Notice: NI - 33-101 - Administration of Self-Directed RRSPs, RESPs and RRIFs by Dealers

 

NOTICE OF PROPOSED NATIONAL INSTRUMENT 33-101
AND RESCISSION OF ONTARIO POLICY STATEMENT NO. 4.3
ADMINISTRATION OF SELF-DIRECTED RRSPS,
RESPS AND RRIFS BY DEALERS
Substance and Purpose of Proposed National Instrument
The substance and purpose of the proposed National Instrument are to impose conditions to protect clients' assets when dealers act as administrators ofself-directed registered retirement savings plans ("RRSPs), registered education savings plans ("RESPs") and registered retirement income funds ("RRIFs").

The proposed National Instrument is an initiative of the Canadian Securities Administrators (the "CSA") and is expected to be adopted or made as a rule inBritish Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in all other jurisdictions represented by theCSA. The proposed National Instrument implements, in part, the recommendation of the CSA Task Force on Operational Efficiencies that Canadian securitiesregulatory authorities increase the coordination of regulation, including the standardization of requirements.

The proposed National Instrument is substantially similar to Ontario Securities Commission Policy Statement No. 4.3 ("OSC Policy 4.3"), which it replaces, andOntario Securities Commission staff practice under which OSC Policy 4.3 was applied to all categories of dealers, except that it applies to three types ofself-directed registered plans under the Income Tax Act (Canada) rather than just RRSPs.

OSC Policy 4.3 was first published as OSC Policy 3-55 (1982), 3 OSCB 47E after discussion by the Ontario Securities Commission with representatives of theTrust Companies Association of Canada, The Toronto Stock Exchange and the Investment Dealers Association of Canada. The OSC Policy was reprinted asOSC Policy 4.3 at (1984), 7 OSCB 3879. OSC Policy 4.3 contained amendments to the former policy to provide that primary liability for breach of trust remainwith the trustee of the plan and to provide that brokers and investment dealers did not need to deliver monthly reports to the Ontario Securities Commission ifthe dealer's self-regulatory organization reviewed, and was satisfied with, the systems and procedures of the dealer relating to plan administration.

The Ontario Securities Commission amended the application of OSC Policy 4.3 again in 1994 at (1994), 17 OSCB 2971 to no longer require separatesegregation of customer's securities held in self-directed RRSPs with dealers that are members of the Canadian Investor Protection Fund.

Summary of Proposed National Instrument
OSC Policy 4.3 currently contains guidelines for dealers acting as administrators of self-directed RRSPs. OSC Policy 4.3 advised that the Ontario SecuritiesCommission will normally object to dealers acting as administrators for self-directed RRSPs unless these guidelines are followed. In Ontario, the proposedNational Instrument replaces OSC Policy 4.3. The proposed National Instrument prohibits dealers from acting as administrators unless the specified conditionsset out in the National Instrument are met. It also expands the application of the conditions for a dealer acting as an administrator of an RRSP to a dealer actingas an administrator of an RESP or an RRIF. The proposed National Instrument also explicitly applies to all categories of dealers equally rather than being limitedto only brokers and investment dealers.

The proposed National Instrument imports the requirements of the Joint Regulatory Financial Questionnaire and Report, which has been adopted by TheToronto Stock Exchange and the Investment Dealers Association of Canada, that prescribe who is an acceptable trustee and what is an acceptable securitieslocation. The proposed National Instrument requires that the trustee remain primarily liable to planholders even though the dealer is acting as administrator. Theadministrative functions of the dealer which the dealer must undertake, including disclosure, record keeping, maintaining control over plan securities andsafekeeping, are prescribed in the proposed National Instrument. The proposed National Instrument prescribes timing for delivery of cash balances from planaccounts to the trustee and prohibits agreements to set-off. Finally, the proposed National Instrument requires that other necessary regulatory approvals arereceived by the dealer and others prior to the dealer becoming an administrator of a plan.

Authority for Proposed National Instrument
The proposed National Instrument prohibits registrants from acting in a certain capacity unless the registrant complies with the procedural requirements set outin the proposed National Instrument. In those jurisdictions in which the National Instrument is to be implemented as a rule or regulation, the securities legislationin each of those jurisdictions provides the securities regulatory authority with the rule or regulation- making authority in respect of the subject matter of theproposed National Instrument. Paragraph 143(1)2 of the Securities Act (Ontario) authorizes the Ontario Securities Commission to make rules prescribing theconditions of registration or other requirements for registrants or any category or sub-category of registrant.

Alternatives Considered
The CSA believe that OSC Policy 4.3 has worked well, and given the mandatory nature of certain of the provisions, the CSA determined that these provisionsshould be adopted as the proposed National Instrument. No alternatives were considered.

Unpublished Materials
In proposing the National Instrument, the CSA have not relied on any significant unpublished study, report or other material.

Anticipated Costs and Benefits
The CSA believe that investors who maintain plan accounts with dealers will benefit from the additional protection obtained as a result of the proposed NationalInstrument and the stricter rules imposed by the National Instrument as to who may hold property and where the property must be held.
The costs associated with the proposed National Instrument are anticipated to be the cost of registrants establishing and following the procedures required by theproposed National Instrument. The introduction of the concepts of "acceptable financial institution" and "acceptable securities location" may result in fewereligible trustees for plans that are administered by dealers. The extension of the application of the proposed National Instrument to all categories of dealers andto dealers acting as administrators of RESPs and RRIFs will increase costs to those dealers in complying with the conditions imposed by the National Instrument.
The CSA believe the benefits outweigh the costs.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument. Submissions received by May 15, 1998 will beconsidered.

Submissions should be made to all of the Canadian Securities Administrators listed below in care of the Ontario Securities Commission in duplicate as indicatedbelow:

British Columbia Securities CommissionAlberta Securities Commission
Saskatchewan Securities Commission
Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of NewfoundlandRegistrar of Securities, Northwest TerritoriesRegistrar of Securities, Government of the Yukon Territory

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilièrs de Québec as follows:

Claude St Pierre
Secretary
Commission des valeurs mobilières de Québec
Tour de la Bourse
C.P. 246, 17th Floor
Montreal, Quebec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably Wordperfect) should also be submitted. As securities legislation in certainprovinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.

Questions may be referred to any of the following:

Ross McLennan
Director, Registration
British Columbia Securities Commission
(604) 899-6500
David Sheridan
Legal Counsel
Alberta Securities Commission
(403) 297-2630
Barbara Shourounis
Director
Saskatchewan Securities Commission
(306) 787-5645
David Cheop
Counsel
Manitoba Securities Commission
(204) 945-2548
Nancy Ross
Legal Advisor
Registration, Market Operations Branch
Ontario Securities Commission
(416) 593-8154
Renée Piette
Comm. des Valeurs Mobilières de Quebec
Policy Advisor
(514) 873-5009
Elaine Anne MacGregor
Deputy Director, Capital Markets
Nova Scotia Securities Commission
(902) 424-7768

Proposed National Instrument
The text of the proposed National Instrument follows, together with footnotes that are not part of the National Instrument but have been included to providebackground and explanation.

Rescissions of OSC Policy
OSC Policy 4.3 is replaced by the proposed National Instrument and will be rescinded by the Ontario Securities Commission. The text of the proposed rescissionis as follows:

"Ontario Securities Commission Policy Statement No. 4.3 entitled Self-directed RRSP's and Other Plans of Recognition by the Commission for Purposes of thisPolicy Statement and Administered by Brokers or Investment Dealers on Behalf of Authorized Trustees is rescinded."

DATED February 13, 1998.