BCN 2001/32 - Advance Notice of National Instrument 33-102 Regulation of Certain Registrant Activities and Related Documents [BCN - Rescinded]
National Instrument 33-102 Regulation of Certain Registrant Activities (the "national instrument") and Companion Policy 33-102CP are initiatives of the Canadian Securities Administrators ("CSA").
If the required government approval is obtained, the Commission expects to make the national instrument as a rule, and to adopt the companion policy and consequential amendments to the Securities Rules (the "consequential amendments"). We will republish them at that time. We expect them to come into force in all jurisdictions on August 1, 2001.
The full text of the national instrument and the companion policy is on the OSC website at www.osc.gov.ca. The text of the consequential amendments is attached.
Revocation of the Principles of Regulation
The national instrument will replace the three policies set out in NIN 88/40, NIN 88/48 and NIN 90/16. These currently govern the activities of dealers that carry on business in retail branches of Canadian financial institutions (collectively, the "Principles of Regulation"). When the national instrument is adopted, we will revoke NIN 87/67, which deals with leveraging to purchase mutual funds, and NIN 93/24 and Blanket Order BOR 93/4, which gives relief from the requirement to file a notice of a networking arrangement where the Principles of Regulation permit the activities contemplated under the arrangement.
The Commission, together with other CSA members, published a draft of the national instrument on July 21, 2000 (see NIN 2000/32). That draft was based on the following instruments:
Proposed National Instrument 33-102 Distribution of Securities at Financial Institutions
Companion Policy 33-102CP Distribution of Securities at Financial Institutions
Proposed National Instrument 33-103 Distribution networks
Proposed National Instrument 33-201 Networking and Selling Arrangement Notices
Proposed National Instrument 33-104 Selling Arrangements
Companion Policy 33-104CP Selling Arrangements
(together, the "1997 Drafts") (see NIN 97/49). The 1997 Drafts were based on the Principles of Regulation. In response to comments on the 1997 Drafts, many of the detailed requirements were eliminated and the remaining requirements consolidated in one national instrument and companion policy.
The CSA received five comment letters in response to the publication of the July 2000 draft. For a detailed summary of the comments received, please see the OSC notice relating to the proposed national instrument on the OSC website.
In response to the comments, the CSA has made a number of changes to the national instrument. As the CSA do not consider the changes to be material, the national instrument is not subject to a further comment period.
Substance and Purpose
The national instrument and companion policy prescribe certain requirements and prohibitions for registrants in their dealings with retail clients.
In particular, they
- require a registrant to provide its retail clients with a written disclosure statement warning of the risk of using leverage to finance the purchase of securities,
- require a registrant to hold all information about its retail clients confidential except where required or permitted by law or by the bylaws of a self-regulatory organization or where the client consents to the disclosure of the information,
- prohibit a registrant from requiring a person or company to settle their account with the registrant through that person’s or company’s account at a Canadian financial institution as a condition of supplying products or services,
- prohibit tied selling,
- require a registrant that conducts securities-related activities in a financial institution to disclose that securities purchased are not insured or guaranteed, that they may fluctuate in value and that the registrant is a separate entity from the financial institution.
Networking Arrangement Notices
The securities regulatory authorities in British Columbia, Ontario, Manitoba, Québec and Newfoundland will revoke or repeal the requirement to file notices of networking arrangements in their respective jurisdictions. In British Columbia, we will do that by way of the consequential amendments. However, staff in our Capital Markets Regulation Division will continue to monitor arrangements that registrants have with savings institutions, insurers and other parties under which registrants sell the securities, goods or services of the savings institutions, insurers or other parties. For details about the specific steps taken by any other province or territory and the timing of the actions to be taken, please contact staff in those jurisdictions.
The consequential amendments are necessary to ensure consistency with the direction of the national instrument. Besides the repeal of section 84 of the Securities Rules, which deals with networking arrangements, the consequential amendments also
- amend the definition of "branch office";
- prescribe certain requirements concerning the disclosure of fees;
- remove references to “administration officer” where a registrant carries on business in a branch of a financial institution; and
- address the situation where salespersons work only part time for a registrant.
Please refer questions to:
Senior Policy Advisor
British Columbia Securities Commission
(800) 373-6393 (in B.C.)
Legal Counsel, Market Regulation
Capital Markets Branch
Ontario Securities Commission
Douglas R. Brown
Counsel and Director, Legal and Enforcement
Manitoba Securities Commission
Commission des valeurs mobilières du Québec
(514) 940-2199 ext. 4578
Susan W. Powell
Securities Commission of Newfoundland
May 10, 2001
Douglas M. Hyndman
Ref: s.84 Securities Rules
This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.
Proposed Consequential and Related Amendments to the Securities Rules
Relating to National Instrument 33-102 Regulation of Certain Registrant Activities
1.(1) In these rules:
1 “Sub-branch office” is not defined, although it is used as a term of art in Companion Policy 33-102CP with relation to compliance and supervisory activities. Section 66(2) of the Securities Rules sets out compliance and supervisory requirements for a branch office with fewer than 4 registered individuals.
in relation to a dealer or adviser, means a location, including a residence,^ where the dealer or adviser carries on any business as a dealer or adviser ^, either alone or through one or more ^ individuals2,
2 Advisers have been added in anticipation that financial institutions, or their related adviser registrants, may carry on the business of advising through a branch network. Makes consistent with item 7(b) of section 22(1) of the Securities Regulation, which establishes fees for certain branch offices of advisers.
but does not include
(a) the dealer’s or adviser’s chief place of business, or
(b) a location where the dealer or adviser carries on business for 50 or fewer days in any calendar year;3
3 This accommodates the situation of “roving registrants” and, more generally, situations like booths at shopping malls and trade shows.
Disclosure of referral fees and commission splitting
53.(3) Subject to subsection (4), the disclosure required under subsections (1) and (2) must
(a) be made
(i) in the circumstances described in subsection (1) (a), ^ before the fee is accepted,
(ii) in the circumstances described in subsection (1) (b), ^ before the fee is paid,
(iii) in the circumstances described in subsection (2), at the time the purchase or sale is made or as soon as practicable after that time,
^ (b) be in writing, and
(i) the amount of the fee or, if not determinable, the method of calculating the fee,
(ii) to whom and by whom the fee is to be paid, and
(iii) the services for which the fee is payable.
Designated compliance officer ^ and branch manager ^
60.(1) The designated compliance officer referred to in section 65 and the branch manager ^4
4 References to “administration officer” have been removed to reflect the decision to require mutual fund dealers that are related to financial institutions to have branch managers, employed by the dealer, rather than administration officers employed by the financial institution (as currently permitted under the “Principles of Regulation”).
referred to in section 66 must have successfully completed the courses and examinations and have the experience the executive director requires.
(2) ^ Except where otherwise permitted by the executive director, if the compliance officer referred to in section 65 is designated by
(a) a dealer, the compliance officer must be a trading partner, director or officer, or
(b) an adviser, the compliance officer must be an advising partner, director or officer.
Branch manager ^ required
66.(1) Subject to subsections (2) and (3), a dealer or adviser that carries on business in a branch office must employ, with the approval of the executive director, ^ a branch manager ^ to ensure that the branch complies with the Act and the regulations.
(2) If fewer than 4 registered individuals carry on business in a branch office of a dealer or adviser, the dealer or adviser is not required to comply with subsection (1) if the executive director is satisfied that a branch manager ^ in another branch office is able to ensure that the branch office without a ^ branch manager5
5 Replacement of the words “compliance officer” with “branch manager” corrects the existing legislation.
complies with the Act and the regulations.
(3) The executive director may permit more than 4 registered individuals to carry on business in a branch office without a branch manager where one or more of the individuals carries on business on a part-time basis.6
6 This provision addresses the situation, common to mutual fund dealers related to financial institutions, where salespersons may work only part-time for the dealer (the balance of the time being devoted to financial institution work).
Limitations on networking