NIN 98/54 - Permanent Registration System [NIN - Rescinded]

The Commission is publishing for comment proposed amendments to the Securities Rules and Registration Transfer Rules intended to establish a permanent registration system to replace the current renewal system of registration for all registrants (the "Proposed Amendments").

Background

Proposed National Instrument 31-101, entitled "Mutual Reliance Review System ("MRRS") for Registration", which was published for comment on June 19, 1998, contemplates that all jurisdictions, except the Northwest Territories, will modify their renewal processes and adopt a permanent registration model similar to the model under the Securities Act (Québec). Under the MRRS for Registration, participants will be required to comply with the annual delivery requirements of the participant’s principal jurisdiction, except in the Northwest Territories if the Northwest Territories is not the principal jurisdiction, where participants must comply with annual renewal requirements. The Northwest Territories will not be adopting a permanent registration system at this time as this would require an Act amendment.

The Proposed Amendments

The Securities Rules currently provide that an initial registration and a renewal of registration remain valid for two years for all registrants, except a security issuer or a trading partner, director, officer or salesperson of a security issuer, for which the registration is valid for a one year period.

The Proposed Amendments do not provide for renewals of registration, but, rather, provide that registration is valid until it is cancelled. However, registration will be suspended where certain annual delivery requirements, including the payment of fees, are not made by a registered firm. The annual delivery date will be 90 days after the registered firm’s financial year end. There will be no annual delivery requirements for registered individuals. Under the system, it is proposed that each firm will submit the fees on behalf of all its registered individuals at one time (one cheque). Currently, fees for registered individuals are submitted by the firms, or in some cases the individuals themselves, on various renewal dates throughout the year.

It is anticipated that the permanent registration system will come into effect for Brokers, Investment Dealers and Advisers shortly after the Proposed Amendments are adopted by the Commission. Limited dealers will be moved into the permanent registration system upon the expiration of their two-year registration. Detailed instructions regarding the transition arrangements will be provided at that time.

Reformulation of Uniform Act Policy 2-07

The Commission has included in the Proposed Amendments a new section 67.1 of the Rules, which would require a registrant that files an application to surrender registration to include with the application a consent to suspension of the registrant’s registration. This section is a reformulation of Uniform Act Policy 2-07 ("UAP 2-07"), which has already been published as a rule in Ontario and will be published as a rule by other Canadian securities regulatory authorities, including Alberta.

UAP 2-07, published in November 1979, advises registrants that, upon receiving notice of a registrant’s intention to terminate its registration, the securities regulatory authority would normally suspend the registration, pending receipt of satisfactory evidence that the registrant had discharged its obligations. The Proposed Amendments would allow for the suspension of registration without the procedural step of a formal hearing.

Anticipated Costs and Benefits

Registrants will benefit from the Proposed Amendments because they will no longer be required to apply for renewal of registration. Registered firms will also benefit from having a single annual delivery date and requirement rather than having to make several applications for renewal based on the renewal dates of each individual that is registered with the firm.

As registered firms will be required to submit the fees on behalf of all their registered individuals at the same time (90 days after their financial year end), however, firms may need to be more rigorous in their budgeting and forecasting processes in order to avoid any liquidity problems.

The Commission is of the view that the benefits of a permanent registration system far outweigh any costs incurred by registrants.

Consequential Amendments

The Commission will be seeking certain consequential amendments to the Securities Act and the Securities Regulation to make them consistent with the Proposed Amendments. These include eliminating the various references to renewal in the Act and amending section 22 of the Securities Regulation dealing with fees.

Comments

The Commission is interested in receiving comments on the Proposed Amendments. Interested persons are encouraged to direct written comments by November 3, 1998 to:

Brenda J. Benham
Director
Policy and Legislation
British Columbia Securities Commission
200 - 865 Hornby Street

Vancouver, BC V6Z 2H4Comment letters submitted in response to Requests for Comment are placed in the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed in the public file, freedom of information legislation may require the Commission to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.

Questions may be referred to either of:

Ross McLennan
Director
Registration
British Columbia Securities Commission
(604) 899-6685
Or 1-800-373-6393 (in B.C.)

Simon Millner
Legal Counsel
Policy and Legislation
British Columbia Securities Commission
(604) 899-6642
Or 1-800-373-6393 (in B.C.)

DATED at Vancouver, British Columbia, on September 3, 1998.

Douglas M. Hyndman
Chair

¹ These amendments are intended to create a permanent registration system to replace the current renewal system of registration. The other Canadian securities regulatory authorities, except Quebec, which already has a permanent registration system, and the Northwest Territories, which requires legislative amendments, are expected to amend their regulations or rules or implement a blanket ruling or order to create a similar system in their respective jurisdiction. The references in the Act and the Rules to "renewals" will become redundant as a result of these amendments.

1. Section 13 of the Securities Rules, R.B.C. Reg. 194/97, is repealed and replaced by the following:

Refusal to register or to ^reinstateregistration

13 The executive director must not register or ^ reinstate the registration of a registrant if the executive director considers that, because of the registrant’s past conduct or, if the registrant is not an individual, the past conduct of the registrant’s salespersons or advising employees, partners, directors or officers, the business of the registrant will not be conducted with integrity or the clients of the registrant will not be dealt with fairly, honestly and in good faith.

2. Section 15 is amended by deleting subsection (1) and substituting the following:

(1) Subject to subsection (3), a person applying for registration ^ or reinstatement of registration ^ as a dealer, other than a security issuer, or as an underwriter or adviser must be incorporated or organized as a partnership ^ under the laws of Canada or a province or territory of Canada.

3. Section 50(1) is amended by deleting "and expiry date" from paragraph (a).

4. Section 63 is amended by deleting subsection (1) and substituting the following:

(1) Subject to subsection (2), an individual ^ registered as a salesperson must not engage in any other business or occupation.

5. Section 65 is repealed and replaced by the following:

65 A person applying for registration ^ or reinstatement of registration ^ as a dealer, underwriter or adviser must designate at least one individual as a compliance officer to ensure compliance with the Act and the regulations by the person, its partners, directors, officers and other employees.

6. Section 67 is repealed and replaced by the following:

67 Duration of Registration

Subject to a condition or restriction imposed under section 36(1) of the Act, a registration remains valid until it is cancelled.

7. The Securities Rules are amended by adding the following:

Surrender of registration²

² This section is a reformulation of Uniform Act Policy 2-07.

67.1 A registrant that files an application to surrender registration must include with the application a consent to suspension of the registrant’s registration.

8. The Securities Rules are amended by adding the following sections:

Division 9 - Annual Delivery Requirements, Financial Statements and Financial Reports³

³ Note that only the title of the Division has been amended.

Interpretation

68.1 In this Division:

"annual delivery date" means the date that is 90 days following a registered firm’s financial year end;

"registered firm" means a person that is registered as a dealer, underwriter or adviser;

"registered individual" means an individual registered to trade or advise on behalf of a registered firm;

"sponsoring firm" means the registered firm with which a registered individual is employed or of which the registered individual is a director or officer.

Annual delivery requirements

68.2 (1) A registered firm must file the following on or before its annual delivery date:

(a) a list in alphabetical order of all registered individuals of the firm and all non-registered partners, directors and officers of the firm, indicating the branch office location for each individual and the branch manager for each branch office;

(b) Subject to subsection (3), a copy of the insurance policy or bond evidencing compliance with section 21;

(c) Subject to subsection (3), a certified copy of a resolution of the directors of the firm stating that full consideration has been given to the amount of insurance or bonding necessary to cover insurable risks in the business of the firm and that either,

(i) the minimum amount of coverage required by the Securities Rules is sufficient, or

(ii) the minimum amount of coverage required by the Securities Rules is not sufficient but that the amount of coverage maintained is sufficient; and

(d) if the registered firm is not a security issuer,

(i) the financial statements for the firm, in the form required to be filed by a reporting issuer under section 145, and

(ii) all other financial information and reports required to be filed by the firm under section 70 (1) and (4)⁴.

⁴ These sections of the Rules state the form of other financial information to be provided by specific categories of registrants.

(2) A registered firm must pay the prescribed fee on or before its annual delivery date.

(3) A securities adviser is not required to file the materials required by subsection (1)(b) and (c).

(4) A registered firm must, within thirty days after it receives information from the executive director relating to information to be set out in the materials required to be filed under subsection (1), send a notice to the executive director advising the executive director of any discrepancies between the information received from the executive director and information in the registrant's records.

(5) A registered firm must ensure that the information in the materials filed under subsections (1) and (4) is accurate as at the firm’s financial year end.

Suspension of registered firms

68.3 (1) If a registered firm does not file the materials and pay the fees required under section 68.2 (1), (2) and (4) on or before its annual delivery date, the firm's registration is suspended as of the day after its annual delivery date.

(2) A registered firm suspended under subsection (1) may apply to the executive director to have its registration reinstated if the registered firm files the materials and pays the fees required under section 68.2 (1), (2) and (4) within 90 days after the registered firm’s annual delivery date.⁵

⁵ Under section 35(3) of the Act, the executive director cannot refuse to grant reinstatement of registration without providing the registrant with an opportunity to be heard.

(3) If a registered firm does not file the materials and pay the fees required under section 68.2 (1), (2) and (4) within 90 days after the registered firm’s annual delivery date, the registration of the registered firm is cancelled.

Transition

68.4 A person that is registered as a limited dealer on the date this section comes into force, and continues to be registered in that capacity, is not required to file the materials and pay the fees required under section 68.2 (1), (2) and (4) until the first annual delivery date for the dealer occurring after the date set for expiration of that registration.

9. Section 69 is repealed and replaced by the following:

Annual financial statement

(1) ^ The executive director may require that a registered firm file financial statements at a time, and in a form, other than that required by section 68.2(1)(g)(i) if it is in the public interest to do so.

(2) The financial statements required to be filed by a ^ registered firm under this ^ division must be approved by the directors if the ^ registered firm is a corporation, by the partners if the ^ registered firm is a partnership or by the sole proprietor if the ^ registered firm is a sole proprietorship, and the approval must be evidenced by the signature ^ or facsimile of the signature of 2 directors or 2 partners duly authorized to evidence the approval, or of the sole proprietor, in accordance with section 189.

10. Section 70 is amended by deleting subsection (6) and substituting the following:

(6) The report ^ required to be filed ^ under subsections (2) and (3) ^ must be filed on or before the 30th day after the date to which the report is made up.

11. Section 71 is repealed and replaced by the following:

71 A registrant or unregistered partner, director, officer or employee of a registrant must not withhold, destroy or conceal any information or records or otherwise fail to cooperate with a reasonable request made by the auditor of a ^ registered firm in the course of an audit.

¹ These amendments are required in order to ensure consistency with the proposed amendments to the Securities Rules intended to create a permanent registration system to replace the current renewal system of registration. The current references in the Registration Transfer Rules to "renewals" will become redundant as a result of these proposed amendments to the Securities Rules.

1. Section 3 of the Registration Transfer Rules, R.B.C. Reg. 193/97, is repealed and replaced by the following:

3 (1) Subject to subsections (2) and (3), a person must apply to the designated organization for registration or ^ reinstatement of or amendment to registration as

(a) a broker or investment dealer,

(b) a trading partner, director or officer of a broker or investment dealer,

(c) a salesperson of a broker or investment dealer, or

(d) an underwriter that is a member of a designated organization.

(2) A member of both designated organizations may apply under subsection (1) to either designated organization.

(3) Without the executive director's written consent, a broker, investment dealer or underwriter that has applied to one designated organization for registration or ^ reinstatement or amendment of registration must not apply to the other designated organization.

(4) A salesperson must apply to the designated organization to which the salesperson's employer or prospective employer applied for registration or ^ reinstatement or amendment of registration.

(5) Despite subsection (4), an applicant under subsection (1) for

(a) registration ^ as a salesperson, or

(b) approval of the employment of a salesperson who is to be restricted to trading through the trading systems of the Vancouver Stock Exchange must apply to the Vancouver Stock Exchange.

2. Section 4 is amended

(a) by repealing subsection (1) and substituting the following:

(1) On application by an applicant that is a member of the designated organization and on payment of the prescribed fee the designated organization may,

(a) subject to subsection (2), register a broker, investment dealer, underwriter or trading partner, director or officer or salesperson of a broker or investment dealer if the designated organization considers the applicant to be suitable for registration in the capacity applied for,

(b) ^ refuse to grant ^ a registration referred to in paragraph (a) if the designated organization considers the applicant to be unsuitable for registration,

(c) ^ reinstate or amend a registration referred to in paragraph (a), and

(d) ^ restrict a registration under paragraph (a) or ^ reinstatement or amendment of registration under paragraph (c), by imposing conditions on the registration, including but not limited to conditions restricting

(i) the duration of registration, and

(ii) the registration to trades in specified securities or exchange contracts or to a specified class of securities or class of exchange contracts., and

(b) by repealing subsection (5) and substituting the following:

(5) If a designated organization registers an applicant or ^ reinstates or amends the registration of an applicant, the designated organization must give written confirmation of registration to the applicant for the purposes of section 34 (3) of the Act.

3. Section 5 is amended by repealing subsection (2) and substituting the following

(2) The designated organization must not refuse to grant, ^ reinstate or amend a registration without giving the applicant an opportunity to be heard.

4. Section 6 is repealed and replaced by the following:

6 If an applicant to a designated organization for registration or ^ reinstatement of or amendment to registration intends to use information not previously submitted, or material circumstances described in the applicant's previous application have changed, the applicant may reapply to the designated organization.