Under paragraph 4.1(1)(a) 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 an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned registered firm – the Filers are not affiliated entities and have valid reasons for the representative to be registered with both firms – Both firms will be managing different activities, which will mitigate the risk of conflicts of interest arising from the dual registration – the representative will have sufficient time to adequately serve both firms – Both firms have policies and procedures in place to address potential conflicts of interest and the dually registered representative is aware of those procedures – the firms 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.
March 23, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CORDIANT CAPITAL INC. (Cordiant) AND CONVERGENCE BLENDED FINANCE, INC. (Convergence) (the Filers)
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement contained in 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit David Creighton (the Representative) to act as a director of Convergence while also acting as a dealing representative of Cordiant (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application;
(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 in Alberta; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filers:
1. Cordiant is a corporation existing under the Canada Business Corporations Act. Its head office is located in Montréal, Québec.
2. Cordiant is an exempt market dealer registered with the securities regulatory authorities in Alberta, Ontario and Québec and is registered as an Investment Fund Manager and Portfolio Manager with Ontario and Québec. Cordiant is also registered with the U.S. Securities and Exchange Commission and Commission de surveillance du Secteur financier (Luxembourg).
3. Cordiant was formed in 1999 as a manager of emerging market and private sector investments. Cordiant has been investing in the emerging markets for over a decade.
4. Cordiant’s client base is made up of large institutional investors (who are accredited investors), mostly situated in Europe. Funds raised from these clients will be managed in one of Cordiant’s emerging market private debt funds. Cordiant’s investment activities focus primarily on emerging and frontier markets in Africa, Latin America, Asia, etc. All of Cordiant’s investments are comprised of private commercial debt investments.
5. Cordiant is not in default of any requirement of securities legislation in any of the Jurisdictions.
6. Convergence is organized as a not-for-profit corporation under the Canada Not-for-profit Corporations Act. Its head office is located in Toronto, Ontario.
7. Convergence is registered as a restricted dealer in Ontario and has applied for registration as a restricted dealer in Québec.
8. Convergence intends to operate an online network designed to address certain blended finance challenges through three distinct service offerings: (1) a New Product Design Facility, (2) Market Building Tools, and (3) an Investment Network. The New Product Design Facility and the Market Building Tools services will not advertise, promote or nor solicit any trades in specific offerings of securities, but are only general sector and product type information and educational tools, in keeping with the public service development mandate of Convergence. The Investment Network will be a type of portal for bringing together potential sophisticated investors, including governments and philanthropic foundations, with international development projects seeking blended finance funding.
9. Convergence does not hold or have access to any investor or issuer funds or securities as, unlike a conventional dealer, Convergence does not act on behalf of investors as clients in connection with a purchase or sale of securities and does not participate in the investment process.
10. Convergence is not in default of any requirement of securities legislation in any of the Jurisdictions.
11. Convergence and Cordiant are not affiliates.
12. The Representative is currently a registered officer, director and dealing representative of Cordiant in Alberta, Ontario and Québec. In that capacity he serves in an advisory capacity to the Board with respect to attracting new institutional investors as well as consulting on infrastructure projects. He spends the majority of his time seeking opportunities to raise investment capital in Canada and Europe from institutional investors (insurance companies, pension funds, endowments, etc.). His primary responsibility is to raise capital for investment funds.
13. The Representative is also one of eight members of Cordiant's Internal Credit Committee. This committee will only be involved with the review of the credit worthiness and solvability of possible loan investments made to emerging markets.
14. It is proposed that the Representative be appointed as a director of Convergence in Ontario and Québec.
15. Given that (i) the pool of potential directors in Canada with significant experience in international development blended finance is very limited, (ii) members of Convergence’s Board of Directors serve without remuneration, and (iii) the Representative will not, owing to the nature of Convergence’s limited not-for-profit activities, be in any investment decision-making, day-to-day operations nor trading activities for Convergence, Cordiant is amenable to the appointment.
16. The Representative’s role at Convergence will be as one of three members of the Board of Directors. In that role, the Representative will provide strategic guidance and advice to the Board of Directors and senior management in the area of emerging markets, which complements Convergence’s not-for-profit blended finance goals.
17. The potential for conflicts of interest or client confusion due to the Representative acting as a dealing representative of Cordiant and as a director of Convergence are mitigated by the following:
a. Convergence and Cordiant engage in different activities;
b. Convergence will not engage in trading in securities, underwriting nor advising in respect of securities, except in narrow relation to indirect promotion through operating the Investment Network inter-national development blended finance platform;
c. Convergence will have no client securities trading accounts, will not have any managed accounts, will not engage in holding client funds or securities, and will not make any recommendations with respect to buying, selling or holding any securities, and will not engage in any proprietary trading in securities;
d. Members of Convergence’s Board of Directors serve without remuneration;
e. The Representative will not be involved in day-to-day operations of Convergence and will not be involved with either users or projects on Convergence’s online platform;
f. Cordiant will not grant Investment Network access to the Representative; and
g. Cordiant will include a disclaimer on any and all projects it posts to Convergence’s online platform identifying the Repre-sentative as both an officer of Cordiant and a board member of Convergence.
18. It is possible that Cordiant, through one of its investment funds, could subscribe to Conver-gence’s platform as a provider of capital, or alternatively, as a deal sponsor (again, through one of Cordiant’s investment funds). Should such a situation arise, the Filers have a number of safeguards in place to mitigate any conflict of interest, namely:
a. Convergence treats external subscribers identically and has no involvement whatsoever with any project posted on the Investment Network;
b. As a member of the Convergence board, the Representative will not have access to additional information other than what is posted on the Investment Network;
c. The Representative will recuse himself from all matters related to Cordiant that could arise at the board level; and
d. All prospective investments must be submitted to Cordiant’s investment review and risk management process.
19. The Representative will have sufficient time and resources to meet his obligations to both Cordiant and Convergence. The Representative will devote approximately 35 hours per week at Cordiant and 6 hours per month at Convergence.
20. Both Filers have in place written policies and procedures to address any potential conflicts and they believe that they will be able to appropriately deal with any conflicts of interest that may arise as a result of the Representative acting as a dealing representative Cordiant and as a member of the board of directors of Convergence.
21. The Representative will be subject to supervision by and to the applicable compliance requirements of both Filers.
22. Both Filers are subject to the conflict of interest requirements set out in NI 31-103 and such requirements will be complied with at all times.
23. In the absence of the Exemption Sought, Convergence would be prohibited under paragraph 4.1(1)(a) of NI 31-103 from permitting the Representative to act as a dealing representative of Cordiant while also acting as a director of Convergence.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that (a) the circumstances described above remain in place, and (b) the Exemption Sought shall cease to be effective when:
(i) the Representative is no longer registered in any of the Jurisdictions as a dealing representative of Cordiant; or
(ii) the Representative is no longer a director of Convergence.
Superintendent, Client Services and Distribution Oversight