NIN 98/31 - Proposed National Instrument 31-101 and Companion Policy 31-101CP Mutual Reliance Review System for Registration [NIN - Rescinded]
| Published Date: | 1998-06-19 |
|---|---|
| Effective Date: | 1998-06-18 |
The proposed National Instrument permits advisers and certain dealers that apply for registration or renewal or reinstatement of registration in more than one jurisdiction to do so by using the forms and meeting the initial registration requirements of the securities regulatory authorities of only one jurisdiction, rather than those of all jurisdictions in which the dealer or adviser is registered or is applying for registration or reinstatement or renewal of registration.
The proposed National Instrument and Companion Policy are initiatives of the CSA. The proposed National Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in all other jurisdictions represented by the CSA. The Companion Policy is expected to be adopted as policies in all jurisdictions represented by the CSA.
Background
The proposed National Instrument is derived in part from draft National Policy Statement No. 54 ("Draft NP54"), which was first published by the CSA for comment in April 1995 (see NIN#95/18). The previously proposed system for registration of advisers under Draft NP54 has now been expanded by the CSA to include foreign-based advisers and dealers that are members of a self-regulatory organization ("SRO").
The MRRS for registration is part of a broader mutual reliance initiative that is intended to simplify the process for national securities market participants in dealing with multiple provincial regulators. The mutual reliance initiative is focused on three areas of regulation: prospectus review, exemption application processing and dealer and adviser registration. While there are some variations among the three systems of review, all are based on the principle that each securities regulator, while retaining jurisdiction to make decisions in each case, will rely generally on the review of the applicant’s home jurisdiction in deciding whether to approve an application.
Arrangements among the CSA with respect to the MRRS have been formulated in a draft Memorandum of Understanding ("MOU"), which is being published for comment concurrently with the proposed National Instrument (see NIN#98/29). While the draft MOU sets out the roles and responsibilities assumed by the Canadian securities regulatory authorities under the MRRS generally, the proposed National Instrument sets out the specific requirements of the MRRS for registration.
Substance and Purpose of the Proposed National Instrument and Companion Policy
The proposed National Instrument and Companion Policy establish an MRRS for registration under which SRO dealers and certain advisers, as well as their individual representatives, can apply for registration or renewal or reinstatement of registration in more than one jurisdiction by using the forms and meeting the conditions for obtaining registration under the securities legislation of only one Canadian jurisdiction, rather than those of all jurisdictions in which they apply for registration or renewal or reinstatement of registration. The regulator in that one jurisdiction will act as the principal regulator for the registrant under the MRRS for registration. The MRRS for registration also applies in situations in which an applicant is already registered in one or more jurisdictions. The MRRS for registration is available to all firm advisers provided that the firm adviser does not hold securities or money on behalf of a client and provided the firm adviser is not seeking to register and is not required to register under securities legislation to advise on commodity futures or exchange contracts.
The MRRS for registration is available on a limited basis to non-Canadian advisers. All CSA jurisdictions, except Quebec, are willing to consider registering a non-Canadian adviser under the MRRS for registration if Ontario or British Columbia is the principal jurisdiction for the adviser. Quebec is not prepared to register any non-residents. In British Columbia, the regulator will generally permit a non-Canadian adviser to be registered if the non-Canadian adviser meets certain additional conditions imposed by the regulator such as restrictions on the types of clients the filer will be permitted to advise.
The proposed system does not deal with amendments to registration, such as the imposition of conditions during the filer’s registration, and a filer must follow the amendment procedures and requirements of Canadian securities legislation in each jurisdiction in which it is registered.
Summary of the Proposed MRRS for Registration
The following is a brief summary of the proposed MRRS for registration:
- The principal regulator for a firm that has its head office in Canada will be the regulator in the jurisdiction in which the firm’s head office is located, while the principal regulator for an individual filer that is resident in Canada will be the regulator in the jurisdiction in which the individual is resident.
- For non-resident filers and filers that do not have their head office in Canada, the filer will request a regulator to act as its principal regulator. The National Instrument and Companion Policy set out factors that these filers should consider in selecting their principal regulator.
- The firm filer and all of its individual filers that seek registration in the principal jurisdiction are registered with the principal regulator and the firm filer’s non-advising or non-trading directors, partners and officers are approved by the principal regulator.
- An individual filer need not register with the principal regulator for his or her sponsoring firm, but must register in all jurisdictions in which he or she will conduct registrable activities.
- If a firm does not participate in the system, none of its individual registrants may apply for registration under the system. Conversely, if a firm does participate in the system, its individual registrants who are applying for registration in more than one jurisdiction must apply using the MRRS for registration.
- The applicant is required to deliver to its principal regulator all information necessary to complete its application for registration and to notify the principal regulator of all non-principal regulators with which it is seeking registration. The applicant must deliver the same information at the same time to all of the non-principal regulators identified in the notice to the principal regulator.
- Fees are required to be paid to the principal regulator and all applicable non-principal regulators in the usual manner.
- The principal regulator is responsible for reviewing the application materials and advising the non-principal regulators of its intention to register the applicant by providing to them a draft of its MRRS Decision Document including the terms and conditions, if any, that it is proposing to impose on the registrant.
- The non-principal regulators are entitled to opt out of the system in respect of an application if they have concerns about the application. The system provides that the non-principal regulators may respond on an opting out or an opting in basis. In British Columbia, the regulator will respond on an opting out basis.
- Once registered in a jurisdiction, a registrant will have to comply with the ongoing registration requirements, other than renewal or annual delivery requirements, of that jurisdiction related to the conduct of its business and dealings with its clients in the jurisdiction, rather than with the requirements of only the principal jurisdiction.
- In British Columbia, an applicant for registration in a dealer category that wishes to be registered as an underwriter must apply for registration in both categories.
In order to further streamline the MRRS for registration, it is intended that Canadian securities legislation in all jurisdictions will be amended to provide for a permanent registration model. Under the MRRS for registration, filers will be required to comply with the annual delivery requirements of Canadian securities legislation in the filer’s principal jurisdiction.
Adopting a permanent registration system in most jurisdictions will require separate local implementing instruments or amendments to regulations to change existing renewal requirements. In the Northwest Territories, a legislative amendment is required and the timing of the amendment is not certain. The proposed local rule to implement a permanent registration system in British Columbia will be published for comment in the near future.
Until the local implementing instruments, regulation or legislative changes are implemented in each jurisdiction, the renewal date for filers that use the MRRS for registration will be uniform in all jurisdictions, except the Northwest Territories if the Northwest Territories is not the principal jurisdiction. The renewal date will be the date that is 90 days after the firm filer’s fiscal year end, unless the Northwest Territories is the principal jurisdiction, in which case the renewal date will be March 31. In Quebec, Canadian securities legislation does not provide for annual renewals of registration. However, there is an annual filing requirement that must be completed within 90 days after a firm filer’s year end.
The proposed Companion Policy provides an overview of the MRRS for registration, including,
- how the regulators will deal with one another with respect to applications for registration or reinstatements or renewals of registration under the system;
- provisions relating to the MRRS Decision Document including its form, contents, and when it will be issued;
- how conditions of registration will be dealt with on the initial registration and on an ongoing basis; and
- provisions for certain specified minimum proficiency for advisers who intend to register under the system.
Terms used and not defined in the proposed Companion Policy that are defined or interpreted in the proposed National Instrument or a definition instrument in force in the jurisdiction should be read in accordance with the National Instrument or the definition instrument, unless the context otherwise requires.
The proposed National Instrument and Companion Policy contain footnotes that are not part of the proposed instruments, but which have been included to provide background and explanation.
Consequential and Related Amendments
In order to avoid inconsistencies between the proposed National Instrument and both the Securities Rules and the Registration Transfer Rules, certain consequential amendments to these rules will be required. For example, an amendment is required in order to create an exemption from certain initial registration requirements in the Securities Rules where an applicant for registration or renewal or reinstatement of registration complies with the National Instrument and the applicant’s principal regulator is located in a jurisdiction other than British Columbia. The proposed amendments relate to sections 19, 20(2), 23(3), 24 and 63(1) of the Securities Rules and to the Registration Transfer Rules.
Anticipated Costs and Benefits
At present, advisers and SRO dealers, as well as their individual representatives, that carry on business in more than one province or territory must make separate applications for registration or reinstatement or renewal of registration in each jurisdiction and deal separately with several Canadian securities regulatory authorities. The proposed system is intended to simplify and streamline multi-province registrations and to reduce the time and costs associated with making separate applications to and dealing separately with several regulators.
The MRRS for registration will also reduce the costs of compliance for registrants who use the system, as they will need to comply only with the initial conditions of obtaining registration imposed by the principal regulator.
Specific Request for Comment
In addition to welcoming submissions on any provision in the proposed National Instrument and Companion Policy, the Commission seeks comment on the specific matter referred to below.
As noted above, all CSA jurisdictions, except Quebec, are willing to consider registering a non-Canadian adviser under the MRRS for registration if Ontario or British Columbia is the principal jurisdiction for the adviser. Currently, in British Columbia, the regulator will generally permit a non-Canadian adviser to be registered if the non-Canadian adviser meets certain additional conditions imposed by the regulator such as restrictions on the types of clients the filer will be permitted to advise - typically only financial institutions and other persons with significant net worth. For a complete list of restrictions on non-Canadian advisers, please refer to section 15.9 of Local Policy Statement 3-22, published together with NIN#98/16.
The Commission requests comment on whether these kinds of restrictions should continue to be imposed on a non-Canadian adviser seeking registration in British Columbia.
Comments
Interested parties are invited to make written submissions with respect to the proposed National Instrument and Companion Policy and the proposed consequential and related amendments to the Securities Rules and the Registration Transfer Rules. Submissions received by September 18, 1998 will be considered.
Submissions should be made to all of the Canadian securities regulatory authorities listed below, in care of the Ontario Securities Commission, in duplicate, as indicated below:
British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Division, Department of Government Services and Lands,
Government of Newfoundland and Labrador
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territorc/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:
Claude St. Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.
Questions may be referred to any of the following:
Ross McLennan
Director, Registration
British Columbia Securities Commission
(604) 899-6685
0r 1-800-373-6393 (in B.C.)
Simon Millner
Legal Counsel, Policy and Legislation
British Columbia Securities Commission
(604) 899-6642
0r 1-800-373-6393 (in B.C.)
Wayne Alford
Legal Counsel
Alberta Securities Commission
(403) 297-2092
Terry Ford
Deputy Director, Registration
Saskatchewan Securities Commission
(306) 787-5876
Doug Brown
Counsel
The Manitoba Securities Commission
(204) 945-0605
Nancy Ross
Legal Advisor
Ontario Securities Commission
(416) 593-8154
Renée Piette
Financial Analyst
Commission des valeurs mobilières du Québec
(514) 873-5009
Elaine Anne MacGregor
Deputy Director, Capital Markets
Nova Scotia Securities Commission
(902) 424-4592
Ruth DeMone
Registrations Officer
Registrar of Securities, Prince Edward Island
(902) 368-4550
DATED at Vancouver, British Columbia, on June 18, 1998.
Douglas M. Hyndman
Chair
Local Policy Statement 3-22
NIN#95/18
NIN#98/16
NIN#98/29
Proposed Consequential and Related Amendments to the Securities Rules
1. The Securities Rules, R.B.C. Reg. 194/97, are amended by adding the following
MRRS for Registration
18.1 (1) If an applicant for registration, renewal of registration or reinstatement of registration complies with National Instrument 31-101, "Mutual Reliance Review System for Registration", and the applicant’s principal regulator under that instrument is located in a jurisdiction other than British Columbia, the applicant is exempt from sections 60, 61(1), 62, 64(1) and 72(1).
(2) If the executive director grants registration, renewal of registration or reinstatement of registration to an applicant under National Instrument 31-101, the applicant complies with National Instrument 31-101, and the applicant’s principal regulator under that instrument is located in a jurisdiction other than British Columbia, the applicant is exempt from sections 19(1), 20, 21, 22, 23(1) and (2), 25 and 63(1).
(3) Subsections (1) and (2) apply to an applicant only in its capacity as(a) a broker, investment dealer, portfolio manager or investment counsel, or
(b) a partner, director, officer or salesperson of a broker, investment dealer, portfolio manager or investment counsel.(4) Subsection (1) does not apply if the executive director does not grant registration, renewal of registration or reinstatement of registration to an applicant under National Instrument 31-101.
(5) The executive director must not refuse to grant registration, renewal of registration or reinstatement of registration to an applicant under National Instrument 31-101 without giving the applicant an opportunity to be heard.
2.Section 19 is amended
(a) by repealing subsection (4) and substituting the following:
(4) An exchange contracts dealer that does not ^ receive or maintain possession of securities or money on behalf of a client1
1 Proposed National Instrument 31-101 uses the words "securities or money". This contrasts to the current use of "funds or securities" in a number of sections of Division 4 of Part 5 of the Securities Rules. Proposed National Instrument 31-101 sets out a limited number of situations where an adviser will not be considered to "hold" securities or money on behalf of a client. That test is more generous than the one currently included in the Rules. For example, the test in Proposed National Instrument 31-101 (which determines whether or not an adviser will be eligible to use the Mutual Reliance review System for Registration) allows an adviser to hold client property "in transit"; the current test in the Rules (which governs capital and insurance requirements) does not allow a dealer to hold property "in transit". Notwithstanding their different purposes, for the sake of consistency it seems appropriate to use the words "securities or money" in the Rules and to adopt the same test for advisers holding securities or money as is used in Proposed National Instrument 31-101. In order to distinguish the test for advisers from the test under section 24, it seems appropriate to use the words "receive or maintain possession" rather than "hold" other than for advisers.
and is recognized by the executive director as an introducing broker must maintain positive risk adjusted capital but may calculate risk adjusted capital on the basis of a minimum capital requirement of $75,000 instead of the minimum of $100,000 set out in subsection (2)., and
(b) by repealing subsection (5) and substituting the following:
(5) A mutual fund dealer that does not ^ receive or maintain possession of securities or money on behalf of a client and is recognized by the executive director must maintain working capital, calculated in accordance with the required form, equal to, or greater than, $25,000 plus the maximum amount that is deductible under any bond required under section 21.
3. Section 20 is amende
(a) by repealing subsection (2) and substituting the following:
(2) A portfolio manager or investment counsel that does not hold ^ securities or money on behalf of a client and is recognized by the executive director must maintain working capital, calculated in accordance with the required form, equal to, or greater than, $5,000 plus the maximum amount that is deductible under any bond required under section 21., and
(b) by adding the following:
(3) For the purposes of subsection (2), a portfolio manager or investment counsel does not hold securities or money on behalf of a client if the portfolio manager or investment counsel
(a) clears all securities and money of its clients out of its office by the end of each day that the portfolio manager or investment counsel is open for business,
(b) holds securities or money as a result of the portfolio manager or investment counsel giving directions to a custodian to settle or to a dealer to execute transactions on behalf of its clients for whom securities or money is held, or
(c) qualifies as a custodian or sub-custodian under Part 6 of National Instrument 81-102, "Mutual Funds", solely as a result of the portfolio manager or investment counsel holding the securities or money on behalf of its clients in trust in that capacity.
4. Section 23 is amended by repealing subsection (3) and substituting the following
(3) The executive director may exempt a dealer ^ from the requirements of subsection (1) if the dealer does not receive or maintain possession of securities or money on behalf of its clients.
5. Section 24 is repealed and substituted by the following:
Requirements for ^reduced capital
24.If an exchange contracts dealer is permitted under section 19(4) to calculate risk adjusted capital on the basis of a lower minimum capital requirement, a mutual fund dealer is permitted under section 19(5) to maintain a lower level of working capital ^ or a dealer is exempted under section 23(3) from the requirement to participate in and contribute to a compensation fund or contingency trust fund, ^ the dealer must not
(a) ^ receive or maintain possession of securities or money on behalf of its clients,
(b) receive from clients ^ securities or money for the payment or settlement of trades in securities or exchange contracts on behalf of the client,
(c) receive from clients cheques made out to the dealer for the payment of or settlement of trades in securities or exchange contracts on behalf of the client,
(d) receive from other persons ^ money payable to the client on account of the sale of or settlement of trades in securities or exchange contracts made on behalf of the client, or
(e) receive from other persons cheques made out to the dealer on account of the sale of securities or exchange contracts or settlement of trades in securities or exchange contracts on behalf of the client.
6. Section 63 is amended by repealing subsection (1) and substituting the following:
(1) Subject to subsection (2), an individual ^ registered as a salesperson must be employed full time in that capacity.
Proposed Consequential Amendments to the Registration Transfer Rules
1. The Registration Transfer Rules, R.B.C. Reg. 193/97, are amended by adding the following
MRRS for Registration
10 (1) Section 4(2) does not apply if an applicant under sections 3(1)(a), (b) or (c) complies with National Instrument 31-101, "Mutual Reliance Review System for Registration", and the applicant’s principal regulator under that instrument is located in a jurisdiction other than British Columbia.
(2) Despite section 5(1), if an applicant complies with National Instrument 31-101 and the applicant’s principal regulator under that instrument is located in a jurisdiction other than British Columbia, a designated organization must not refuse to grant registration, renewal of registration or reinstatement of registration to an applicant on the basis that the applicant is not a resident of British Columbia.
(3) Subsection (1) does not apply if the designated organization does not grant registration, renewal of registration or reinstatement of registration to an applicant under National Instrument 31-101.
(4) A designated organization must not refuse to grant registration, renewal of registration or reinstatement of registration to an applicant under National Instrument 31-101 without giving the applicant an opportunity to be heard.