NIN 95/47 - Local Policy Statement 3-22 (Registration Requirements) [NIN - Rescinded]

The Superintendent of Brokers is adopting Local Policy Statement 3-22 dated December 7, 1995 ("LPS 3-22"), effective January 1, 1996 Under separate notice (NIN#95/48), the Commission is revoking, also effective January 1, 1996, Interim Local Policy Statement 3-22 dated February 10, 1989, Local Policy Statement 3-38 dated February 1, 1987, Local Policy Statement 3-42 dated February 1, 1987 and Local Policy Statement 4-1 dated December 16, 1985. The substantive aspects of the four repealed local policy statements have been incorporated, with changes necessary to conform with legislative changes, into LPS 3-22.

As noted in NIN#95/41, the Commission contemplates providing transitional relief in a number of areas, including relief from certain registration requirements. The Commission will issue a Blanket Order sometime before January 1, 1996 to provide the contemplated transitional relief

Background

On October 7, 1994, the Commission published for comment Draft Amended Local Policy Statement 3-22 (the "Draft Policy"). Also on October 7, 1994, the Commission published for comment a limited number of proposed amendments to the Securities Act, S.B.C. 1985, c. 83, and comprehensive proposed amendments to the Securities Regulation, B.C. Reg. 270/86 (the "Existing Regulation"). On November 24, 1994, and on February 10, and February 17, 1995, the Commission published for comment additional proposed changes to the Act.

The Draft Policy set out, in plain language, the principal requirements for registration in British Columbia as a dealer, underwriter or adviser and for registration as an individual acting on behalf of a dealer or adviser. The Draft Policy restated many of the provisions set out in the draft amendments to the Securities Act , and Existing Regulation, as if they were in force.

The Commission received very few direct comments on the Draft Policy. However, the Commission received over 60 comments on the proposed amendments to the Securities Act and Existing Regulation, which, insofar as the comments related to registration issues, necessarily required assessment of their impact on the Draft Policy. The Commission's response to comments relating to the proposed amendments to the Securities Act and Existing Regulation is discussed in separate notices (NIN#95/40 and NIN#95/41).

LPS 3-22 Restates Act, Regulation and Rules Relating to Registration

Effective January 1, 1996, the Commodity Contract Act, R.S.B.C. 1979, c. 56 (the "CCA"), will be repealed; a substantial number of amendments to the Securities Act will come into force; including provisions relating to exchange contracts; the Existing Regulation will be repealed and replaced by the Securities Regulation, B.C. Reg. 478/95 (the "Regulation"), with respect to a limited number of matters, including fees, and by the Securities Rules, B.C. Reg. 479/95, with respect to all other matters governing the regulation of securities and exchange contracts. Effective December 31, 1995, the Commission has repealed the Registration Transfer Regulation, B.C. Reg. 286/86, and replaced it by the Registration Transfer Rules, B.C. Reg. 477/95. LPS 3-22 restates many of the provisions set out in the Securities Act, Regulation, Securities Rules and Registration Transfer Rules and, for convenience, cites specific sections of legislation or regulatory instruments as authority for various requirements.

Effective January 1, 1996, the Securities Act and Securities Rules, will permit brokers and investment dealers to be registered to trade in securities, exchange contracts or both. Similarly, the Securities Act and Securities Rules will permit advisers to be registered to engage in, or hold themselves out as engaging in, the business of advising another with respect to investment in or the purchase or sale of securities, exchange contracts or both. Brokers, investment dealers and advisers should be cautioned, notwithstanding amendment of the Securities Act and Securities Rules, that their trading and advising activities are restricted to the products that they were entitled to trade in or advise on prior to January 1, 1996. Therefore, only those brokers, investment dealers and advisers and their respective partners, directors, officers, and salespersons or advising employees that were registered under the CCA as of December 31, 1995 will be entitled to trade in or advise on exchange contracts or after January 1, 1996

Requirements of Executive Director Set Out

LPS 3-22 also describes a number of registration requirements that are to be specified by the Executive Director. For example:

• Section 21 of the Securities Rules requires a dealer (other than a security issuer), underwriter, portfolio manager and investment counsel to maintain bonding in a form and amount that the executive director considers necessary. Sections 2.1(i), 2.2(g) and 2.3(g) require bonding in the form of a financial institution bond of a minimum of $200,000 covering the dealer, underwriter, adviser, registered individuals and all other employees.
  
• Section 44(1) of the Securities Rules requires a dealer, portfolio manager and investment counsel to establish and apply written prudent business procedures for dealing with clients in compliance with the Securities Act, Regulation and Securities Rules. Section 5.2 of LPS 3-22 provides detailed guidelines for registrants in the preparation of a policy and procedure manual for their businesses.
  
• Section 45(1) of the Securities Rules requires an underwriter to establish and apply written prudent business procedures or other safeguards for underwriting distributions of securities made by way of prospectus, or other offering document that the executive director specifies. Section 5.3 of LPS 3-22 provides direction to registrants in the preparation of written descriptions of their procedures and other safeguards.
  
• Section 61(1) the Securities Rules requires that individuals applying for registration have successfully completed the courses and examinations and have the experience the executive director requires. Sections 4 and 6 to 17 (inclusive) of LPS 3-22 set out specific proficiency requirements for compliance officers and for partners, directors, officers, salespersons and advising employees, as applicable to each category of registrant.
  
• Section 69(1) of the Securities Rules requires a registered dealer (except a security issuer), an underwriter and an adviser to file (GAAP) financial statements annually and at any other time in the form required by the executive director. Section 3.8 of LPS 3-22, in reliance upon section 69(1)(b) of the Securities Rules, specifies that certain registrants are required to file (GAAP) financial statements monthly or quarterly.

Registrants and applicants for registration requiring registration information not set out in LPS 3-22 should contact the Registration Division of the Commission.

DATED at Vancouver, British Columbia, on December 7, 1995.

Dean E. Holley
Superintendent of Brokers

Ref:. LPS 3-22 LPS4-1
LPS 3-38 NIN#95/41
LPS 3-42 NIN#94/48