Securities Law & Instruments

Headnote

 

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from certain provisions of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations related to the Client Relationship Model Phase 2 (CRM2), namely sections 14.2, 14.2.1, 14.14.1, 14.14.2, 14.17 and 14.18 I – Registered adviser exempted from providing cost disclosure and performance reporting to certain institutional clients that do not meet the definition of permitted client but that are not individuals.

 

Applicable Legislative Provisions

 

Multilateral Instrument 11-102 Passport System, s. 4.7.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 14.2, 14.2.1, 14.14.1, 14.14.2, 14.17, 14.18 and 15.1.

 

December 15, 2016

 

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

TD ASSET MANAGEMENT INC.

(the Filer)

 

DECISION

 

Background

 

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) with regard to the Institutional Accredited Investors and Overflow Accounts described below, the Filer is exempt from the reporting requirements in sections 14.2, 14.2.1, 14.14.1, 14.14.2, 14.17 and 14.18 of NI 31-103 (the CRM2 Reporting) (the Requested Relief).

 

The principal regulator in the Jurisdiction has also received a request from the Filer for a decision that the Application and Schedule 1 of the Application and this decision be kept confidential and not be made public (the Confidentiality 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 the application;

 

(b)           the Filer has provided notice that subsection 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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Passport Jurisdictions and, together with Ontario, the Jurisdictions); and

 

(c)           the decision of the principal regulator automatically results in an equivalent decision in the Passport Jurisdictions.

 


Interpretation

 

Terms defined in MI 11-102, National Instrument 14-101 Definitions and NI 31-103 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:

 

The Filer

 

1.             The Filer is a corporation governed by the laws of Ontario and is registered as a portfolio manager in each of the Jurisdictions. The Filer is also registered as an exempt market dealer in each of the Jurisdictions, as investment fund manager in Ontario, Quebec and Newfoundland and Labrador, and as commodity trading manager in Ontario.

 

2.             The Filer's head office is located in Toronto, Ontario.

 

3.             Other than in respect of CRM2 Reporting, the Filer is not in default of securities legislation in any jurisdiction of Canada.

 

4.             The Filer is, inter alia, an institutional portfolio management firm servicing permitted clients and accredited investors, none of whom are individual retail clients.

 

CRM2 Reporting

 

5.             Under NI 31-103, the Filer is required to provide CRM2 Reporting to clients. The CRM2 Reporting applies to all categories of registered dealer and registered adviser, with some application to investment fund managers.

 

6.             CRM2 Reporting introduces performance reporting requirements and enhances existing cost disclosure requirements in NI 31-103, as well as introduces some new client statement requirements.

 

7.             The CRM2 Reporting was subject to a phased implementation over a three-year period with the last implemented reports due to be delivered to clients in 2017.

 

8.             The CRM2 Reporting includes certain exemptions for permitted clients that are not individuals.

 

The Institutional Accredited Investors

 

9.             Certain of the Filer’s clients, listed in Schedule 1 attached to this decision, do not meet the definition of permitted client in section 1.1 of NI 31-103 but are also not individuals (the Institutional Accredited Investors).

 

10.          The Filer considers these clients to be “institutional” clients because they meet other criteria common to institutional clients. In some cases, the Institutional Accredited Investors form part of a broader relationship with permitted clients of the Filer and/or affiliated entities of the Filer.

 

11.          The remainder of the Filer’s clients are permitted clients who are not individuals (the Existing Permitted Clients).

 

12.          Without the Requested Relief, the Filer must provide the Institutional Accredited Investors clients with CRM2 Reporting.

 

13.          The Institutional Accredited Investors are listed in Schedule 1. The Filer has requested the Confidentiality Sought to protect the privacy of the Institutional Accredited Investors.

 

Overflow Accounts

 

14.          Some of the Institutional Accredited Investors are associated with, or related to Existing Permitted Clients.

 

15.          Certain of the Filer's Existing Permitted Clients may, from time to time, request that the Filer open new accounts for related entities that are similar to the Institutional Accredited Investors in that they are not individuals and do not qualify as permitted clients only because they fall short of the financial tests in the definition of permitted client in section 1.1 of NI 31-103 but otherwise have the characteristics of an institutional investor (an Overflow Account).

 

16.          Without the Requested Relief, the Filer must provide the Overflow Accounts with the CRM2 Reporting.

 

17.          The Institutional Accredited Investors and Overflow Accounts in aggregate do not exceed 2% of the Filer’s total assets under management as at the date of this decision.

 

Current Reporting Provided to Institutional Accredited Investors

 

18.          In common with the Existing Permitted Clients, the reporting required by each Institutional Accredited Investor is generated by the Filer’s institutional reporting processes, which are tailored to meet specific client requirements.

 

19.          In common with the Existing Permitted Clients, Institutional Accredited Investors often have detailed requirements with respect to the format, frequency or content of the account statements and performance reports they receive because of the reporting they have to do for their stakeholders including beneficiaries, auditors, governance committees, etc.

 

20.          In common with the Existing Permitted Clients, Institutional Accredited Investors may also engage professional advisors, such as consultants, auditors or legal counsel, who may recommend specific reporting (form, frequency, tailored content etc.) which may, in some cases, differ from CRM2 Reporting.

 

21.          In common with the Existing Permitted Clients, Institutional Accredited Investors require and receive reporting content that is highly detailed and transparent. The reporting is robust and comprehensive and may, in some cases, include more disclosure than what is required by CRM2 Reporting.

 

22.          The Filer would incur significant costs and resource-strain to implement CRM2 Reporting for the Institutional Accredited Investors and Overflow Accounts who share the characteristics described above with permitted clients who are not individuals, in respect of whom there are existing exemptions from CRM2 Reporting.

 

23.          Each Institutional Accredited Investor will be informed by the Filer that it will not receive the CRM2 Reporting that it would have been entitled to but for this decision and will receive an explanation of what is provided with CRM2 Reporting as compared to the current reporting it receives.

 

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 Requested Relief is granted provided that:

 

(a)           the Institutional Accredited Investors and Overflow Accounts in aggregate do not exceed 2% of the Filer’s total assets under management at the end of each fiscal year of the Filer;

 

(b)           the Institutional Accredited Investors and any Overflow Accounts receive comprehensive account reporting from the Filer on an ongoing basis which is consistent with the reporting provided by the Filer to the Existing Permitted Clients;

 

(c)           each Institutional Accredited Investor is informed that it will not receive the CRM2 Reporting that it would have been entitled to but for this decision;

 

(d)           each Institutional Accredited Investor receives an explanation of what is provided with CRM2 Reporting as compared to the reporting it will receive; and

 

(e)           if the Filer opens any new accounts for (i) clients that are not permitted clients, other than Overflow Accounts, or (ii) permitted clients that are individuals, it will provide CRM2 Reporting for those new accounts, unless it obtains other exemptive relief in respect of them.

 

Furthermore, the decision of the principal regulator is that the Confidentiality Sought is granted.

 

“Elizabeth King”

Deputy Director, Compliance and Registrant Regulation Branch

Ontario Securities Commission