Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individual to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.

January 12, 2017

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
BKC CAPITAL INC.
(BKC)

AND

SUN LIFE INSTITUTIONAL INVESTMENTS
(CANADA) INC.
(SLIIC, and together with BKC, the Filers)

DECISION


Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Mr. Philip C. Gillin to be registered as an advising representative and as a dealing representative of each of BKC and SLIIC (the Relief Sought). Previous relief similar to the Relief Sought was granted to SLIIC (under its prior name of Sun Life Investment Management Inc.) in February 2014, though neither BKC nor Mr. Gillin was subject to that relief.

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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each of the remaining provinces and territories of Canada (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 Filers:

1.             BKC is registered as a portfolio manager and exempt market dealer in each of the Jurisdictions and is also registered as an investment fund manager in each of Ontario, Québec and British Columbia.

2.             SLIIC is registered as a portfolio manager, exempt market dealer and investment fund manager in each of the Jurisdictions and is also registered as a commodity trading manager in Ontario.

3.             Sun Life Financial Inc. (SLF) is a publicly-listed company that trades on the Toronto, New York and Philippine stock exchanges and wholly-owns, indirectly, each of the Filers. Since each of SLIIC and BKC is under SLF’s common control, each is an affiliate of the other.

4.             BKC acts as the investment fund manager, and portfolio manager of pooled funds (the BKC Pooled Funds) that invest indirectly in real estate-related assets, including equity securities of private issuers that hold real estate, real estate investment trusts and debt securities issued in connection with mortgages secured by real estate. It acts as exempt market dealer to sell securities of the BKC Pooled Funds, and of private issuers that invest in a portfolio of real estate assets, to Canadian pension plans, other institutional inves-tors and to certain high net worth clients that qualify as “accredited investors” as defined in National Instrument 45-106 Prospectus Exemp-tions in each of the Jurisdictions.

5.             SLIIC acts as the investment fund manager, portfolio manager and exempt market dealer of pooled funds (the SLIIC Pooled Funds) con-sisting of real estate assets, commercial mort-gages, private fixed income assets and public bonds and derivatives, or a combination thereof, that are sold to institutional clients that qualify as “accredited investors” as defined in National Instrument 45-106 Prospectus Exemptions in each of the Jurisdictions.

6.             Mr. Gillin is Senior Managing Director and Port-folio Manager, Canadian Property Investments at SLIIC. Mr. Gillin is also Senior Managing Director, Canadian Property Investments at The Sun Life Assurance Company of Canada, another affiliate of the Filers. As part of Mr. Gillin’s duties, he is responsible for the portfolio management and monitoring of investments in certain of the SLIIC Pooled Funds.

7.             Mr. Gillin has been registered as an advising representative (portfolio manager) and dealing representative (exempt market dealer) with SLIIC since March 7, 2014 in each of the Jurisdictions. Mr. Gillin’s advising representative registration is restricted to (a) advising in respect of mortgages, mortgage-backed securities and securities that reflect an underlying investment in real property, and (b) advising in respect of investments in fixed income and money market assets that is incidental to portfolios consisting of securities referred to in (a). Mr. Gillin’s dealing representative registration is restricted to marketing and selling the SLIIC Pooled Funds (or those of a successor, subsi-diary, or person or company directly or indirectly controlled by the same person or company that controls SLIIC) to accredited investors (if the SLIIC Pooled Fund invests exclusively in mortgages, mortgage-backed securities and/or securities that reflect an underlying investment in real property) and to institutional permitted clients.

8.             On September 1, 2015, BKC became an affiliate of SLIIC. One of the real estate-focused SLIIC Pooled Funds for which Mr. Gillin acted as portfolio manager has been divested of all third-party investors and closed to new subscriptions and it is contemplated that Mr. Gillin will act as portfolio manager to one or more of the BKC Pooled Funds. Mr. Gillin will also continue to act as a portfolio manager to certain of the SLIIC Pooled Funds.

9.             As such, dual registration as an advising representative (portfolio manager) of each of SLIIC and BKC would allow Mr. Gillin to continue to advise the SLIIC Pooled Funds while also acting as a portfolio manager to one or more BKC Pooled Funds. Dual registration as a dealing representative (exempt market dealer) of each of SLIIC and BKC would allow Mr. Gillin to market and sell the relevant SLIIC Pooled Funds and BKC Pooled Funds. The terms and conditions on each of Mr. Gillin’s advising and dealing representative registrations would be the same under his proposed registrations with BKC.

10.          Mr. Gillin will be subject to supervision by, and the applicable compliance requirements of, both Filers.

11.          Each of the Filers’ Ultimate Designated Person will ensure, and each of the Filers’ Chief Compliance Officer will monitor and assess, that Mr. Gillin has sufficient time and resources to adequately serve each Filer and its clients.

12.          BKC is not in default of any requirement of securities legislation in any Jurisdiction. SLIIC is not in default of any requirement of securities, commodities or derivatives legislation in any Jurisdiction.

13.          BKC and SLIIC are affiliates and accordingly the dual registration of Mr. Gillin will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm’s-length firms. The interests of the Filers are aligned, and as Mr. Gillin’s role is to support the business activities and interests of the Sun Life Financial group of companies (including BKC and SLIIC), the potential for conflicts of interest is remote.

14.          The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of Mr. Gillin and will be able to deal appropriately with any such conflicts. Further, if the Relief Sought is granted, the BKC Pooled Funds that Mr. Gillin advises will have different investment strategies than, and are not expected to compete for the same investments with, any SLIIC Pooled Funds that Mr. Gillin advises. This will further mitigate the risks of conflicts of interest arising from Mr. Gillin’s dual registration.

15.          The Filers do not expect that the dual registration of Mr. Gillin will create significant additional work for him and are confident that Mr. Gillin will have sufficient time to adequately serve both firms and their clients.

16.          The relationship between BKC and SLIIC, and the fact that Mr. Gillin is dually registered with both BKC and SLIIC, will be fully disclosed to clients of each of BKC and SLIIC that deal with Mr. Gillin. A disclosure document will be sent to Mr. Gillin’s existing SLIIC clients, and current prospective clients, to inform them of his new registration with BKC and of the new BKC Pooled Fund for which Mr. Gillin will be co-portfolio manager. This disclosure will be sent once Mr. Gillin’s registration with BKC has been approved. Disclosure regarding Mr. Gillin’s dual employment will also be disclosed in the offering documentation for each of the SLIIC Pooled Funds and BKC Pooled Funds for which Mr. Gillin acts as an advising representative.

17.          Mr. Gillin will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.

18.          In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting Mr. Gillin to be registered as an advising and dealing representative of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with Mr. Gillin’s advising and dealing activities.

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 Relief Sought is granted provided that the representations described above in paragraphs 14, 15, 16 and 17 remain true.

“Marrianne Bridge”
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission