NIN 99/41 - Adoption of National Policy 12-201 Mutual Reliance Review System for Exemptive Relief Applications [NIN - Rescinded]

Published Date:	1999-11-19
Effective Date:	1999-11-17

The Commission, together with other members of the Canadian Securities Administrators ("CSA"), has adopted National Policy 12-201 Mutual Reliance Review System for Exemptive Relief Applications (the "National Policy"). The National Policy will come into effect on January 1, 2000.

The National Policy establishes the mutual reliance review system ("MRRS") for exemptive relief applications ("ERA"). The CSA adopted a memorandum of understanding (the "MOU") signed as of October 14, 1999 to implement the MRRS, which was published on October 29, 1999.

Background

The National Policy was initially published for comment as a concept proposal in January 1998. The concept proposal was redrafted as a draft National Policy and published for comment on November 20, 1998. Starting in March 1998, the CSA and numerous law firms across Canada have participated in testing ERA. Testing will continue until the effective date of the National Policy. At present about three quarters of all exemptive relief applications are filed under ERA.

The comment period expired February 28, 1999. The CSA received 2 comment letters. Appendix A attached to this Notice provides a summary of the comments received and the responses of the CSA. The CSA considered the comments received and would like to thank each commentor for taking the time to provide their comments. The CSA made changes to respond to comments received from industry participants and to take into account the experience that staff of the various CSA jurisdictions derived during the testing phase. No material changes have been made to the National Policy. Copies of the comment letters may be viewed at the office of a member of the ERA Committee listed below.

Substance and Purpose of the National Policy

The National Policy applies the principles of the MRRS to the review of applications in order to reduce unnecessary duplication in the review of applications filed in multiple jurisdictions. The MRRS is an important step towards increasing harmonization. Under the MRRS, each non-principal regulator relies primarily on the review and analysis of the principal regulator in reaching its own decision.

Summary of the National Policy

The following is a summary of the procedures set out in the National Policy:

• A filer is eligible to elect to use ERA for any application made to more than one securities regulatory authority, except for those applications for which the granting of exemptive relief can be evidenced by a MRRS decision document issued under National Policy 43-201- MRRS for Prospectuses and Annual Information Forms (the "Prospectus Policy") or by a certificate of registration;
  
• A filer electing to use ERA for an application is responsible for selecting a principal regulator for the application. In most cases, the principal regulator of a filer is the regulator in the jurisdiction in which the head office of the filer (or in the case of a mutual fund, its manager) is located. The National Policy clarifies the procedure for changing the principal regulator for an application;
  
• The National Policy provides a process for pre-filing discussions on applications. If the principal regulator determines that the pre-filing discussion is of a routine nature, it will be dealt with by the principal regulator. If the principal regulator determines that the pre-filing discussion involves a novel and substantive issue or a novel public policy issue, the National Policy provides for a consultative process between securities regulatory authorities. The process is similar to that provided for in the Prospectus Policy;
  
• Applications and application filing fees should be filed concurrently in all jurisdictions. The National Policy provides that if applications are not filed concurrently in all jurisdictions or are incomplete or deficient, the timing of the review may be affected;
  
• A single application document should be drafted referencing the relevant legislative provisions of the principal regulator. The application should contain footnotes or, include a table of concordance clearly referencing all the relevant legislative provisions of all non-principal regulators where the application will be made. The application should also contain analysis of where the provisions of the legislation of the non-principal regulators differs from that of the principal regulator;
  
• The filer will generally deal only with the staff of the principal regulator on an application;
  
• There is no surrender of the exercise of discretion by any securities regulatory authority under ERA. All securities regulatory authorities will exercise their discretion to grant or deny exemptive relief on an application. Non-principal regulators will rely on the review and analysis of the application by the staff of the principal regulator;
  
• The staff of non-principal regulators will have seven business days to notify the staff of the principal regulator of substantive issues on an application that in the view of staff may, if left unresolved, cause the non-principal regulator to opt out of ERA for the application. The staff of the principal regulator can abridge this time period if they feel the circumstances warrant the abridgement;
  
• Once the staff of the principal regulator has completed their review of an application (having the benefit of the substantive comments of the staff of non-principal regulators), they will notify the staff of the non-principal regulators of their recommendation and forward the recommendation to the principal regulator for a decision on the application;
  
• Once the principal regulator has made a decision on an application, the staff of the principal regulator will forward their staff memorandum and recommendation and the decision of the principal regulator on the application to the non-principal regulators involved in the application. The staff memorandum must identify substantive comments received from the staff of non-principal regulators and the view of the staff of the principal regulator on these comments;
  
• Non-principal regulators have seven business days to decide whether to make the same decision as the principal regulator on an application or whether to opt out of ERA for the application. The principal regulator cannot abridge this time period but only request that the non-principal regulators attempt to make their decisions in a shorter period. The National Policy establishes a procedure to ensure there is no unintended opting out of ERA on an application due to silence. Staff of the principal regulator will send a reminder by facsimile to all non-principal regulators who have not responded within five business days;
  
• A non-principal regulator may opt out of ERA for an application by advising the filer, the principal regulator and the other non-principal regulators of its decision to opt out and its reasons for doing so. The non-principal regulator that has opted out will continue its review of the application, deal directly with the filer, make a decision with respect to the application and issue its own decision document. A non-principal regulator that has opted out of ERA can opt back into ERA at any time prior to the end of the opting out period set by the National Policy;
  
• Silence by a non-principal regulator on an application is deemed to be an opting out of ERA for an application;
  
• The decision of the principal regulator on an application will not be released to the filer until the end of the opting out period unless all non-principal regulators have communicated their decisions on the application prior to the end of that period;
  
• Once a decision has been made by all non-principal regulators, the principal regulator will issue a MRRS decision document evidencing the decisions of the principal regulator and all non-principal regulators that have not opted out of ERA for the application. The decisions of all securities regulatory authorities and the MRRS decision document will have the same effective date and the same terms and conditions;
  
• If exemptive relief is needed for part of a transaction or matter the exemptive relief will be granted for the whole transaction or matter and a filer will look to the MRRS decision document for the exemptive relief for the whole transaction or matter and will not rely upon any statutory exemptions for portions of the transaction or matter;
  
• The MRRS decision document will generally reflect the securities legislation and securities directions of the principal regulator on an application. This may mean that similar transactions or matters may be subject to different terms and conditions, for example different resale restrictions, depending on who acts as principal regulator on an application;
  
• The Commission des valeurs mobilières du Québec will concurrently issue its own decision document on an application to filers. No other securities regulatory authority or regulator will issue its own decision document on an application to filers. The decisions of all securities regulatory authorities will be evidenced by the MRRS decision document;
  
• The time periods under ERA have been set to ensure that all securities regulatory authorities have sufficient time to exercise their discretion under ERA;

For information contact any of the following members of the Committee:

Ref: NP 43-201

Two comment letters were received on the proposed National Policy from Osler Hoskin & Harcourt and Borden & Elliot. No material changes have been made to the proposed National Policy as a result of the comments received.

General

Comment: Two commentors suggested that time lines should be imposed on the review of applications by the staff of the principal regulator under ERA. This comment was also raised when the National Policy was initially published as a concept paper.

Response: The CSA has not made any change to the National Policy in this regard.

TheNational Policy does not specify a time line for the review of applications by the principal regulator. The time required to review an application will vary depending on the nature and complexity of the application and the responsiveness of filers to comments made by the principal regulator. Under ERA the non-principal regulators rely on the review of the principal regulator and it is the Committee’s view that this review should not be constrained.

Part 4 - "Pre-filing Discussions"

Comment: One commentor

• suggested that the filer should be able to elect whether a pre-filing involves novel and substantive issues or raises novel public National Policy issues
• requested that a specified review period be set out for the review of a pre-filing and the principal regulator’s proposed approach on the pre-filing

Response: The Committee is of the view that it is more appropriate for the principal regulator, rather than the filer, to determine whether a filing is routine or involves novel and substantive issues or raises novel public National Policy issues. Accordingly no change was made to the National Policy.

The Committee agrees that there should be a time line on the review of a pre-filing by non-principal regulators. The National Policy now provides for a seven-business day review period.

Part 5 - "Filing of Materials under MRRS"

Comment: One commentor suggested that ERA should result in reduced fees. The suggestion was that fees should be standardized across jurisdictions with possibly a flat fee for the principal regulator and the non-principal regulators. This comment was also raised when the National Policy was initially published as a concept proposal.

Response: The Committee has noted the comment. However, given the ongoing discussions amongst the CSA regarding fees generally, the Committee is of the view that this issue can not be dealt with in isolation of those discussions.

Comment: One commentor suggested that the failure to file materials in all jurisdictions concurrently should not trigger a new review period for non-principal regulators.

Response: No change has been made to the National Policy. The Committee is of the view that it is the filer’s responsibility to ensure applications are filed concurrently with all securities regulatory authorities so that staff in each jurisdiction are able to commence their review at the same time. This is not unreasonable given that applications can initially be sent to all jurisdictions by facsimile followed by a hard copy enclosing fees.

Comment: One commentor requested that notice be given to filers if a principal regulator plans to treat an application as abandoned.

Response: This comment has been added to the National Policy.

Part 6 - "Review of Materials"

Comment: One commentor suggested that comments from non-principal regulators on applications should also be forwarded to filers.

Response: The Committee is of the view that this approach would be inconsistent with the mutual reliance. Filers generally deal only with the principal regulator on applications. The suggested approach would undermine this principle. By doing so there may be a tendency for filers to correspond directly with non-principal regulators. Staff of the principal regulator is responsible for reviewing the application and determining what comments will be made on an application. A principal regulator should relay all substantive comments, being opt out comments, made by non-principal regulators to the filer so that it is unlikely that the filer would be surprised with an opt out late in the process.

Part 9 - "Opting out of the System"

Comment: One commentor suggested

• that the National Policy should be clear that opting out by a securities regulatory authority does not trigger a requirement for the filer to file a new application and additional fees with that securities regulatory authority
  
• that the staff of the securities regulatory authority opting out should prepare a draft local decision for the filer to review
  
• that the date of the issue of the local decision by the securities regulatory authority opting out should be no later than the date of the issue of the MRRS decision document on the application

Response: The Committee agrees with the first comment and the National Policy has been clarified in this regard.

As regards the latter 2 comments, the Committee is of the view that once there has been an opt out of ERA for an application, ERA can no longer specify the process for reviewing that application by that securities regulatory authority. That securities regulatory authority’s local processes would need to be followed.

Part 10 - "Effect of Silence"

Comment: Two commentors suggested silence should be deemed to be opting into a decision as opposed to opting out of a decision.It was suggested the current approach might lead to confusion among participants and potentially lengthen the process. It was suggested that deeming silence to be an opt into a decision would operate as an incentive for non-principal regulators to consider applications in a timely manner. This comment was also raised when the National Policy was initially published as a concept proposal.

Response: The National Policy retains the concept that silence is deemed to be opting out of the decision. It is the Committee’s view that since decision documents are not standardized like registration certificates or prospectus receipts, a positive act to reflect each non-principal regulator’s exercise of discretion is appropriate. Further, the consequences of deeming a securities regulatory authority to have opted in through silence, when it has not actually exercised its discretion to opt in, are greater than from deeming a securities regulatory authority to have opted out through silence, when it has actually exercised its discretion to opt in.

Part 11 - "MRRS Decision Document"

Comment: One commentor felt that it should be possible to have a MRRS decision document that had an effective date earlier than the date on which the MRRS decision document was signed.

Response: The Committee has not adopted this comment as securities regulatory authorities are generally reluctant to grant retroactive relief out of a concern for intervening rights.

Commentors also made drafting suggestions to clarify the National Policy, some of which were adopted. There were some drafting and formatting changes made, as a result of testing, to clarify the National Policy and to ensure consistency with other MRRS instruments. None of these were material.