In the Matter of Staff’s Recommendation
for Terms and Conditions on the Registration
of Minvestec Capital Corp.
Opportunity to be Heard by the Director
Section 31 of the Securities Act (Ontario)
1. For the reasons outlined below, my decision is to impose the terms and conditions set out below on Minvestec Capital Corp. (Minvestec) for a minimum period of six months.
2. Paragraph 12.12(1)(a) of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) requires that annual financial statements be delivered to the Commission within 90 days after the end of a registered dealer’s financial year. Section 12.10 of NI 31-103 requires that annual financial statements delivered to the Commission be audited.
3. Minvestec filed its audited financial statements for the year ended September 30, 2010 on March 17, 2011, 51 business days after they were due. By letter dated March 18, 2011, Staff recommended to the Director that terms and conditions be imposed on Minvestec’s registration. The terms and conditions had two parts. Part one required the filing of monthly year-to-date unaudited financial statements and capital calculations for a minimum period of six months. Part two required Minvestec to review its procedures for compliance with Ontario securities law and to provide a report with the Commission no later than April 15, 2011. The letter also advised Minvestec that late filing fees were due.
Process for requesting an opportunity to be heard
4. Under section 31 of the Act, if a registrant wants to oppose Staff’s recommendation for terms and conditions, the registrant may request an opportunity to be heard (OTBH). By email dated March 23, 2011, Minvestec requested an OTBH. My decision is based on the written submissions of Staff (Mark Skuce, Legal Counsel, Compliance and Registrant Regulation Branch) and Minh-Thu Dao-Huy (President of Minvestec).
5. Staff submits that the filing of annual audited financial statements by registrants is one of the most serious regulatory requirements in the Act. Financial solvency is one of the essential components of a registrant’s continued suitability for registration. Financial statements are the principal tool enabling Staff to monitor a registrant’s financial viability and capital position. As a result, the late filing of audited financial statements raises serious potential regulatory concerns and needs to be addressed in serious fashion.
6. For these reasons, Staff uniformly recommends the imposition of terms and conditions on the registration of registrants that don’t file their annual audited financial statements on a timely basis. In Staff’s opinion, the filing of annual audited financial statements is a serious regulatory obligation and only in extremely rare circumstances would Staff not recommend imposing terms and conditions on a registrant that filed its financial statements late.
7. Minvestec submits that their financial statements were completed and that the audit report was available in early December 2010. Minvestec advised that the late filing of its annual audited financial statements resulted from the inadvertent failure of Minvestec’s Chief Compliance Officer to ensure that the financial statements were filed on a timely basis. Minvestec also advised that they were not aware that the financial statements were late until advised by Staff in March 2011. Minvestec has now implemented appropriate automatic reminder systems and asked its counsel to remind them of filing deadlines. As well, the Chief Compliance Officer has certified that the problem that led to the failure to satisfy the filing requirement has been rectified.
8. Minvestec also requested that the late filing fee be waived on the basis that this is a “first offence” for a relatively new registrant. Minvestec also asked whether they could satisfy part one of the proposed terms and conditions by filing unaudited financial statements and the calculation of minimum required capital for two three month periods instead of monthly for six months. The request was made on the basis that Minvestec is a relatively new small firm and that the costs of doing these filings on a monthly basis was not warranted in the circumstances.
Decision and reasons
9. My decision is to impose part one of the terms and conditions recommended by Staff on the registration of Minvestec for a minimum period of six months starting May 31, 2011. It is Staff’s longstanding position that it is the responsibility of the registrant to ensure that its annual audited financial statements are filed on a timely basis. As set out above, Staff’s view is that the filing of annual audited financial statements is the most important of a registrant’s ongoing filing obligations. Only in rare and extenuating circumstances will a registrant be permitted to file its financial statements late and not be placed on the recommended terms and conditions. In my view, these rare and extenuating circumstances are not present in this case.
10. However, in my view it is not necessary to impose part two of the recommended terms and conditions since I believe Minvestec has already taken appropriate action to ensure that future filings of annual audited financial statements will be made on a timely basis.
11. The terms and conditions imposed on Minvestec’s registration are as follows:
The Firm shall file on a monthly basis with the Registrant Conduct and Risk Analysis team of the Ontario Securities Commission, attention Financial Analyst, starting with the month ending May 31, 2011 the following information:
no later than three weeks after each month end.
- (a) year-to-date unaudited financial statements including a balance sheet and an income statement, both prepared in accordance with generally accepted accounting principles; and
- (b) month end calculation of minimum required capital;
12. I was also asked to waive the late filing fees. My decision is that the late filing fees will not be waived. As set out above, Minvestec did not file its audited financial statements on a timely basis, nor was Minvestec aware that it did not file its financial statements on a timely basis until so advised by Staff. See Re Rampart Investment Management Company (2003) 26 OSCB. 7509, which set out the following on the issue of late filing fees:
“The penalty for late filings was intended to reflect the importance that is placed on the obligation that each registrant has to make timely filings and in furthering that notion, to provide registrants with the appropriate incentive to ensure that proper attention is given to the matter and that the registrant does not fail to meet its filing obligations whether deliberately or through inadvertence. Granting an exemption in situations where the failure was not deliberate would remove any incentive for registrants to assume responsibility for meeting their obligations.”
13. Lastly, I was asked to amend the proposed terms and conditions to require the filings on a three month basis, instead of on a monthly basis. As above, I did not amend part one of the proposed terms and conditions recommended by Staff, Minvestec, as a registrant, is required to ensure that it has the minimum amount of excess working capital at all times. It is also required to maintain appropriate books and records at all times. As a result, the information needed to prepare the monthly filings proposed by Staff should be readily available to Minvestec on a monthly basis at minimal cost.
“Marrianne Bridge”, FCA
Compliance and Registrant Regulation Branch
Ontario Securities Commission
April 27, 2011
Released: May 3, 2011
1. The reference to “Section 2.13” and “adviser’s” in the first sentence of paragraph 2 of the decision are removed and replaced with “Paragraph 12.12(1)(a)” and “dealer’s”, respectively. The sentence now reads:
“Paragraph 12.12(1)(a) of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) requires that annual financial statements be delivered to the Commission within 90 days after the end of a registered dealer’s financial year.”
2. The reference to “portfolio manager’s” in the second sentence of paragraph 5 of the decision is removed and replaced with “registrant’s”. The sentence now reads:
“Financial solvency is one of the essential components of a registrant’s continued suitability for registration.”