Toronto – The Canadian Securities Administrators (CSA) announced that new rules are taking effect today across Canada that apply to firms and individuals who deal in securities, provide investment advice or manage investment funds. In addition, a streamlined process for dealer and adviser registration in multiple jurisdictions is now in effect.
National Instrument 31-103 Registration Requirements and Exemptions, and related rules and amendments, create a new Canada-wide registration regime. This important initiative reflects an extensive consultation process that began in 2005. When the CSA published the new rules on July 17, 2009, they announced the rules would come into effect on September 28, 2009, pending approval by the appropriate provincial and territorial government authorities, which is now complete.
“The coming into force of this new registration regime is a significant achievement toward modernizing and increasing the efficiency of the registration system,” said Jean St-Gelais, Chair of the CSA and President & Chief Executive Officer of the Autorité des marchés financiers (Québec).
The new regime has higher proficiency standards for some registrants. It also has enhanced rules for consumer disclosure, referral arrangements, handling investor complaints, and disclosing and addressing conflicts of interest. As well, the new regime introduces a registration requirement for investment fund managers, exempt market dealers and senior officers responsible for compliance. The new rules recognize that the registration regime must accommodate a wide variety of business models, scales of operation, clients and products.
The passport system for registrants, which comes into force with NI 31-103, creates a streamlined process for dealer and adviser registration in multiple jurisdictions, replacing the current National Registration System. The new national registration regime is the foundation for this system.
The CSA is also making some amendments to National Instrument 45-106 Prospectus and Registration Exemptions to further harmonize and streamline requirements for using some exemptions and to complement changes to the registration regime in National Instrument 31-103.
On June 12, 2009 the CSA published CSA Staff Notice 31-311 Proposed NI 31-103 Registration Requirements and Exemptions – Transition into the new Registration Regime, which provides guidance for the transition from the existing registration regime to the new registration regime under NI 31-103. In order to make the transition as smooth and efficient as possible, CSA staff have outlined in the Notice several items of which registrants should be aware, including proposed changes to the National Registration Database (NRD), the conversion by firms and individuals to new categories of registration and the transition period to comply with new requirements under NI 31-103.
As part of the transition, the NRD is scheduled to be shut down from September 25 to October 12, 2009 to allow for the conversion to new categories of registration. During this time, firms would have read-only access to the database and would need to submit material information to their securities regulator and then re-file that material on the NRD after the database reopens on October 12, 2009. Any filings made during this period must be paper filings.
NI 31-103, and related rules and amendments, as well CSA Staff Notice 31-311 are available on various CSA members’ websites.
The CSA, the council of the securities regulators of Canada’s provinces and territories, co‑ordinates and harmonizes regulation for the Canadian capital markets.
National Instrument 31-103 Registration Requirements and Exemptions
Registration Reform Project
- The new national instrument is the centrepiece of the “Registration Reform Project”. This is largest project ever undertaken by the Canadian Securities Administrators (CSA).
- The project involves the harmonization, streamlining and modernization of the different sets of registration rules that exist in each of the provinces and territories.
- Today, securities dealers and advisers must comply with different rules in each Canadian jurisdiction where they are registered to carry on business.
- Under the new regime, a single national instrument will govern their conduct and a single set of rules will lay out the procedures they need to follow to become registered.
- The related passport system and Ontario’s interface with the passport system will mean a single point of contact for registration.
- A more comprehensive and up-to-date registration regime will not only provide for more efficient business operations, it will also help regulators discharge their important investor protection mandate.
- Securities industry professionals are required to register with the securities commission in each province or territory where they do business.
- Securities commissions have mandates to protect investors and foster fair and efficient capital markets. Registrants are screened for integrity, proficiency and solvency. They are registered in categories according to the type of business they do and must conduct business in compliance with regulations enforced by the commissions.
- The new registration regime published today will provide Canada-wide rules for the conduct of registrants and regulatory procedures they must follow.
History, goals and substance of Project
- The first concept paper for the registration reform project was published in February 2006.
- Rule proposals were published for comment in February 2007 and February 2008, with extensive consultation undertaken at each stage.
- A better system of registration requirements will help ensure investor protection and foster a more efficient business environment.
- Until now, the rules for the conduct of registrants were different for each province and contained in various rules within provinces. Now there will be basically just one set of rules.
- Harmonizing and streamlining regulations in this way will make it easier to regulate to a common standard across the country and easier for registrants to comply with the regulations.
- Some registration requirements needed to be modernized to reflect new concerns or new regulatory approaches. The new national instrument also addresses this need.
- The reforms will directly impact the approximately 2,000 firms and 130,000 individuals who are registered today.
- Investors often rely heavily on registrants.
- Examples of enhanced investor protection under the new registration regime:
- A key element of the new regime is fostering a culture of compliance.
- CEOs will have to register as the “ultimate designated person” who is responsible for the existence of an effective compliance system at their firms.
- Firms must also register a chief compliance officer who will be responsible for day-to-day operation of the compliance system.
- Those who administer investment funds (e.g. mutual funds) will be required to register for the first time (these are called “investment fund managers”).
- Dealers who sell securities under certain exemptions from the usual requirements under securities regulations will have to register for the first time (these are called “exempt market dealers”; currently only Ontario and Newfoundland and Labrador have a similar requirement but it is less comprehensive).
- There are new requirements for referral arrangements, handling investor complaints and risk-based capital and insurance.
- There are expanded requirements for consumer disclosure, and disclosing and addressing conflicts of interest.
- There are higher proficiency requirements for some registration categories.
- Examples of fostering efficient business environment under the new registration regime:
- Common requirements across Canada for the first time.
- Over 30 individual categories of registration will be reduced to five and 60 firm categories reduced to eight.
- Registered individuals will be able to transfer automatically between employers as long as no concerns are raised on their conduct.
- Firms will no longer have to renew their registration every year
- Rules will be more flexible in some areas with a less prescriptive approach in recognition that registered firms vary greatly in their size and the range of business they undertake.
- New registration categories accommodate specialized operations.
- The requirement to register for dealers will be driven by whether or not they are actually in the business of trading securities (this is called the “business trigger”) – instead of today’s sometimes very technical requirement that can capture trading activity incidental to a firm’s primary business.
- In addition to NI 31-103, the registration reform project includes revisions to the rules that govern registration procedures.
- Efficiencies for industry have been achieved with the removal of regulatory burdens that do not enhance investor protection.
- Registration procedures are set out in the National Registration Database (NRD) rules, which have been amended, and in the passport system and Ontario’s passport interface.
- The passport system allows individuals and firms to register in more than one province or territory by dealing only with the “principal regulator”. Although Ontario is not adopting the passport system, it can be a principal regulator under that system. This means Ontario-based registrants only need to deal with the OSC, even when they are also active in other parts of Canada. The CSA has also today issued a press release concerning the publication of the passport rules.
Securities Act amendments
- Provinces and territories have amended their Securities Acts to accommodate the new registration regime in their legislative framework. Most recently, Ontario has adopted such amendments in its budget bill that received Royal Assent in June and have now been proclaimed into force (Bill 162, the Budget Measures Act, 2009). Quebec adopted the Act amendments in its Bill 8 (an Act to amend the Securities Act and other legislative provisions), also assented in June and now proclaimed into force.
Transition to new regime
- Guidance to the industry on how the new registration regime will be implemented by regulators is set out in CSA Notice 31-311 Transition into new Registration Regime under NI 31-103, which was published on June 12, 2009.
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