Regulators propose changes to registration - Investment fund managers would be required to register

Date: Wednesday, February 21, 2007
Author: IE Staff

The Canadian Securities Administrators is seeking comments on a proposed overhaul of the registration regime.

Under the proposed rule, the registration regime would undergo some significant changes, including: introducing the concept of a business trigger for dealer registration; requiring investment fund managers to register; requiring the registration of an ultimate designated person and a chief compliance officer; and, the introduction of an exempt market dealer registration category, along with eliminating registration exemptions for capital-raising and safe securities.

The CSA indicates that the registration of fund managers will allow regulators to: directly regulate fund managers instead of imposing registration type requirements on mutual fund issuers; impose requirements to ensure that fund managers have the resources to adequately carry out their functions; and, provide a framework for avoiding and managing conflicts.

Among other things, the rule creates permanent registration, it attempts to deal with dealer referral arrangements, and it aims to consolidate and modernize conflict of interest provisions.

The CSA says that the proposed rule will also strengthen the registration regime by harmonizing, streamlining and modernizing the current registration requirements in all 13 CSA jurisdictions. It harmonizes registration requirements that exist in various acts, rules, regulations, notices and practices across the CSA jurisdictions into a single national instrument. It also significantly reduces the number of registration categories for firms and individuals.

“The proposed rule creates a single registration regime across Canada which will reduce some of the costs of regulation to many market participants and improve regulatory efficiencies,” said Jean St-Gelais, chair of the CSA and president & CEO of the Autorité des marchés financiers, in a news release. “Securities regulators are committed to the ongoing harmonization of registration requirements across the CSA and with self-regulatory organizations.”

The CSA says that it believes that the overall benefits of the proposed registration regime will substantially outweigh the costs. The benefits will include: harmonization of individual and firm registration categories, fit and proper requirements, conduct requirements and exemptions; reduction in regulatory burden through adoption of a permanent registration regime and streamlined transfer procedures; the introduction of a business trigger, which could reduce the number of statutory registration exemptions required; increased investor protection through the introduction of relationship disclosure requirements, referral arrangement restrictions, complaint handling procedures, and, enhanced conflicts and compliance requirements.

Some of the costs associated with the proposed registration regime, depending on the jurisdiction, include: obtaining and maintaining registration for exempt market dealers and investment fund managers, and increased capital and insurance requirements for some registrants.

The rule is one phase of the CSA Registration Reform Project, which has three other phases: the implementation of the National Registration System, which occurred back in April 2005; the implementation of core client relationship principles through self-regulatory organization by-laws, which will be published for comment this year; also, amendments to the National Registration Database to create efficiencies are to be implemented this year.

The comment period for the rule is open until June 20. The CSA also plans to host a series of stakeholder meetings across the country during the comment period to ensure stakeholders have an adequate understanding of the proposed rule and have another opportunity to provide feedback. In addition to this, regional consultations may also be held to collect additional feedback and to ensure proper understanding of the proposed rule.