Over the objections of the securities industry, Canadian regulators are proceeding with two different approaches to registering so-called “non-resident” investment fund managers.
Earlier this year various members of the Canadian Securities Administrators (CSA) proposed two different ways of treating the registration obligations of non-resident fund managers — both foreign managers, and domestic managers operating in provinces other than where their head office is located. Regulators in four provinces (Ontario, Quebec, New Brunswick and Newfoundland and Labrador) proposed one rule, and the rest of the provinces proposed another.
On Thursday, the two sets of regulators published final rules, indicating that two different models will be adopted. When the two proposals were initially published for comment, many in the industry complained about the plans for divergent regimes, saying that it would be confusing and could hurt Canada’s reputation as a place to do business.
It appears that only New Brunswick was persuaded by those complaints, and has decided to join the majority. Ontario, Quebec and Newfoundland still intend to follow their preferred approach.
The fundamental difference between the two approaches is the question of when the requirement to register is triggered in a particular jurisdiction. For Ontario, Quebec and Newfoundland, that obligation is triggered when a firm has investors in the province. For the rest of the regulators, it’s only triggered when a firm is deemed to be carrying out the activities of a fund manager – such as managing the business or operations of a fund – in that jurisdiction.
According to a notice published in Thursday’s OSC Bulletin, Ontario, Quebec and Newfoundland are sticking with their approach because it believes it is consistent with investor protection objectives originally sought by the CSA; and it says their rule should be clear for both industry and regulators.
“We have carefully considered both approaches for the registration of non-resident investment fund managers, and have come to the conclusion that since non-resident investment fund manager registration is an investor protection measure, the presence of investors in the local jurisdiction is clearly a relevant consideration and the 2012 proposal has the appropriate policy outcome,” it says.
While firms will now have to contend with two different regimes, they will also get a bit longer to comply. Regulators in all jurisdictions have pushed out the registration application deadline from September 28 to December 31.
And, they also published another notice indicating that fund managers will have until Sept.28 2014 to comply with provisions regarding the requirement to provide dispute resolution services. The regulators indicate that they are considering proposing amendments to the dispute resolution requirements of the registration rules, and so they are extending the exemption from complying with the existing requirements until the fall of 2014, or until new amendments are adopted, whichever comes first.