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
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
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
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
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
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
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.
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).
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 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.
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
It’s time for Ontario-registered firms, unregistered exempt international dealer/adviser firms, and unregistered investment fund managers to get ready to file their annual participation fee calculations with the Ontario Securities Commission (OSC) by December 1 and pay the prescribed fees by December 31.
Filing and Payment
- How and when: Firms must complete and file Form 13-502F4 Capital Markets Participation Fee Calculation (Form 13-502F4) or Form 13-503F1 (Commodity Futures Act) Participation Fee Calculation (Form 13-503F1), as appropriate, by December 1.
- Certification: Your firm’s chief financial officer (CFO) or another specified officer, such as the chief compliance officer (CCO), can certify and submit the required forms to the OSC.
- Amount: According to the information that your firm provides in Form 13-502F4 or Form 13-503F1, the National Registration Database (NRD) generates a preliminary annual fee summary in early December. The participation fee in Form 13-502F4 or Form 13-503F1, as well as the annual fees payable in other jurisdictions (if applicable), will be withdrawn from your firm’s NRD account on December 31. Ensure that your NRD account has the necessary funds on December 31 to allow these withdrawals.
- If you do not pay: Failure to pay annual participation fees will result in automatic suspension of a firm and its individuals. Furthermore, late fees will apply for forms and participation fees submitted after the due dates.
AUM Law Can Help: Please contact Gordana Beric or Rachel Palozzi if you would like our help in preparing and filing Form 13-502F4 or Form 13-503F1, or if you have any questions about the requirements.
October 30, 2020
AUM Law is proud to sponsor the Portfolio Management Association of Canada’s National Conference, Hindsight is 2020: The Year in Review and What Lies Ahead, on November 17. Click here to see the agenda and to register, and please stop by our virtual booth to say hello.
October 30, 2020
In October 2019, the Canadian Securities Administrators (CSA) finalized their client-focused reforms to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (CFRs or Amendments). The CFRs are the most sweeping changes to NI 31-103’s ongoing registrant obligations since the rule was adopted over ten years ago. These reforms represent a fundamental shift towards a best interest standard.
Implementing the CFRs will require changes to your policies, procedures, internal controls, record-keeping protocols, client-facing documentation and compliance training, but there’s no need to panic. AUM Law is here to help. 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.
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.
On September 30, we published an article sharing our first look at some of the FAQs. In this article, we’ll highlight additional FAQs that we think our readers will find relevant as they work on their implementation plans.
Know-Your-Client (KYC) and Suitability Requirements
- Collecting Information about Outside Holdings: In their response to FAQ 2, CSA staff provide guidance on how they expect registrants to handle situations where they do not have access to information about a client’s outside holdings, which may be relevant to the registrant’s assessment of the client’s capacity for loss. In particular, CSA staff expect dealers to obtain a breakdown of the client’s financial assets and net assets to ensure that the information collected accurately reflects the client’s financial circumstances and to assist the registrant in determining the availability of prospectus exemptions the suitability of any investment made. Outside investments may be particularly important to an assessment of whether a particular investment could lead a client to become over-concentrated in a security. Staff indicated, however, that if a client refuses to provide or update the requested information, that refusal does not automatically prevent the registrant from servicing the client. The registrant should use professional judgment in deciding whether it has sufficient information to meet its suitability determination requirement and whether that information is sufficiently current. Furthermore, staff expect dealers to make further inquiries where there is a reasonable doubt about the accuracy of information provided by the client or the validity of the client’s claim to be an accredited investor or eligible investor.
- Unsolicited Orders: In their response to FAQ 2, CSA staff also remind registrants of the new requirement, set out in section 13.3(2.1) of NI 31-103, regarding unsolicited orders. If the registrant believes that a client order or instruction isn’t suitable, it’s insufficient to mark the order as unsolicited. The registrant must advise the client in a timely manner against proceeding, indicate the basis for that determination, and recommend an alternative that satisfies the suitability requirement in subsection 13.3(1). In order to provide such advice, the registrant must have sufficient KYC information.
- Evidencing Compliance with KYC Update Requirements: In their response to FAQ 3, CSA staff emphasize that they have not prescribed how registrants must evidence their compliance with obligations to keep KYC information current. They note that methods for documenting a client’s confirmation of the accuracy of information, including significant changes, may include maintaining notes in the client’s file or more formal methods such as obtaining the client’s digital or handwritten signature. In some cases, notes of a phone call will be enough but in other situations (e.g. where there are significant changes in KYC information), staff expect that information to be repapered. Also, when a periodic review takes place, CSA staff expect all KYC elements to be reviewed. It wouldn’t be reasonable to update a client’s income or employment without asking questions to revisit their risk tolerance and time horizon.
- Reassessing Suitability When Team Membership Changes: Section 13.3.(2)(a) of revised NI 31-103 (the Revised Rule) requires a registrant to review a client’s account and reassess the suitability of the securities in that account if, among other things, a registered individual is designated as responsible for the client’s account. In FAQ 26, CSA staff provide guidance on how that requirement can be interpreted where a firm assigns teams, rather than specific individuals, to client accounts. They indicate that professional judgment must be exercised in deciding whether a change in team membership triggers a suitability review. For example, a change of one registered individual will not necessarily trigger the requirement but individual team members’ roles and responsibilities, to the extent they differ, should be considered. For example, if there is a team leader who approves other team members’ recommendations and that team leader changes, it is likely that a review would be appropriate because that individual is effectively designated as responsible for the client’s account.
Best Interests Standard: In FAQ 4, market participants sought more guidance on how they can ensure that they are addressing material conflicts of interest in the best interests of their client. CSA staff’s response, however, does not provide much additional information. Staff reiterate their prior statements that determining best interests is a facts and circumstances-specific exercise, point to their guidance in NI 31-103CP regarding conflicts, and stress that a registrant’s conflicts analysis should take into account materiality, reasonability and professional judgment, taking into account the client-registrant relationship and the registrant’s business model.
Conflicts Disclosure: FAQ 15 asks whether conflicts can be grouped for disclosure purposes or whether they must be specifically enumerated. In their response, CSA staff stress that they do not want the disclosure to overwhelm clients but that some specificity is needed to help clients evaluate their relationship with the registrant. Registrants should use their professional judgment in deciding whether grouping certain conflicts together will result in the client being able to more easily understand the disclosure.
Relationship Disclosure Information (RDI) Requirements
- Timeline: Now that the deadline for implementing the revised RDI requirements has been extended to December 31, 2021, CSA staff expect all new and existing clients to receive updated RDI in line with that deadline (FAQ 21).
- Delivery Mechanisms and Content: CSA staff’s response to FAQ 21 also emphasizes that registrants have flexibility about how they deliver the revised RDI. For example, the information could be provided to a new client during onboarding, while an existing client could receive the information when the registrant first interacts with that client after the implementation date. If an existing client has opted to receive correspondence electronically, firms should provide the s. 14.2 disclosure to that client by December 31, 2021 to the extent feasible. Staff also stress that, to satisfy s. 14.2, registered individuals must spend enough time with the client to adequately explain the information being delivered to the client, including an explanation of any changes to the RDI being delivered to the client. Finally, CSA staff encourage registrants to assess the effectiveness of the disclosure they provide to clients by considering behavioural economics principles and tactics to simplify the content.
- Standalone Conflicts Disclosure: FAQ 22 doesn’t expressly incorporate a question, but it seems to seek the CSA’s confirmation that firms will not have to mail out a separate disclosure document disclosing material conflicts of interest by June 30, 2021. In their response, CSA staff point out that the required conflicts disclosure to new and existing clients cannot be delayed past the June 30, 2021 deadline. However, the disclosure can be provided electronically or on paper, provided that it meets the CFRs’ plain language requirements. In addition, registrants that are not required to be members of the Investment Industry Regulatory Organization of Canada (IIROC) do not have use a prescribed RDI document to deliver the account opening conflict of interest disclosure.
- Disclosure about Fees, Expenses and Operating Charges: CSA staff’s responses to FAQs 23 and 24 go beyond the guidance in revised NI 31-103CP to set out some additional factors and principles to consider in crafting RDI to meet the requirements in sections 14.2(2)(b)(ii) and 14.2(2)(o). Among other things, staff state the following:
- Since fee models and products and services offered to clients vary widely, registered firms will have to exercise professional judgment as to the extent they can standardize disclosure, how client-specific it can be, and how much detail is needed. They also will need to strike the right balance between providing “enough information” and not overwhelming the investor.
- Subparagraph 14.2(2)(b)(ii) of NI 31-103 does not require the firm to provide the client with a list of all investment funds and other products with ongoing fees and expenses. Rather, it is to inform clients who may be invested in such products or services that those investments have ongoing fees and expenses. For example, staff would expect disclosure in plain language about how fees and expenses are taken from the fund as a percentage of its total assets, how the fees and expenses will be deducted from the fund’s returns (and therefore will affect the client’s returns on their investment for as long as they hold the fund), and that when the client gets information about the value of their investment in the fund, the fees and expenses have already been taken into consideration.
- The requirements for transaction charge disclosures in RDI are for “a general description” of the types of transaction charges that the client might be required to pay. This means that types of fees that the firm does not currently use for clients like the individual receiving the RDI should be excluded. It also means that the details of the amounts relating to a specific security should not be included in RDI.
- The requirement to disclose operating charges is not qualified as a “general description”. It is specific to what the firm might charge the client related to the account. This is because RDI is deliverable at account opening and the specific details about the cost of having the account are therefore relevant at that time.
- The requirement relating to the potential impact of fees and charges is for a “general description” but it is specific to the types of transaction charges and the actual operating charges (if any), as well as the investment fund management fees or other ongoing fees the client may incur in connection with a security or service, applicable to the client’s account. The most evident impact is that investment returns will be reduced in proportion to the fees and charges.
- Firms should not provide generic summaries of the kinds of charges that are used in the industry or a sector of it.
- A firm with a simple AUM-based fee model can be much more specific and more readily use numerical examples than one that relies on a mix of transaction fees and trailing commissions paid on products that it sells to clients.
- Firms are encouraged to use graphics as well as text in order to make the information understandable to as many clients as possible.
Training: In their response to FAQ 1 regarding training on conflicts of interest, CSA staff indicated that registrants should exercise professional judgment in developing training materials and determining which staff require the training. They also said that:
- They expect firms to train “all appropriate staff” on conflicts of interest generally, and this would include all registered individuals, all supervisory staff, and additional staff (including compliance staff) depending on their roles and responsibilities.
- Training on the firm’s code of conduct, which generally includes training on conflicts of interest policies, procedures and controls may be sufficient to evidence training of staff on conflicts of interest generally.
- Specific training modules for certain material conflicts also may be required for certain staff (e.g. training on compensation-related conflicts may be needed for all registered individuals and compliance/supervisory staff).
If/When Updates to Guidance Can Be Expected: FAQ 27 asks whether there is a comprehensive list of guidance and staff notices that the CSA and/or the self-regulatory organizations (SROs) expect to revise or rescind. In particular, market participants asked if guidance published by IIRCO and the Mutual Fund Dealers Association of Canada (MFDA) regarding personal financial dealings will be revised or rescinded. CSA staff state that:
- If there is an inconsistency between language included in prior CSA guidance and the CFRs, the CFRs prevail to the extent they impose requirements or set out more current guidance.
- The CSA proposes to review earlier guidance and may revise it or rescind it at a later stage. The FAQ guidance does not provide any specifics about what will be reviewed or when such a review will take place.
- IIROC does not expect to issue new guidance on personal financial dealings.
- The MFDA intends to revise “all [presumably relevant] guidance”. In particular, MSN-0047 Personal Financial Dealings with Clients will be revised but no changes to MSN-0031 Control or Authority over the Financial Affairs of a Client are expected.
If you would like to discuss the FAQ Guidance and its relevance to your business, or if you have other questions about the CFRs or would like our assistance on implementation matters, please do not hesitate to contact us. Please contact your usual lawyer at AUM Law for assistance, or if you’re new to the firm, please contact us for a free consultation.
October 9, 2020
On September 14, staff of the Compliance and Registrant Regulation (CRR) Branch at the Ontario Securities Commission (OSC) published their Annual Summary Report for Dealers, Advisers and Investment Fund Managers (Report). The OSC encourages registrants to use the Report to learn more about recent and proposed regulatory initiatives, the OSC’s expectations for registrants, and how staff interpret initial and ongoing requirements for registration and compliance. Although we hope you find our takeaways from the Report useful, the discussion below doesn’t replace the Report or consultation with your counsel about the Report’s implications for your business.
A. Focus Areas for 2020-21 Compliance Reviews
Staff expect their upcoming compliance reviews to prioritize the following areas:
- COVID-19 impact on registrants;
- Complaint-handling processes;
- Suitability assessments, including concentration;
- Review of some firms to confirm their level of operational activities; and
- Marketing practices, including environmental, social and governance (ESG) offerings.
During the Portfolio Management Association of Canada’s Fall Regulatory and Compliance Webcast on September 24, a CRR staff member indicated that they expect the marketing practices sweep to begin shortly, either in late October or in November.
AUM Law’s focused and general compliance risk assessments can save you time and money by enabling you to pro-actively identify and address issues before they flare up into problems or you are audited by the OSC. But if the OSC calls you for an audit before you call us, we can conduct a strategic and expedited “911” review, so that you can begin identifying and addressing any material issues and are better-positioned to make a good first impression with OSC staff in the initial meeting. Contact us to learn more about these services.
B. Spotlight on Compliance Deficiencies
In 2019-20, CRR staff conducted compliance reviews in the following areas, among others:
- A suitability sweep of exempt market dealers (EMDs) and portfolio managers (PMs);
- High-risk firms identified through the 2018 Risk Assessment Questionnaire (RAQ) or the “Registration as a First Compliance Review Program”;
- Desk reviews of firms reporting financial statement losses in their 2017 and 2018 audited annual financial statements;
- Desk reviews of U.S.-based firms relying on the international dealer, international adviser, and/or non-resident investment fund manager registration exemptions (International Exemptions Review);
- Investment fund managers (IFMs) that had recently acquired or purchased assets of another IFM; and
- IFMs that are members of a self-regulatory organization (SRO).
As usual, the Report includes aggregate data on the type and severity of compliance deficiencies identified during last year’s reviews. The largest number of deficiencies related to compliance systems (40%, up 2% from 2018-19), and there was a tie for second place. Know-your-client (KYC), know-your-product (KYP) and suitability matters tied with client reporting matters, with each category representing 13% of deficiencies identified during the past year’s reviews. The largest number of significant deficiencies in 2019-20 concerned compliance systems (9%), KYC/KYP/suitability (8%), and conflicts of interest/referral arrangements (7%).
As they have in the past few years, staff organized their discussion of compliance deficiencies by theme. Below, we have highlighted topics that we think will be of particular interest to our readers.
1) Compliance Function
Some Annual Compliance Reports Got “Needs Improvement” Grades: Staff noted that chief compliance officers (CCOs) at some firms failed to prepare annual compliance reports, as required by section 5.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) or prepared cursory reports that didn’t contain enough detail to support the CCO’s assessment of the firm’s compliance function and/or the firm’s and employees’ compliance with securities legislation.
Service Provider Oversight: CRR staff are continuing to see situations where IFMs are performing little to no oversight of their outsourced fund administration and portfolio functions, or of their custodian. Common deficiencies included failures to:
- Obtain and evaluate a Service Organization Controls (SOC) report, when one was available from the service provider;
- Document and maintain evidence of the specific monitoring activities performed;
- Periodically validate the accuracy of prices used by the service provider in portfolio valuation; and
- Review material and complex corporate actions to confirm they were accurately processed and recorded by the service provider.
2) KYC, KYP and Suitability Obligations (EMDs / PMs / SPDs)
The good news is that, in this year’s suitability sweep, CRR staff generally saw improvements in firms’ KYC and suitability processes, compared with prior years’ reviews. However, they are continuing to see deficiencies in some areas, including:
- Inadequate collection and documentation of up-to-date KYC information;
- Inadequate documentation of suitability assessments (e.g. failure to document how a product that did not align with the client’s investment objectives nevertheless was suitable when other components of a client’s profile were considered);
- Managed accounts with portfolios that didn’t align with the client’s target asset mix reflected in their KYC documentation;
- Clients over-concentrated in a single issuer/issuer group or industry/asset class;
- Advisers and dealers not considering a clients’ total holdings of illiquid securities when assessing concentration risk;
- Inappropriate use of client-directed trade instructions (e.g. firms requesting such an instruction instead of conducting a suitability assessment first);
- Non-compliance with investment limits under the offering memorandum (OM) prospectus exemption;
- Inadequate documentation to support the determination that investors qualified as “accredited investors”; and/or
- Relying on third parties to collect KYC information for some clients without an advising representative (AR) or dealing representative (DR) of the firm meeting or speaking with such clients directly.
KYC and suitability obligations remain an area of ongoing concern for securities regulators. AUM Law can conduct a focused review of your client-facing documentation, policies and procedures and then help your firm can make any changes needed to comply with existing laws and implement the changes required by the client-focused reforms (CFRs) by the December 31, 2021 deadline. Please contact us to discuss how we can help.
3) NOT Now – Internal Firm Suspensions Require a Notice of Termination (All)
A firm that internally suspends a registered or permitted individual must file a Notice of Termination (NOT), so that the regulators and the public (through the NRD database). Firms that do not file a NOT, as required, run the risk of being held responsible for any registerable activity the individual conducts, even while under a firm-imposed suspension.
Staff indicated in the Report that some firms have been reluctant to file a NOT due to concerns that having the individual reinstated will be time-consuming. To address that concern and encourage firms to file NOTs as required, CRR staff have committed to a streamlined review process for assessing an individual’s suitability for registration after a firm-imposed suspension. In particular, CRR staff will permit firms to file Form 33-109F7 Reinstatement of Registered Individuals and Permitted Individuals (instead of Form 33-109F4) and will not require a new application fee, if certain criteria are met, including the following:
- The firm notifies staff in advance of the issue that led to the suspension;
- Staff is satisfied with the remedial actions that the firm has indicated it will take;
- The firm files a timely NOT;
- The firm notifies staff at least five business days in advance of its intention to reinstate the individual;
- There is no new detrimental information from the time the NOT was submitted; and
- There are no changes to information previously submitted in items 13 through 16 of Form 33-109F4.
AUM Law can advise you on, prepare and complete registration-related filings such as NOTs, as required. Please contact us if you have questions about or need assistance with matters like these.
4) Cross-Jurisdictional Registration Issues
Servicing Non-Ontario Clients without Required Registration (PMs / EMDs): According to the Report, Staff continue to see firms and representatives who do not have the required registrations in the relevant jurisdictions to trade in, or advise on, securities for clients outside Ontario. For example, some firms and/or their representatives are purporting to rely on the client mobility exemptions for Canadian clients without satisfying the criteria for those exemptions. Staff encourage firms to, among other things:
- Take an inventory of the residency of the firm’s existing clients;
- If the firm determines that any of its clients are located in jurisdictions where the firm and/or its registered individuals are not registered and do not have a valid exemption to rely upon, take immediate steps to come into compliance or discontinue the offering of any advisory or dealing services to the relevant clients;
- Train employees on the limitations of conducting dealing or advising activities in other jurisdictions;
- If applicable, take adequate steps to confirm that all requirements to rely upon the client mobility exemption are met (including verifying that the individual and firm do not exceed the allowable number of eligible clients in each jurisdiction and submitting Form 31-103F3 Use of Mobility Exemption to the regulator in the relevant jurisdiction); and
- Maintain adequate records for all of the above.
International Firms with Canadian Clients (EMDs / IFMs / PMs): During its International Exemptions Review, staff found that some firms had not filed up-to-date forms with the OSC to properly rely on the exemption and/or did not always provide clients with the required disclosure (or maintain evidence that the disclosure was provided). In addition, some international advisers had not maintained sufficient evidence to demonstrate that the advice being provided to Canadian clients with respect to Canadian securities was incidental to the advice being provided on foreign securities. Also, CRR staff noted that some firms, who were providing advisory services to permitted clients registered as advisers in Canada, were improperly purporting to rely on the international adviser exemption in section 8.26 of NI 31-103, instead of complying with the exemption criteria for international sub-advisers in section 8.26.1.
Please do not hesitate to contact us if you need advice or assistance regarding the application of Canadian registrant regulation requirements to your cross-border activities.
5) Distribution of a Registered Firm’s Own Shares (EMDs / PMs)
The Report discusses two compliance issues arising from situations where registered firms distribute their own shares to investors. First, staff reiterated that, even where the firm is relying upon a prospectus exemption to effect the distribution, the firm still must comply with its registrant obligations (e.g. relating to KYC and suitability) in connection with the distribution.
Second, staff emphasized that when firms distribute their own shares to existing and prospective clients, the resulting relationship is one that presents the highest degree of conflict of interest recognized by National Instrument 33-105CP Underwriting Conflicts (NI 33-105). In such situations, it is unclear if the firm is acting in the capacity of an issuer or, as a registered firm, by advising or recommending an investment in the firm’s shares to its existing clients (either as a PM through a managed account or as an EMD). In addition, this business model could create the perception that investors who are clients might be favoured over non-investor clients (e.g. with respect to access to proprietary information or the allocation of investment opportunities). The Report outlines steps that firms can take to respond to this conflict. Among other things, staff recommend that firms:
- Disclose and explain the conflict to potential investors and obtain an appropriate acknowledgement from them;
- Disclose all risk factors relating to the investment in the firm;
- Advise potential investors to seek independent advice regarding the investment and provide all information needed for such advice; and
- Develop and implement appropriate policies and procedures to, among other things:
- Identify and address all related conflicts of interest;
- Address the fair allocation of investment opportunities among clients; and
- Prohibit sharing of the registered firm’s business information with shareholders of the firm that are also clients, in a manner that might prejudice other clients.
6) Captive Dealers (EMDs)
Staff reminded EMD-only firms that distribute securities of a related or connected issuer with common mind and management (Captive Dealers) that they must adequately respond to the material conflicts that arise in this business model. The EMD’s financial incentives to sell its related or connected issuer’s securities may come into conflict with its regulatory obligations, such as those concerning suitability and fair dealing. Staff recommend that Captive Dealers, among other things, to assign a responsible individual, such as the CCO or ultimate designated person (UDP), who has not been directly involved with the trade in question, to confirm that investors understand:
- The relationship between the Captive Dealer and the related or connected issuer;
- The investment’s key features; and
- The concentration risks associated with investing in a limited number of related or connected issuers.
Staff also encourage Captive Dealers to ensure that the relevant employees have been trained to explain the nature of the material conflicts of interest inherent in the business model and the importance of avoiding, managing and/or disclosing them and understand their KYC, KYP and suitability obligations.
7) Financial Conflicts of Interest (All)
Staff identified certain financial conflict of interest situations such as the payment of consulting fees or placement fees to registered firms by companies that the firms’ funds or managed accounts invested in and where the conflict of disclosure to clients was non-existent or inadequate. According to staff, if a registered firm is paid by issuers of securities that it recommends to its clients, it should:
- Structurally segregate its corporate finance business from its advisory business and implement internal information barriers;
- Enhance its monitoring controls over clients’ suitability assessments;
- Fully disclose the issuer relationships and compensation arrangements in offering documents and account opening documents;
- Disclose all conflicts of interest in the relationship disclosure information (RDI) required by section 14.2 of NI 31-103;
- Provide clear and meaningful disclosure in plain language about the nature and impact of each conflict; and
- Obtain the client’s written acknowledgment that they understand the nature and impact of each disclosed financial conflict of interest before selling the product or service to them.
8) Inappropriate Reliance on Custodian to Satisfy Account Statement Delivery Obligations (PMs)
Staff reminded PMs that they cannot meet their statement delivery obligations by relying solely upon their custodian to deliver position and transactional information to clients. If a PM has entered into a service arrangement with a dealer member (DM) of the Investment Industry Regulatory Organization of Canada (IIROC), the PM can satisfy its obligation to deliver statements to a client if that client’s DM, acting as custodian, sends a DM statement to the client, provided that the PM:
- Does not hold any of the investments it manages for the client;
- Verifies that the investments it manages for the client are held in a separate account for the client where the DM knows the client’s name and address;
- Discloses the service arrangement to the client in accordance as called for by Section 3 of CSA Staff Notice 31-347 Guidance for Portfolio Managers for Service Arrangements with IIROC Dealer Members;
- Confirms that for each of the client’s accounts at the DM, a DM statement is delivered to client at the required frequency with the required content;
- Takes reasonable steps to verify that the DM statements are complete and accurate;
- Complies with client requests or agreements to receive PM statements from the PM, supplemental to the DM statement; and
- Verifies that the market value data it uses to prepare the client’s annual investment performance report is consistent with the data in the relevant DM statement delivered to the client.
Staff also note that PMs should maintain their own records of clients’ investment positions and trades, including evidence to support reconciliations between their records and the DM’s statements and establish policies and procedures to verify that DM statements are complete, accurate and delivered on a timely basis.
9) Trade Confirmations for Managed Accounts (PM / EMD)
The Report addresses a frequently asked question about whether a firm registered as an EMD, IFM and PM must send trade confirmations to its managed account clients for each purchase or sale of a security of a proprietary fund where the firm also acted as the registered dealer for the trade. According to staff, since the firm is already subject to obligations as a PM when it purchases the security on behalf of the managed account, there are no additional obligations that apply if it conducts the trades through its dealer registration. Provided that the managed account client consented not to receive trade confirmations for each transaction in the account, staff would not expect the firm to provide real time trade confirmations.
10) Other Deficiencies
We’ve briefly summarized below some additional staff recommendations and commentary that we think our readers may find relevant.
Custodial and Prime Brokerage Agreements (IFMs): CRR staff reminded IFMs that they need to have written agreements in place between the prospectus-exempt funds managed by them and the funds’ custodian and/or prime broker.
Funds Purchasing Securities from “Responsible Persons” (IFMs / PMs): According to staff, some registered advisers have been selling securities owned by the adviser’s firm to an investment fund managed by the adviser, contrary to the prohibition in paragraph 13.5(2)(b) of NI 31-103 on advisers knowingly causing investment funds they manage to purchase securities from a “responsible person”. Staff emphasized that firms should have policies, procedures and pre-trade controls to identify prohibited transactions like these and prevent them from occurring.
Impact of IFRS 16 on Working Capital (All): Some firms are not applying IFRS 16 Leases correctly, or at all, which has resulted in some firms incorrectly calculating their excess working capital balances. In some cases, this resulted in the firm being capital-deficient.
Insurance Coverage (All): Firms should check that their coverage is adequate, that bonding policies provide for a double aggregate limit or full reinstatement of coverage, that claims of other entities covered under a global policy do not reduce limits or coverage available to the registered firm, and that the registered firm should have the right to claim directly against the insurer for losses under a global policy.
Personal Trading (All): CRR staff are continuing to see deficiencies in firms’ personal trading policies and procedures. Identified deficiencies included inadequate policies and procedures, failures to enforce the firm’s policy, failing to maintain complete information on the person trading accounts of all “Access Persons”, and failing to require written pre-approval of Access Persons’ trades.
C. Regulatory Actions – Conduct Concerns During the Registration Process
The Report also includes data on CRR regulatory actions, including data comparing the different kinds of regulatory actions taken in the past five fiscal years. In addition to providing an overview of all regulatory actions concerning registrants, this year the Report highlights CRR staff’s approach to handling conduct concerns that arise during the registration process.
CSA Guidance Has Helped: Staff discussed the decrease since fiscal 2018 in the number of regulatory actions involving denial of registration. They believe that the 2017 publication by the Canadian Securities Administrators (CSA) of Staff Notice 33-320 The Requirement for True and Complete Applications for Registration (SN 33-320) has provided helpful guidance to firms conducting due diligence on the individuals they’re sponsoring and deterred some non-disclosure by registrants. Staff have also been conducting early-stage conference calls with firms where concerns have been identified, which has led to firms reviewing and, in seventeen cases in fiscal 2020, withdrawing applications that otherwise might have resulted in denial of registration.
Non-Disclosure in Registration Applications Is Still a Problem. Nevertheless, CRR staff are continuing to identify material non-disclosure of regulatory, criminal and/or financial information in registration applications, and this concern still constitutes a substantial number of the cases reviewed by CRR where registration is ultimately denied.
How Staff Handle Conduct Concerns in Registration Process: The Report includes a flow chart outlining the typical process CRR staff follow if a Registration Team refers a matter to the Registrant Conduct Team for investigation. According to the flow chart:
- CRR management will share their initial regulatory concerns with the firm.
- The Registrant Conduct Team will take steps that may include interviewing third parties who may have relevant information, as well as the individual applicant.
- If the Registrant Conduct Team recommends that an application be granted subject to terms and conditions or that the application be refused, the applicant will be given an opportunity to be heard (OTBH), except in the rare situation where the matter is referred to the OSC’s Enforcement Branch.
- Before an OTBH commences, the applicant can accept the proposed terms and conditions if the sponsoring firm agrees. If the OTBH goes forward, the Director of CRR will make a decision and give written reasons. If the Director refuses the application or grants it subject to terms and conditions, the applicant can ask an OSC panel to review the Director’s decision.
AUM Law has extensive experience helping firms get their employees prepare a strong application package and engage with regulators should any challenging situations arise. Please contact us to discuss how we can help.
D. Policy Initiatives
As usual, the Report summarizes certain policy initiatives affecting registrants and provides links to the relevant publications. This year, the Report covers:
- Burden reduction initiatives (see our bulletin article here);
- A status update on the client-focused reforms (see our bulletin article here and our recently updated publication In a Nutshell: Implementing the Client-Focused Reforms);
- Crowdfunding (see our bulletin article here); and
- Syndicated mortgages (see our article on the most recent developments here).
If you would like to discuss the themes highlighted in our article above or any other aspect of the Report and its relevance for your business, please do not hesitate to contact us.
September 30, 2020
AUM Law is a proud sponsor of the Fall Regulatory and Compliance Webcast organized by the Portfolio Management Association of Canada (PMAC) on September 24. Click here to register for the event. We hope to (virtually) see you there and don’t forget to drop into our online booth for a chat.
In our February 2020 bulletin, we reported on proposed National Instrument 45-110 Start-up Crowdfunding and Registration Exemptions (NI 45-110), which is intended to create a nationally harmonized regime. The comment period for that proposal ended on July 13. On July 30, the Ontario Securities Commission (OSC) adopted an interim class order (Order) that provides prospectus and registration exemptions for start-up crowdfunding that are substantially similar to the local exemptions already in place in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Québec, and Saskatchewan (collectively, the Crowdfunding Orders).
In the news release accompanying the Order, the Canadian Securities Administrators (CSA) noted that start-ups and other small businesses are facing significant funding challenges due to COVID-19 and might benefit from more unified regulatory requirements to expand their access to capital. The Order will remain in place until the earlier of the date that NI 45-110 is adopted or January 31, 2022. If you wish to learn more about the Crowdfunding Orders and their potential usefulness for your business, please contact us.
July 31, 2020
As we mentioned in our May 2020 bulletin, Ontario-registered firms must submit online their 2020 Risk Assessment Questionnaire (RAQ) responses and supplementary COVID-19 survey responses to the Ontario Securities Commission (OSC) by August 6. The OSC introduced additional security measures this year for the RAQ process, including a requirement that each firm’s chief compliance officer (CCO) register and create an online account before accessing the firm’s 2020 RAQ.
Since many people are working remotely, it might not be possible for the firm’s ultimate designated person (UDP) to access their firm’s 2020 RAQ responses online and provide the required certification. OSC staff, therefore, sent an email in mid-July to UDPs describing the steps that they and the CCO should take in such circumstances. In particular:
- The UDP should certify the firm’s 2020 RAQ by sending an email to the ComplianceSurvey@osc.gov.on.ca and copy the CCO on this email.
- The email must include the specific language set out in the email that the firm’s CCO should have received from the OSC in mid-July.
- The CCO must copy that same email into the Final Overall Feedback section at the end of each section of the 2020 RAQ.
If you have any questions about the certification process described above or want us to review your draft responses to the 2020 RAQ or COVID-19 Survey, please contact us as soon as possible, so that we help you get your responses submitted by the August 6 deadline.
July 31, 2020