CSA scraps single disclosure document

By Steven Lamb | February 29, 2008 | Last updated on February 29, 2008
3 min read

Fresh from their return to the drawing board, the Canadian Securities Administrators are seeking comment on a revised version of proposed National Instrument 31-103, Registration Requirements.

The proposed rule requires the registration of investment fund managers and sets out proficiency requirements for representatives. Following its initial release for comment in February 2007, the CSA received more than 260 comment letters.

“We received a tremendous amount of detailed and thoughtful input from stakeholders following the initial publication of the proposed Rule in February 2007,” said Jean St-Gelais, chair of the CSA and president and CEO of the Autorité des marchés financiers (Québec). “As a result, we are proposing revisions that will further strengthen the proposed rule and result in regulatory efficiencies for many market participants.”

Among the key changes, the CSA has dropped its requirement that registrants provide a relationship disclosure document to clients. Instead, the NI 31-103 would include a principles-based requirement that registrants provide “information that a reasonable client would consider important respecting the client’s relationship with the registrant.”

The rule still would provide a basic list of information that the regulators would require registrants to give to clients.

“This requirement may be met by providing clients with separate documents which, together, give them the prescribed information,” the CSA says in its new request for comments. “We anticipate that, in many cases, registrants will be able to satisfy this requirement using existing documents.”

The revised rule would create a new class of investor, the “permitted client,” which would be a subset of the existing “accredited investor.” Permitted clients would be primarily institutional, corporate and “very high-net-worth” individuals. For these clients, registrants will have a reduced suitability review obligation, resulting in a reduced regulatory burden.

The notice of revision states, “We believe that, at the upper end of the accredited investor spectrum, there are investors who are sufficiently sophisticated, or have sufficient resources to obtain expert advice, that they may neither need nor wish for the same level of protection as that which the registration regime extends to other investors.”

The revised rule also clarifies that investment managers will need to be registered only in the jurisdiction where “the person or company that directs the management of the fund is located.” In most cases, this means the corporate head office, which may be located in Toronto, for example, but operate an office in Calgary. Those managers located in Calgary would need to be registered only in Ontario.

The revised rule would not supersede the rules of SROs on issues such as solvency requirements, relationship disclosure information, proficiency requirements for investment dealers or disclosure when recommending the use of leverage. The CSA would harmonize its rules with those of the SROs on an ongoing basis.

“We are committed to getting this rule right, not only for market participants but, most importantly, for the benefit of investors across the country,” said St-Gelais.

The comment period is open until May 29, 2008. The revised rule is available on the websites of all provincial regulators. To access a copy from the Ontario Securities Commission, please click here.

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Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com


Steven Lamb