Category: News

Harvest Portfolios Group Hits $1bn in AUM

We would like to congratulate Harvest Portfolios Group for breaking through the coveted milestone of $1bn of assets under management regarding their suite of prospectus funds!

January 29, 2021

FINTRAC Updates its Guidance on Conducting AML Risk Assessments

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.

January 29, 2021

CSA Publishes More FAQ Guidance on the Client-Focused Reforms

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.

January 29, 2021

Ontario’s Capital Markets Modernization Taskforce Releases Final Report

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.

January 29, 2021

AUM Law Participates in CAASA Webinar

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.

December 11, 2020

Check Out Our New Videos

In connection with sponsoring the recent PMAC compliance conference, we put together an “about us” video that you can watch on our YouTube channel here.

We also filmed some FAQs – the first one features Kim Poster, our Chief Legal Counsel & Senior Vice President, discussing some of the regulatory and compliance factors to consider when setting up an investment vehicle. To view this FAQ click here.

December 11, 2020

CSA Publishes Guidance on Automatic Securities Disposition Plans

On December 10, the Canadian Securities Administrators published guidance (including “recommended best practices”) for issuers and insiders on the establishment, use and disclosure of automatic securities disposition plans. These plans enable insiders to make preplanned sales of securities of an issuer through a dealer or an arms-length administrator, according to a predetermined schedule and set of instructions.

CSA Staff Notice 55-317 Automatic Securities Disposition Plans, can be found on CSA members’ websites.

December 11, 2020

MFDA and IIROC Publish Proposed CFR Rules

The Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) have both published a set of proposed changes to self-regulatory rules designed to conform to the provisions of the Canadian Securities Administrators’ (CSA) effort to enhance investor protection.

As we have reported previously, on October 3, 2019, the CSA published, in final form, the client-focused reforms (CFRs) which require the industry to put their clients’ interests before their own. The CFRs include a number of changes to investor protection rules, including conflicts of interest, suitability, KYC/KYP and disclosure obligations.  IIROC has now published its own proposed rule amendments for public comment intended to make its requirements uniform in all material respects with the CFRs. In a notice published on November 19, IIROC stated that the objectives of the rule changes is to better align the interests of industry firms and reps with their clients, to improve client outcomes and to enhance clients’ understanding of the terms of their relationship with the industry. IIROC has published two sets of proposals: measures that are out for public comment until January 18, 2021, as well as a set of so-called housekeeping amendments which are required to conform with the CSA’s amendments but don’t add further material requirements on industry participants. The more substantive amendments subject to public comments include enhancements to IIROC’s suitability rules and changes to its account appropriateness requirement to ensure that client’s interests come first, along with measures setting out CFR exemptions from the core regulatory obligations of account appropriateness, KYC, suitability determination, product due diligence and KYP for certain account types, client types or service arrangements, as well as other changes of a consequential nature.

Similar to the approach taken by IIROC, on November 19, the MFDA published two sets of amendments. One set addresses housekeeping changes that are relatively minor and the other is a more significant set of proposals that must go out for public comment before they can be approved. The public comment proposals include changes to the MFDA’s rules on suitability, KYC/KYP and account supervision, as well as covering the guidance set out in various MFDA staff notices. The MFDA proposals are out for comment until January 18, 2021. The MFDA has indicated that it is seeking comments on the drafting of its own amendments to ensure that they are clear and properly applied to the business model of fund dealers. As with the CSA’s reforms, the proposed changes will, among other things, require that fund dealers resolve all conflicts of interest in the best interests of clients and provide conflicts disclosure to clients.

The CFRs are to be fully implemented by the end of 2021, with the conflicts of interest provisions taking effect as of June 30, 2021. It is expected that IIROC and MFDA rule changes will be implemented along the same timeline.

December 11, 2020

OSC Proposes Elimination of Routine Exemptive Relief Applications for International Firms

Welcome news for International Firms! Currently, certain international firms doing business in Ontario in reliance on statutory registration exemptions must also manually apply for discretionary relief from certain registration requirements in the Commodity Futures Act (Ontario). These applications may also include a request to be exempt from certain options proficiency requirements in OSC Rule 91-502 Trades in Recognized Options. Per recent proposed OSC Rule 32-506 (under the Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers the OSC is doing its part to remove this additional layer of regulatory burden. The comment period closes on March 1, 2021 and we’d be happy to have a call with you if you have any questions or comments relating to this proposal or the regime governing international firms generally.

December 11, 2020

Two Western Provinces Consult on Innovative Prospectus Exemption

The Alberta Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan are proposing an interesting new prospectus exemption as a three-year pilot project as set out in CSA Multilateral Notice and Request for Comment 45-327 Proposed Exemption for Self-Certified Investors. Unlike the current financial tests for accredited investors, the new proposed exemption would be available to individual investors in Alberta and Saskatchewan purchasing securities of an issuer located in those provinces who provide a prescribed form of certification. Investors would need to attest that they have a CFA designation, a CPA designation (in Canada), are admitted to the practice of law in Canada (focusing on M&A or financings) or hold an MBA with a focus on finance or a degree in finance. Non-individual investors would also be able to use the exemption based on similar criteria. A number of conditions to the exemption are proposed, including an extensive prescribed risk disclosure as part of the self-certification, and limits on investments to $10,000 in the last twelve months per issuer, with an aggregate cap of $30,000 in the last 12 months for all issuers. Given the importance of the exempt markets and ongoing burden reduction initiatives, we will be watching the outcome of the consultation closely.

December 11, 2020

OSC Seeks Comment on Proposed Priorities for 2021-22

On November 16, the Ontario Securities Commission (OSC) published OSC Notice 11-791 Statement of Priorities seeking comment on its draft 2021-2022 Statement of Priorities (SoP) to inform its business planning for the 2021-2022 fiscal year ending on March 31, 2022.

The OSC has set out four strategic goals and it has set out the priority initiatives it will pursue in support of those goals for the 2021-2022 fiscal year. The first goal, promoting confidence in Ontario’s capital markets, will be supported by further work to implement projects such as the Client Focused Reforms, policies on mutual fund embedded commissions and deferred sales charges (DSCs), continued consultation on the current self-regulatory organization (SRO) framework, more timely and impactful enforcement action, collaboration on financial literacy initiatives, strengthening OBSI and expansion of the OSC’s systemic risk oversight (focusing on derivatives and investment fund liquidity risks). The second goal of reducing regulatory burden will involve completing the actions identified in the OSC’s existing burden reduction plan. Under the third goal of facilitating financial innovation, the OSC will implement their multi-year plan for the Office of Economic Growth and Innovation and continue the work of LaunchPad in engaging with fintech market participants. The fourth goal, strengthening the organizational foundation of the OSC, involves continuing to develop SEDAR+, modernizing OSC technologies, fostering a culture of inclusion and diversity and continuing to monitor and adapt to the impacts of the Covid-19 pandemic.

Stakeholders are invited to provide written comments on the draft SoP by December 16, 2020 and comments will be considered by the OSC. The OSC will adjust its priorities as necessary to respond to the impact of the Covid-19 pandemic and to accommodate changes resulting from pending recommendations by the Capital Markets Modernization Taskforce as adopted by the Government of Ontario. Any necessary adjustments to the 2021-2022 SoP will be included prior to finalization and publication.

December 11, 2020

Reminder! Investment Funds Have a January 30 Deadline to File Reports of Exempt Distribution

With the New Year just around the corner, investment funds that take advantage of the option in National Instrument 45-106 – Prospectus Exemptions (NI 45-106) to file certain Reports of Exempt Distribution on Form 45-106F1 (Reports) once a year, instead of after every distribution, have some homework to do. As discussed below, for some funds, two regulatory developments in 2019 might make the process of preparing and filing reports more complicated and time-consuming.

Background: To rely on many of the exemptions in NI 45-106, issuers must report prospectus-exempt distributions to every securities regulator where a distribution of securities was made to a resident of that province or territory. Generally, the filing deadline is ten days after the date of distribution. Investment funds, however, can file their forms once a year, by January 30, for distributions made in the preceding year in reliance upon the accredited investor (AI), minimum amount, or additional investment in fund units exemptions. Distributions made by an investment fund in reliance on other prospectus exemptions may need to be reported to the relevant securities authorities within ten days of the distribution.

How to file the Reports and Pay Fees: An investment fund that is required to file the Report must file it electronically as follows:

  • In British Columbia, through the online eServices portal of the British Columbia Securities Commission (BCSC);
  • In Ontario, through the online Electronic Filing Portal of the Ontario Securities Commission (OSC); and
  • In all other jurisdictions, through SEDAR.

Note that BC Instrument 13-502 Electronic Filing of Reports of Exempt Distribution has been amended to require all Reports to be filed through the BCSC’s eServices portal. Paper filings (by Canadian or foreign issuers) are no longer acceptable. If the investment fund is a non-reporting issuer and does not have a profile set up on the BCSC online eServices portal, an advance registration form must be sent to the BCSC 24 hours prior to filing.

Likewise, if the investment fund does not currently have a SEDAR profile, it must create one prior to filing Form 45-106F1 on SEDAR.

Each securities regulator charges a separate filing fee for the Report. Filing fees for forms filed in British Columbia and Ontario are paid directly online when submitting the form through the regulators’ respective online portals. Filing fees payable to other jurisdictions must be made electronically through SEDAR.

Reports for Exempt Distributions to Fully Managed Accounts May Be More Complicated: Since 2016, NI 45-106 has deemed that in connection with a distribution made in reliance on the AI exemption, a trust corporation, trust company or registered adviser (collectively, the Adviser) purchasing securities on behalf of a fully managed account is considered to be purchasing the securities as principal. As a result, in all jurisdictions, issuers (or their underwriters) only have to provide information about the Adviser, not the beneficial owners of the securities, in the Reports. However, as we reported in our February 2019 bulletin, the Canadian Securities Administrators (CSA) have taken different approaches to where Reports need to be filed and fees paid:

  • Group 1 – Manitoba and Québec: If the exempt distribution has a connection to either province (such as beneficial owners of fully managed accounts resident in either province), issuers and registrants should consider carefully whether a Report must be filed, and fees paid in those provinces. The fees payable for filing a Report in Québec may be significant because they are calculated based on the gross value of the securities distributed in that province.
  • Group 2 – Almost Everywhere Else: The regulators in all other provinces and territories (except Saskatchewan) have indicated that the Report needs to be filed and the fees paid based on the location of the Adviser.
  • Group 3 – Saskatchewan: The regulator has granted blanket, exemptive relief so that the outcome (at least for now) is the same as Group 2.

Next Steps and How We Can Help: Hopefully you have but if you haven’t already started to collect the required information and prepare your forms, we encourage you to do so as soon as possible. Should you require assistance with annual filings of Reports for investment funds, please contact your usual lawyer at AUM Law or one of our securities clerks as soon as possible to ensure that filing deadlines can be met.

December 11, 2020

Regulatory Highlights from 2020

How do you summarize a year like no other in history? Well, the shift to a remote work environment didn’t do much to slow our regulators who, along with the Canadian asset management industry, rose to meet the multi-faceted challenges presented by the COVID-19 pandemic.

A. Burden Reduction and Capital Markets Modernization Initiatives

Regulators moved forward with initiatives intended to reduce regulatory burdens and modernize the regulatory framework, including the following:

Crowdfunding: In February, the Canadian Securities Administrators (CSA) proposed a harmonized, start-up crowdfunding regime. In July, after the comment period closed on the CSA proposal, the Ontario Securities Commission (OSC) issued an interim class order (Order) providing prospectus and registration exemptions for start-up crowdfunding that are similar to the exemptions already in place in a number of other provinces. The Order is expected to remain in place until the earlier of the date the new CSA regime is adopted or January 31, 2022.

SRO Reform: When market participants and regulators weren’t coming to grips with remote work arrangements, they were debating whether and how to reform Canada’s self-regulatory organizations (SROs) for registrants. The Mutual Fund Dealers Association of Canada (MFDA) kicked things off in February when it published its Proposal for a Modern SRO. The CSA followed up in June with its own consultation paper on SRO reform, and the Ontario Government’s Capital Markets Modernization Task Force (Task Force) set out its draft recommendations on the subject in its July consultation report.

OSC Burden Reduction Initiatives: In early 2019, the OSC kicked off a multi-year process to identify and implement actions to reduce regulatory burdens in Ontario and improve the investor experience. Check out our December 2019 regulatory recap if you’d like to refresh your memory. In May 2020, the OSC provided a progress report on its regulatory burden reduction initiatives and provided a further update in the June 2020 Interim Progress Report on its 2019-2022 priorities. We also reported on several specific projects, including the following:

  • In June, the CSA announced changes designed to make it easier for advising representatives (ARs) of portfolio managers (PMs) to register as client relationship management (CRM) specialists.
  • In July, the CSA published guidance on flexible CCO arrangements.
  • In August, the CSA published final amendments that raise the threshold for when non-venture reporting issuers are required to file business acquisition reports.
  • In October, the Ontario government proposed changes to the Business Corporations Act (OBCA) that, if enacted, will eliminate director residency requirements for OBCA corporations and introduce a more flexible regime for privately held OBCA corporations regarding written shareholder resolutions.

B. Business Continuity and Risk Management

Business continuity planning and risk management have been top of mind for firms and regulators this year, and not just because of the COVID-19 pandemic.

  • In March we discussed pandemic-related business continuity issues for firms to consider in the short and medium and term.
  • In July, we highlighted an interesting publication by the North American Association of Securities Administrators (NAASA) focusing on the need for firms to be prepared to deal with colleagues experiencing diminished capacity.
  • In September, we discussed the CSA’s guidance on liquidity risk management for investment fund managers as well the discussion paper issued by Office of the Superintendent of Financial Institutions (OSFI) on core principles for operational resilience in a digital world.

C. Crypto Assets

Crypto-currency issues remained in the news in 2020.

  • In January, we highlighted CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets.
  • In February, we discussed U.S. Securities and Exchange Commission (SEC) Commissioner Hester Pierce’s informal proposal for a safe harbour for token offerings.
  • In July, we wrote about the OSC’s approval of a settlement agreement with Coinsquare Ltd and its executives regarding market manipulation on a crypto-asset trading platform.
  • In August, we highlighted the CSA’s first decision registering a crypto-asset trading platform under its regulatory sandbox program.
  • In October, we discussed the settlement reached by Kik Interactive with the SEC regarding its unregistered token offering.

D. COVID-19

Regulators responded to the COVID-19 pandemic in impressive fashion by, among other things, extending regulatory deadlines, granting temporary relief from certain requirements, and scaling back certain initiatives. They also turned their attention to compliance and other risks affecting market participants that were specific to, or exacerbated by, the pandemic.

A number of the pandemic-related regulatory actions we wrote about in 2020 were temporary in scope, so we have highlighted below the pandemic-related articles we wrote in 2020 that continue to be relevant for market participants.

  • In March, we wrote about factors for registered firms to consider in the short to medium term after they activated their business continuity plans.
  • In April, we reported that the CSA had extended the deadline for implementing the CFRs concerning conflicts of interest and related relationship disclosure information (RDI) reporting requirements by six months to June 30, 2021.
  • In May, we wrote about guidance provided by the Financial Services Regulatory Authority of Ontario (FSRA) to mortgage brokers and administrators regarding their disclosure and other obligations in respect of mortgage-based investments during significant market disruptions, such as the COVID-19 pandemic.
  • In August, we wrote about the U.S. SEC’s risk alert on COVID-related compliance risks relevant to dealers and advisers as well as the task force established by the North American Securities Administrators Association (NASAA) to target COVID-19 fraudsters.
  • The CSA and FSRA extended the expected deadline for implementation of changes to the regulatory framework for syndicated mortgages in April and again in August. As recently announced, the new framework is now expected to take effect on July 1, 2021.
  • In October, we wrote about the CSA’s biennial report on their continuous disclosure review program, which included guidance for reporting issuers on how to disclose COVID-19 impacts.

E. Cyber-Security and Data Privacy

Cyber-security and data privacy continued to be hot topics, with the shift to remote work arrangements due to the pandemic presenting increased risks for inadvertent cyber-security failures as well as opportunities for hacking. AUM Law addressed these and other privacy and cyber-security issues in a number of articles, including the following:

  • Cyber-Resilience: We touched on cyber-resilience in our March FAQ on business continuity planning and wrote a more detailed article in our April bulletin. In September, we reported on the Office of Superintendent of Financial Institutions’ consultation paper on operational resilience in a digital world, which includes recommendations regarding cyber-resilience, and in October, we reported that the international Financial Stability Board (FSB) had finalized its cyber incident recovery and response toolkit.
  • Artificial Intelligence: In February we wrote about the consultation paper on the regulation of artificial intelligence published by the federal Office of the Privacy Commissioner (OPC), and in June we discussed the consultation paper published by the International Organization of Securities Commissions (IOSCO) regarding potential regulatory measures addressing asset managers’ and market intermediaries’ use of artificial intelligence.
  • Privacy: In August, we reported that the Ontario government had launched a consultation to determine whether reforms to Ontario privacy legislation are warranted. See also our article in this bulletin regarding the Canadian government’s proposed Digital Charter Implementation Act, 2020.

F. Compliance Review and Enforcement Report Cards

The summary reports that regulatory staff publish about their oversight of market participants are valuable tools that can help firms learn more about recent and proposed regulatory initiatives, what staff consider to be problematic (or, conversely, beneficial) practices, and how staff interpret legislation and rules. In 2020, we wrote about:

  • Alberta Securities Commission (ASC) staff’s review of issuers’ and registrants’ compliance with the offering memorandum exemption (January);
  • Insights from staff of the OSC’s Compliance and Registrant Regulation (CRR) Branch regarding their compliance program, shared during a webinar hosted by the Portfolio Management Association of Canada (PMAC) in May;
  • The annual enforcement report published by the Investment Industry Regulatory Organization of Canada (IIROC) in May;
  • The CRR Branch’s annual Summary Report for Dealers, Advisers and Investment Fund Managers (September) – a ‘must read’;
  • The CSA’s biennial report card on reporting issuers’ continuous disclosure practices (October); and
  • The OSC’s Corporate Finance 2020 Annual Report (discussed later in this bulletin).

G. Cases and Enforcement Sweeps

In 2020, we wrote about a number of regulatory decisions that we think offer lessons for our readers.

  • In January, we wrote about IIROC’s decision to fine a representative for his failure to follow through on red flags regarding a client account being handled under a power of attorney.
  • In March, we discussed the IIROC decision to fine TD Waterhouse $4 million for deliberate non-compliance with relationship disclosure information requirements. In the same month, the Ontario Court of Appeal upheld Daniel Tiffin’s conviction for trading in promissory notes without registration and distributing securities without a prospectus, but overturned the lower court’s decision sentencing him to six months in jail. (PS: if you’re ever tempted to conclude that a particular instrument is not a security, first read Tiffin).
  • In May, we highlighted the enforcement action initiated by OSC staff against a mutual funding dealing representative who agreed to serve as executor for a client’s will even though he was alleged to have known that he was a beneficiary under that will. We also discussed undertakings given by two issuers to the Alberta Securities Commission (ASC) regarding internal controls, training and other requirements to ensure compliance with prospectus exemptions.
  • In June, we discussed a significant decision issued by the Federal Court of Appeal regarding the constitutionality and application of Canada’s Anti-Spam Legislation (CASL).
  • in July, we wrote about the OSC’s approval of a settlement agreement with Coinsquare Ltd and its executives regarding market manipulation on a crypto-asset trading platform.
  • In September, we reported that the Financial Institutions Regulatory Authority of Ontario (FSRA) had fined Fortress Real Developments for operating without a license.
  • And, as mentioned in Section C above, we wrote about two crypto-asset-related enforcement decisions, concerning market manipulation on a crypto-asset trading platform (Coinsquare) and an unregistered token offering in the U.S. (Kik Interactive).

H. FAQs

In 2020, we published a number of FAQs offering practical insights on various topics. Although many of them touched on issues arising out of the COVID-19 pandemic, we think the insights will continue to have relevance in other contexts.

  • In January, we discussed whether an advising representative (AR) can act as the executor of an estate on behalf of a client.
  • In February, we discussed things to watch out for when firms describe themselves and their representative on social media.
  • In March, we outlined issues for registered firms to consider, in light of the COVID-19 pandemic, regarding their know-your-client (KYC) and suitability determination obligations.
  • In April, we discussed the use of electronic signatures for subscription documents, investment management agreements and similar agreements with the firm’s clients.
  • In May, we addressed the issue of whether an associate advising representative can work remotely or in a one-person branch office.
  • In July, we described how a registered firm’s ultimate designated person (UDP) can certify the firm’s RAQ responses if they do not have online access to the survey.
  • In July, we also discussed whether registered individuals (and applicants for registration) have to disclose offenses they have been charged with, if the matter hasn’t adjudicated yet. (This issue was also covered later in the year in an Advisor’s Edge interview with our Erez Blumberger).
  • In November, we published an FAQ video about regulatory and compliance factors to consider when setting up an investment vehicle.

In 2019, the CSA published its own FAQ guidance, this time focusing the client-focused reforms (CFRs). We discussed those FAQs in our September and October bulletins.

I. FSRA

Although the COVID-19 pandemic delayed implementation of the revised oversight framework for syndicated mortgages to July 2021, the good folks at FSRA kept busy in 2020 with a number of initiatives, including:

  • In August, FSRA published for comment an oversight framework, including proposed rules and guidance, regarding the use of financial planner and financial titles.
  • Also in August, FSRA and the OSC published for comment proposed local rules and guidance regarding syndicated mortgages, while the CSA finalized its amendments for the syndicated mortgages regime.
  • In September, FSRA published proposed service standard for comment.
  • In October, FSRA published its 2021-22 Statement of Priorities for comment.

December 11, 2020