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Desjardins Investments Inc. and Desjardins Financial Services Firm Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s. 3.2(2), NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to pre-authorized investment plans, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2(2), 6.1.
September 2, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DESJARDINS INVESTMENTS INC. (THE FILER) AND IN THE MATTER OF DESJARDINS FINANCIAL SERVICES FIRM INC. (THE REPRESENTATIVE DEALER)
DECISION
Background
The principal regulator in the Jurisdiction (as defined below) has received an application from the Filer on behalf of the mutual funds that are or will be managed from time to time by the Filer or by an affiliate or successor of the Filer (the Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirement in the Legislation to send or deliver the most recently filed fund facts document (Fund Facts) at the same time and the same manner as otherwise required for the Prospectus (the Fund Facts Delivery Requirement) not apply in respect of purchases and sales of securities of the Funds pursuant to a pre-authorized investment plan, including employee purchase plans, capital accumulation plans, or any other contracts or arrangements for the purchase of a specified amount on a dollar or percentage basis of securities of the Funds on a regularly scheduled basis (each an Investment Plan) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The head office of the Filer is located in Québec. The exemption is not being sought in Québec and, as a result, the Filer has determined that Ontario is the jurisdiction where the Filer has the most significant connection because either the Filer has operations in Ontario or because Ontario is the Jurisdiction with the most securityholders in the Filer's Funds (after Québec).
2. The Funds are, or will be, reporting issuers in one or more of the Jurisdictions. Securities of the Funds are, or will be, qualified for sale on a continuous basis pursuant to a simplified prospectus.
3. With the exception of the requirements for which the Exemption Sought has been applied for, neither the Filer nor any of the Funds is in default of any of the requirements of securities legislation in any Jurisdiction.
4. Securities of each Fund are, or will be, distributed through dealers that are affiliated with the Filer (individually, each dealer that distributes securities of a Fund managed by the Filer is a Dealer and collectively, the Dealers).
5. Each Dealer is, or will be, registered as a dealer in one or more of the Jurisdictions.
6. Securities of the existing Funds may be purchased through the Representative Dealer.
7. Each of the investors may be offered the opportunity to invest in a Fund on a regular or periodic basis pursuant to an Investment Plan.
8. Under the terms of an Investment Plan, an investor instructs a Dealer to accept additional contributions on a pre-determined frequency and/or periodic basis and to apply such contributions on each scheduled investment date to additional investments in specified Funds. The investor authorizes a Dealer to debit a specified account or otherwise makes funds available in the amount of the additional contributions. An investor may terminate the instructions, or give amended instructions, at any time.
9. An agreement of purchase of mutual fund securities is not binding on the purchaser if a Dealer receives notice of the intention of the purchaser not to be bound by the agreement of purchase within a specified time period.
10. The terms of an Investment Plan are such that a Participant can terminate the instructions to the Dealer at any time. Therefore, there is no agreement of purchase until a scheduled investment date arrives and the instructions have not been terminated. At this point, the securities are purchased.
11. Prior to June 13, 2014, an investor who established an Investment Plan (a Participant) received a copy of the latest simplified prospectus relating to the relevant securities of the Fund at the time an Investment Plan was established.
12. Prior to June 13, 2014, a Dealer not acting as an agent for the applicable investor was obligated to send or deliver to all Participants who purchased securities of the Funds pursuant to an Investment Plan, the latest simplified prospectus of the applicable Funds at the time the investor entered into the Investment Plan and thereafter, any subsequent simplified prospectus or amendment thereto (a Renewal Prospectus).
13. The Autorité des marchés financiers (the AMF) granted exemptive relief to the Filer from the requirement to deliver a Renewal Prospectus in Québec by way of a blanket order dated June 16, 2006 (decision no 2006-PDG-0022) (the Prospectus Blanket Order).
14. Prior to June 13, 2014, in the Jurisdictions, the requirement to deliver a Renewal Prospectus was not complied with as a Renewal Prospectus was not sent each time purchases of securities of the Funds were made pursuant to an Investment Plan.
15. Instead, at the time a Participant established an Investment Plan, the Filer, on behalf of the Representative Dealer, provided such Participant with a copy of the latest simplified prospectus relating to the relevant securities of the Fund together with a notice containing the disclosure requirements as set out in the Prospectus Blanket Order.
16. The disclosure requirements of the Prospectus Blanket Order were similar to the conditions imposed in prior decisions granting exemptive relief from the requirement to deliver the Renewal Prospectus, and are essentially as follows:
a. that Participants be made aware of the relief and that they will not receive the simplified prospectus of the applicable Funds, unless they request it;
b. that Participants may request the simplified prospectus from the Filer by calling a toll-free number, by e-mail or by fax, and the Filer will send the simplified prospectus to any Participant that requests it at no cost to the Participant
c. that the most current simplified prospectus and any amendment thereto may be found either on the SEDAR website or on the Filer's website;
d. that Participants have the right to withdraw from their initial agreement of purchase within two (2) days following receipt of the simplified prospectus, but that they will not have the right to withdraw from an agreement of purchase in respect of a purchase pursuant to an Investment Plan;
e. that Participants will have the right of rescission and the right of action for damages in the event any simplified prospectus or document incorporated by reference therein contains a misrepresentation, whether or not they request or receive a copy of the simplified prospectus; and
f. that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
17. An annual notice was also sent by the Filer, on behalf of the Representative Dealer, to Participants residing in the Jurisdictions advising them how they could request the latest simplified prospectus at no cost and any amendment thereto and that they had a misrepresentation right.
18. Although the requirement to deliver a Renewal Prospectus was not complied with in the Jurisdictions, the requirements of the Prospectus Blanket Order, which are similar to the conditions imposed in prior decisions granting exemptive relief from the requirement to deliver the Renewal Prospectus, were complied with by the Representative Dealer and, therefore, Participants were not prejudiced.
19. With the implementation of the amendments to NI 81-101 and consequential amendments as described in Stage 2 of Point of Sale Disclosure for Mutual Funds -- Delivery of Fund Facts on June 13, 2014, Dealers must deliver the Fund Facts in lieu of delivering the simplified prospectus to all investors, including the Participants, pursuant to the Fund Facts Delivery Requirement.
20. Pursuant to the Fund Facts Delivery Requirement, a Dealer not acting as agent of the purchaser, who receives an order or subscription for a security of a Fund offered in a distribution to which the Legislation applies, must, unless it has previously done so, send to the purchaser the Fund Facts most recently filed either before entering into an agreement of purchase and sale resulting from the order or subscription or not later than midnight of the second day, exclusive of Saturdays, Sundays and holidays, after entering into such agreement.
21. Therefore, since June 13, 2014, the Fund Facts Delivery Requirement obligates a Dealer to mail or deliver to all Participants who purchase securities of Funds pursuant to an Investment Plan, the most recently filed Fund Facts of the applicable Funds at the time the investor enters into the Investment Plan and thereafter, any new Fund Facts or amendment thereto (a Renewal Fund Facts).
22. The Filer was not required to obtain relief from the Fund Facts Delivery Requirement in Québec as such relief was granted by the AMF by way of a blanket order on May 13, 2014 (decision no 2014-PDG-0052) (the Fund Facts Blanket Order).
23. The disclosure requirements as set out in the Fund Facts Blanket Order are similar to the conditions imposed in prior decisions granting the Exemption Sought, and are essentially as follows:
a. that Participants may request the Fund Facts document from the Filer by calling a toll-- free number or by e-mail, and the Filer will send the Fund Facts document to any Participant that requests it at no cost to the Participant;
b. that the most current Fund Facts document and any amendment thereto may be found either on the SEDAR website or on the Filer's website;
c. that Participants have the right to withdraw from their initial agreement of purchase within two (2) days following receipt of the Fund Facts, but that they will not have the right to withdraw from an agreement of purchase in respect of a purchase pursuant to an Investment Plan;
d. that Participants will have the right of rescission in the event (without prejudice to their right of action for damages) any Fund Facts document or document incorporated by reference therein contains a misrepresentation, whether or not they request a copy of the Fund Facts document; and
e. that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
24. Between June 13, 2014 and July 31, 2015, a total of 241,854 accounts made purchases in the Funds pursuant to an Investment Plan in all of Canada. Of these accounts, only 6,234 (representing only 2.6%) were located outside of Québec.
25. Given that the vast majority of Participants are located in Québec and that the AMF had already granted relief similar to the Exemption Sought, the Filer only recently became aware that the previous requirement to deliver a Renewal Prospectus and now, the Fund Facts Delivery Requirement, were not complied with in the Jurisdictions.
26. Between June 13, 2014 and the date of this Decision, Participants whose accounts are located outside of Québec all received the most recently filed Fund Facts when making their initial purchases with a notice informing them they would not receive a Renewal Fund Facts unless they requested one, in addition to all other important information listed in paragraph 23 above. As such, Participants outside of Québec who made their initial purchase between June 13, 2014 and the date of this Decision (a New Participant) were aware at all times of their rights and obligations relating to the Fund Facts and purchases made under an Investment Plan.
27. It is likely that any investor outside Québec who was a Participant in an Investment Plan established prior to June 13, 2014 (a Current Participant) did not receive one of the Renewal Fund Facts at the time from their Dealer and so would not have been sent or delivered the most recently filed Fund Facts for any investment in a Fund made following June 13, 2014. However, Current Participants would have been sent or delivered a one-time notice as required by the Fund Facts Blanket Order containing the information listed in paragraph 23 above.
28. To the extent that a New Participant made a subsequent purchase of securities of a Fund under the Investment Plan following June 13, 2014, it is likely that such investor would not have received a Renewal Fund Facts from their Dealer (unless the initial Fund Facts a New Participant received was itself one of the Renewal Fund Facts).
29. Although the Fund Facts Delivery Requirement has not been complied with in the Jurisdictions, the requirements of the Fund Facts Blanket Order, which are similar to the conditions imposed in prior decisions granting the Exemption Sought, have been complied with by the Representative Dealer and, therefore, Participants outside Québec have not been prejudiced.
30. To ensure that all Participants outside Québec have received the most recently filed Fund Facts, the Filer will send or deliver the most recently filed Fund Facts to all investors who are Participants outside Québec as of the date of this Decision, together with a notice advising these Participants of the information described in condition 1 below.
31. The proposed amendments to NI 81-101 and consequential amendments as described in Stage 3 of the Point of Sale Disclosure for Mutual Funds -- Point of Sale Delivery of Fund Facts, and published for comment on March 26, 2014, contemplated an exception from the Fund Facts Delivery Requirement for Investment Plans (the Proposed Exception).
32. The Canadian Securities Administrators have published final amendments to implement the Proposed Exception which will come into force in May 2016. The Filer would like the Investment Plans to benefit from the Exemption Sought until such time as the Proposed Exception comes into force.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
1. A one-time notice is sent or delivered to Current Participants, no later than the next scheduled mailing of a continuous disclosure document or November 15, 2015, advising them:
(a) that they will not receive the Fund Facts when they purchase securities of the applicable Fund under the Investment Plan unless
(i) the Participant requests the Fund Facts; or
(ii) the Participant has previously instructed that they want to receive the simplified prospectus, in which case, the Fund Facts will now be sent or delivered in lieu of the simplified prospectus;;
(b) that they may request the most recently filed Fund Facts by calling a specified toll-free number or by sending a request vial mail or email to a specified address or email address;
(c) that the most recently filed Fund Facts will be sent or delivered to any Participant that requests it at no cost to the Participant;
(d) that the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website;
(e) that they will not have the right to withdraw from an agreement of purchase and sale (a Withdrawal Right) in respect of a purchase of securities of any Funds made pursuant to an Investment Plan, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into any Renewal Prospectus contains a misrepresentation (a Misrepresentation Right), whether or not they request a copy of the Fund Facts; and
(f) that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
2. Investors who become Participants and invest in any Funds on or after the date of this Decision will be sent or delivered the most recently filed Fund Facts and a one-time notice advising the Participants:
(a) they will not receive the Fund Facts when they subsequently purchase securities of the applicable Fund under the Investment Plan unless they request the Fund Facts at the time they initially invest in an Investment Plan or subsequently request the Fund Facts by calling a specified toll-free number or by sending a request via mail or email to a specified address or email address;
(b) that the most recently filed Fund Facts will be sent or delivered to any Participant that requests it at no cost to the Participant;
(c) that the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website;
(d) that they will not have a Withdrawal Right in respect of a purchase made pursuant to an Investment Plan, other than in respect of the initial purchase and sale, but they will have a Misrepresentation Right, whether or not they request the Fund Facts; and
(e) that they have the right to terminate an Investment Plan at any time before a scheduled investment date.
3. Following either 1 or 2 above, Participants will be advised annually in writing as to how they can request a current Fund Facts and that they have a Misrepresentation Right.
The decision, as it relates to a Jurisdiction, will terminate on the effective date following any applicable transition period for any legislation or rule dealing with the Proposed Exception.
"Stephen Paglia"
Acting Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission