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CSA Proposes to Harmonize Dealer and Advisor Registration – Proposed National Instrument 31-103

Date

May 31, 2007

AUTHOR(s)

Katherine M. Gurney
Michael C. Nicholas
Sean D. Sadler
Ronald R. Schwass
Shea T. Small
Sonia J. Struthers


Dealer and advisor registration categories and requirements throughout Canada are numerous, varied and complex. After several years of consultation, the Canadian Securities Administrators (CSA) recently published proposed National Instrument 31-103 Registration Requirements (NI 31-103), containing amendments to securities legislation and local rules aiming to streamline and simplify registration categories and requirements.

The main changes brought about by NI 31-103 are:

  • The adoption of a ‘business trigger’ for dealer registration in lieu of the ‘trade’ trigger that currently exists in all provinces and territories, other than Québec.
  • Registration categories and related requirements are to be harmonized across Canada and while the number of categories of registration has been reduced significantly, four new categories of registration have been introduced:
    • exempt market dealer, replacing the category of limited market dealer in Ontario and Newfoundland and Labrador,
    • restricted dealer, a category for dealers engaged in a limited area of dealing activities with restrictions and proficiency requirements tailored to the dealing activities,
    • restricted portfolio manager, a category for advisers restricted to advising with respect to specified securities with restrictions and proficiency requirements tailored to the advising activity, and
    • investment fund manager, requiring all managers of public and private investment funds to be registered regardless of whether they are in the business of dealing or advising

Exam-based, rather than course-based, proficiency requirements have been prescribed for representatives of each category of dealer, with certain exceptions.

  • Minimal capital requirements under NI 31-303 may impose higher requirements than current standards.
  • Registered firms must identify each potential and actual conflict of interest and provide prior written disclosure of a conflict of interest to a client while dealing with such conflicts in a fair, equitable and transparent manner.
  • Exemptions from the dealer and advisor registration requirements across Canada will be significantly harmonized and narrowed.
  • Canadian residency requirements for all registrants in all provinces and territories are proposed to be eliminated.
  • In Québec, the Authorité des marchés financiers (AMF) is proposing a major overhaul of the regulatory framework for restricted practice dealers, including:
    • moving mutual fund and other restricted practice dealers from the current regime of the Act Respecting the Distribution of Financial Products and Services to the substantially different regulatory regime of the Securities Act;
    • requiring membership of mutual fund dealer firms with an SRO recognized by the AMF – either the Mutual Fund Dealers Association (MFDA) or the Chambre de la sécurité financière (CSF) exclusively or the MFDA and CSF jointly; and
    • requiring calculation of minimal capital of mutual fund dealer firms in accordance with MFDA rules.

The CSA has given until June 20, 2007 for comments on NI 31-103. The AMF has set May 25, 2007 as its deadline for comments on the proposed Québec changes to the restricted practice dealer regulatory framework. The CSA has announced that a revised draft of NI 31-103 will be published in fall 2007, with a final version to be issued and to come into force in 2008.

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