Securities Law & Instruments

Headnote

Subsection 80 of the Commodity Futures Act (Ontario) -- relief from the requirements of subsection 22(1)(b) of the CFA granted to an association under the Cooperative Credit Associations Act and dealers who effect trades on its instructions on the basis that the applicant should be treated as equivalent to a "financial institution" under the CFA, subject to terms and conditions.

Applicable Statutes

Commodity Futures Act, R.S.O. 1990, c. 20, sec. 22(1)(b), 28(3), 31, 80.

Cooperative Credit Associations Act S.C. 1991, c. 48, as amended.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20, AS AMENDED (THE ACT)

AND

IN THE MATTER OF

CONCENTRA FINANCIAL SERVICES ASSOCIATION

 

ORDER

UPON application (the Application) by Co-operative Trust Company of Canada (CTCC) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the Act exempting CTCC, as continued under the name and style of Concentra Financial Services Association/Association de services financiers Concentra (referred to herein as Concentra Financial), an association under the Cooperative Credit Associations Act S.C. 1991, c. 48, as amended (referred to herein as the CCA Act), from the requirement to obtain registration as an adviser under paragraph 22(1)(b) of the Act, and related relief for dealers who effect trades on its instructions, in connection with the business activities to be carried on by Concentra Financial in Ontario;

AND UPON CTCC having represented to the Commission that:

1. CTCC is a federal corporation having been continued under a special Act of the Parliament of Canada entitled An Act respecting Co-operative Trust Company Limited, identified as Chapter 49 16-17 Elizabeth II, by Letters Patent issued on December 21, 1967, as amended May 17, 1973, November 27, 1974, June 17, 1980, January 29, 1982, and December 15, 1997. CTCC was initially incorporated by an Act of the Legislature of the Province of Saskatchewan on March 24, 1952, before being continued as a federal corporation.

2. CTCC operates as a federal trust company under the Trust and Loan Companies Act (Canada), is currently licensed to carry on business as a trust company in each Province and Territory of Canada and is licensed to accept deposits in all Provinces and Territories except Quebec. CTCC is a member of the Canada Deposit Insurance Corporation (CDIC).

3. CTCC is owned by Credit Union Central of Saskatchewan and various other provincial centrals, credit unions and co-operative entities.

4. CTCC is not a reporting issuer in any province or territory of Canada, nor are any of its securities listed on any stock exchange in Canada.

5. CTCC wishes to continue as Concentra Financial, an association under the provisions of Section 31.1(1) of the CCA Act. Concurrent with that continuance, Concentra Financial will seek an order of the Minister of Finance under s. 375.1 of the CCA Act, that Concentra Financial be permitted to operate as a retail association under the CCA Act.

6. Under the CCA Act, a retail association will have essentially all of the powers of a retail bank and will be subject to prudential rules similar to those applicable to a Schedule I chartered bank under the Bank Act (Canada) (a Schedule I Bank) and oversight by the Office of the Superintendent of Financial Institutions (OSFI) and the Minister of Finance, Canada. In addition, as a condition to accepting deposits, a retail association must be a member of CDIC. Concentra Financial will have the benefit of CTCC's existing membership in CDIC, amended as necessary following continuance.

7. Following continuance as a retail association, Concentra Financial intends to provide a wide range of financial services to the general public in each of the Provinces and Territories of Canada as may be permitted under the CCA Act (collectively the Products and Services), subject to any restrictions on such activities placed on Concentra Financial under the CCA Act, the Regulations thereunder or pursuant to any order, decision or ruling of the Minister of Finance, which Products and Services may include the following:

(i) provide financial services;

(ii) subject to being a member of CDIC the taking of deposits in each of the Provinces and Territories of Canada except Quebec;

(iii) subject to being a member of Quebec Deposit Insurance Corporation, the taking of deposits in Quebec;

(iv) providing lending services;

(v) providing investment counselling and portfolio management services;

(vi) issue payment, credit or charge cards and, either alone or in cooperation with others, operate a payment, credit, and/or charge card plan;

(vii) provide electronic banking services;

(viii) providing lease and mortgage services, and in connection therewith Concentra Financial may hold, manage or deal with personal and real property;

(ix) acting as a custodian of property on behalf of members and other clients;

(x) providing management, investment, administrative, advisory, educational, promotional, technical, research and consultative services to members of the credit union system;

(xi) collecting, transmitting and manipulating financial or economic data;

(xii) investing in other entities, including financial institutions; and

(xiii) advertising and promotion of the services and products of Concentra Financial.

8. Upon obtaining an Order to Commence Business (the OSFI Order) issued by the Superintendent of Financial Institutions appointed pursuant to the Office of the Superintendent of Financial Institutions Act (Canada), Concentra Financial will be subject to the same prudential rules, policies and substantially the same regulation that apply to a Schedule I Bank and other Canadian financial institutions that accept retail deposits, namely:

(i) Concentra Financial will be subject to the same capital adequacy guidelines and liquidity requirements that apply to all Canadian retail deposit taking institutions;

(ii) Concentra Financial will be subject to the same regulatory provisions that enable the Superintendent under the CCA Act to limit the scope of the financial services that may be provided by a federal financial institution. As with other federal financial institutions, the Superintendent may also take control of Concentra Financial if the Superintendent views its business practices to be unsafe;

(iii) The Superintendent under the CCA Act must annually inspect Concentra Financial and its business operations;

(iv) Concentra Financial must advise the Superintendent of the directors of the association and the Superintendent may require a replacement of directors;

(v) Except as authorized under the CCA Act, Concentra Financial must not deal in goods, wares or merchandise or engage in any trade or business other than that of a federal financial institution, and the downstream investments of Concentra Financial will be limited to investments in other financial service providers and financial service support service providers as are specifically set forth in the CCA Act;

(vi) As specifically set forth in the CCA Act, Concentra Financial will be subject to portfolio limits on categories of investments. Unlike a bank, but similar to a trust company, Concentra Financial will be limited in the percentage of commercial loans it may have as a percentage of its total assets; and

(vii) Concentra Financial will be required to provide ongoing information returns to OSFI and all records of the retail association are available for inspection by OSFI.

9. Pursuant to section 31(a) of the Act, a Schedule I Bank is exempt from the adviser registration requirement of paragraph 22(1)(b) of the Act where the performance of its services as an adviser is solely incidental to its principal business. Concentra Financial will continue to be subject to OSFI and CDIC oversight and regulation as well as applicable provincial regulation; however since Concentra Financial will not be governed by the Bank Act (Canada), the registration exemption under the Act is not available to it.

10. Subsection 28(3) of the Regulation made under the Act provides certain exemptions to a dealer who effects a trade on the instructions of, among others, a financial institution. However, a retail association under the CCA Act does not come within the definition of "financial institution".

11. In order to ensure that Concentra Financial will be able to provide the Products and Services in Ontario, it requires the registration exemption currently enjoyed by banking institutions incorporated under the Bank Act to the extent that the registration exemption application to such banking institutions under the Act is relevant to the business to be undertaken by Concentra Financial in Ontario, and dealers who effect trades on the instructions of Concentra Financial require the exemption currently enjoyed by them when effecting a trade on the instructions of a financial institution.

12. Concentra Financial shall be an association under the CCA Act and shall be federally regulated by OSFI and CDIC on an ongoing basis, on terms substantially similar to the federal regulation of a Schedule I Bank and CTCC has advised OSFI and CDIC of the nature and existence of the Application.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS RULED pursuant to section 80 of the Act that,

1. Concentra Financial is exempt from the registration requirement of paragraph 22(1)(b) of the Act where the performance of the service as an adviser is solely incidental to Concentra Financial's principal business in Ontario; and

2. A registered dealer who effects a trade on the instructions of Concentra Financial is not required to make enquiries that will enable the registered dealer to assess the suitability of trading by a customer in view of the markets in which the customer intends to trade, the scale of trading the customer intends to undertake and the general financial needs and objectives of the customer, or that an assessment of suitability of trading by the customer continues to be accurate.

3. This Order shall be conditional upon the Superintendent of Financial Institutions appointed pursuant to the Office of the Superintendent of Financial Institutions Act (Canada) issuing the OSFI Order.

4. This Order shall remain in effect only for so long as Concentra Financial is an association under the CCA Act and subject to the same prudential rules, policies and substantially the same regulation that apply to a Schedule I Bank that accepts deposits.

5. Any provision in this Order providing an exemption is not available. If, at the relevant time, there is not a corresponding exemption under the Act for the exempted activity being made by or on the instructions of a Schedule I Bank.

February 11, 2005

"Paul M. Moore"
"David L. Knight"