Description

Original SB Assessment

·         The name of the instrument - NI 31-103: Registration Requirements and Exemptions - is to be changed to NI 31-103: Registration Requirements, Exemptions and Ongoing Registrant Obligations. But, we suppose, why be brief and to the point if you can avoid it. - going ahead.

Pointless

·         Change to the requirement for rewriting proficiencies. At present an individual is exempt from doing so if they have been registered for at least 12 months within the past 36 months. The 12-month requirement will be dropped so that registration in the relevant category at any time within the past 36 months will qualify an individual for the exemption.

C

·         New subsection 3.3 specifying that an individual will not be considered to have been registered during a period of suspension.

This relates to the time out of the industry that determines proficiency re-write requirements.

C

·         Removal of requalification requirements for the Certified Financial Analyst (CFA) Charter and CIM designation.  This seems to be accomplished by removing the requirement to re-take a program, but you have to think about it for a bit to get there.

C

·         Acceptance of CFA Charter and 12 months relevant experience as an alternative proficiency requirement for RRs of mutual fund dealers and exempt market dealers.

(We did not comment before but agree with the proposal.)

C

·         An addition to section 3.4 that is supposed, according to the Request for Comments, to be "a requirement that the registered representative understand the structure, features and risks of each security the individual recommends to the client."

While the concept is unexceptionable, the actual requirement reads, in its tracked changes version:

An individual must not perform an activity that requires registration unless the individual has the education, training and experience that a reasonable person would consider necessary to perform the activity competently and to understand the structure, features and risks of each security the individual recommends.

As we noted in Commentary No. 6, actual understanding and the ability or education to understand are two different things. And the proposed rule does not even what say what is necessary, but what a reasonable person would consider necessary.

Does not achieve what it seeks to achieve

·         Elimination of the requirement for CCOs of portfolio managers and investment fund managers to have completed the Canadian Securities Course if they have the CFA

C

·         Extension of the grandfathering exemptions from proficiency requirements for CCOs and representatives of mutual fund dealers and exempt market dealers when the firm adds a jurisdiction.

C

·         Exemption from the Canadian Securities Course (CSC) requirement for Chief Compliance Officers of portfolio managers and investment fund managers who have the CFA Charter.

C

·         The proposed amendments would have prohibited an individual for being registered to deal or advise with more than one registered firm. Despite some opposition, this proposal was kept but altered slightly to put the onus on the dealer or adviser not to let its individual act for another dealer or adviser.

The change in onus will make it possible for a firm to get one exemption which permitting it to have several dually registered persons, a useful possibility as regards affiliates.  Nonetheless, we continue to disagree with the fundamental change, which converted an administrative decision on an application into an exemption procedure, with all the attendant time, cost and delay.

·         The CSA kept its proposal to grandfather those with dual registration prior to implementation of the changes.

D

·         Removal of the Quebec exception in section 7.1(2), which permits mutual fund dealers to deal in labour-sponsored capital corporations.

C

·            Deletion of section 7.1(3) permitting mutual fund dealers in British Columbia to trade in scholarship plans, harmonizing the rule with the rest of the CSA because only MFDA members who are also registered as scholarship plan dealers actually trade in scholarship plans.

Pointless

·         Removal of a limitation in section 8.6, which permits an adviser to distribute non-prospectus investments funds of which it is the adviser and investment fund manager, to its managed accounts. The limitation to non-prospectus funds will be removed, so that an advisers can distribute prospectus qualified funds (again, for which it is the advisor and IFM) to its managed accounts.

C

·         Change of the date on which International Dealers and International Advisors must file the annual notice of their reliance on the exemptions from a year after their initial filing to December 1.

C

·         A new section 8.18(7) that clarifies that an International Dealer does not require adviser registration to give advice on a trade it can make under the International Dealer exemption.

C

·         Change of the exemptions for International Dealers in section 8.18(3)(d)(ii) (and the corresponding provision of section 8.26 for International Advisers) enabling them to deal with permitted clients, to limit the exemption to Canadian permitted clients . This limitation is redundant because foreign dealers can deal with foreign clients without benefit of an exemption under 31-103, not to mention the exemption being granted anyway in the next sub-paragraph.

Pointless

·         Changes to the wording of the notice that International Dealers must give to clients under sections 8.18(4) and International Advisers must give clients under section 8.26.

Pointless

·         Clarification of how exemptions for SRO members from specific requirements work when the firm is dually licensed. The changes extend the exemptions for IIROC members to similar obligations that might fall on them when registered as investment fund managers. The exemptions for MFDA members are outlined for the relevant combinations of registrations, such as mutual fund dealer and exempt market dealer.

C

·         A wording change to section 8.26(4)(d) regarding the calculation of an International Advisor's aggregate consolidated gross revenue, replacing "during" with "as at," supposedly clarifying that the calculation is to be done at the end of the year rather than on an ongoing basis during the year.

We wondered how to calculate revenue "as at" a particular date without specifying the period within which the revenue was generated. There is no clarification of the point in the notice announcing that the change is to be maintained.

Pointless

·         Allowing SRO members to use the financial reports they file with the SROs in making required financial reports to CSA members.

C

·         Removal of the requirement for MFDA members, scholarship plan dealers and investment fund managers to find out if a client is an insider of a publicly traded issuer.

C

·         Clarification in section 9.4 of the non-application of rules to Quebec mutual fund dealers who comply with Quebec's mutual fund dealer regulations.

Pointless

·         Specific mention in section 11.1 of the Companion Policy recognizing that a risk-based approach can be used in monitoring and supervision.

C

·         Clarification by rewording of section 11.4 on designation of a UDP.

Pointless

·         Various wording changes to the referral arrangements section (13.8)

Pointless

·         Extension to MFDA members of the exemption already given to IIROC members from a the section 13.12 prohibition on lending to customers.

Pointless

·         Exemption of SRO members from the complaint handling requirements of section 13.15.

Pointless

·         A change correcting a drafting error in section 14.12(1) permitting a dealer, with the client's written permission, to send a confirmation to a registered adviser acting for the client instead of the client.

C

Description

Original SB Assessment

·         Substitution of "fair value" for "market value" in several places to facilitate the implementation of International Financial Reporting Standards.  This was not kept because of operational impacts.

Nice to see the CSA considering operational impacts.

C

·         Changes to sections 8.18 and 8.26 that clarify that a foreign dealer can rely on the International Dealer or International Adviser exemptions even though it is registered to perform other functions in Canada.

There is no explanation why this disappeared from the final proposals

C

·         Removal of subsections (e) and (f) of section 8.18(2), which gives details of the types of trades in which foreign dealers can rely on the International Dealer exemption, as they were supposedly redundant of subsections (a) through (c).

There is no explanation why the proposal disappeared from the final rule.

Pointless

·         Extension of the conflict of interest provisions in section 13.5 to IIROC members who have managed accounts. The proposal was dropped in light of comments on unintended consequences.  Instead, a change of made to the companion policy to note that dealers must have controls to handle the conflicts of interest in trades from inventory to managed accounts.

Good solution.

D

·         Replacement in section 13.16 of the possible subjects for independent dispute resolution from matters relating to trading or advising to a laundry list of complaints such as breach of confidentiality or personal financial dealings with a client.

Pointless

Description

Original SB Assessment

·         Removal of the requirement for a dealer to notify clients outside of its home jurisdiction of its non-resident status, address for service and risks that legal rights may not be enforceable in the local jurisdiction, if the dealer has an office in the jurisdiction.

In response to comments the firm just has to have head office in Canada and be registered in the local jurisdiction.

This is certainly a lot closer to what it should be, but what about a firm with a head office elsewhere and a physical presence somewhere in Canada?  It still has assets in the country.  What are the extra risks covered off by this disclosure?  As we noted before, the CSA has yet to provide an example of a situation in which a client has been unable to enforce civil remedies on a registered dealer because of its location in another jurisdiction.

C

·         Requirement for investment fund managers to send confirmations of redemptions not ordered through a dealer and annual statements to clients for whom they are holding securities for which there is no dealer of record.

The final changes add an exemption if the IFM is also a registered advisor which also acts as advisor to both the fund and a managed account of the client.  This makes sense because in its advisor role the firm already has client reporting requirements.

C

Description

Original SB Assessment

·         The Notice requested comments on whether dealers should be required to include client name securities in monthly statements if the securities have been purchased through the firm.

The implementation notice contains no report on responses to this question.  It was a terrible idea so let's hope it just goes away quietly.

D