario Securities Commission to the Ontario Capital Markets Authority.
Reducing the minimum consultation period for rule-making from 90 days to 60 days.
Providing the OSC with additional tools for continuous disclosure and exemption compliance.
Modernizing Ontario’s short selling regulatory regime to include protections allowed for in other jurisdictions (e.g., U.S. and U.K.)
Introducing an exemption from the disclosure of conflicts of interest in connection with private
placements to institutional investors. An issue that’s been kicking around for years.
What’s Next? The next steps for the Final Report are now up to recently appointed Minister of Finance. The Minister may choose to act on some, none or all of the recommendations. As we have previously mentioned, we think that initiatives that can be implemented by Ontario authorities on their own could start moving forward if no legislative or rule changes are required. Other proposals (such as SRO reform) will require coordinated, cooperative and determined actions by multiple parties across the country and therefore likely to take much more time to achieve, if they are achievable at all.
AUM Law will continue to monitor the status of the recommendations and update you on significant developments. If you are interested in discussing any of the recommendations, please do not hesitate to contact Sandy Psarras, Chris von Boetticher or another member of our team.
On February 2, AUM Law’s Richard Roskies will participate as a speaker at the InvestorCOM webinar, to discuss Client Focused Reforms and Know Your Product provisions for investment dealers and their representatives.
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 November 23, our very own Jason Streicher contributed his expertise to CAASA’s webinar Client Focused Reform – A Closer look at KYP. The webinar shared discussions of changes to KYP coming from the Canadian regulators, with new rules taking effect in 2021.