ATB Securities Inc. and ATB Capital Markets Inc.
Headnote
Multilateral Instrument 11-102 Passport System, National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, CSA Staff Notice 31-358 Guidance on Registration Requirements for Chief Compliance Officers -- Investment dealer with separate divisions dedicated to institutional and retail clients exempted from requirement to designate only a single UDP and a single CCO for the registrant firm -- permitted to designate two CCOs and two UDPs, one of each for each division.
Applicable Legislative Provisions
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, s. 3.6(3)(b).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.2, 11.3 and 15.1.
Citation: Re ATB Securities Inc., 2023 ABASC 168
December 19, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF ATB SECURITIES INC. (ATBSI) AND ATB CAPITAL MARKETS INC. (ATBCM and, with ATBSI, the Filers)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filers, on behalf of the corporation resulting from the proposed amalgamation (the Amalgamation) of the Filers (the Amalgamated Corporation), for a decision under the securities legislation of the Jurisdictions (the Legislation), pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), for an exemption from the requirements contained in:
(a) section 11.2 of NI 31-103 to designate an individual to be the ultimate designated person (UDP), in order to permit the Amalgamated Corporation to designate and register two individuals as UDPs, one of whom has accountability for the retail investor line of business of the Amalgamated Corporation and one of whom has accountability for the institutional investor line of business of the Amalgamated Corporation, and
(b) section 11.3 of NI 31-103 to designate an individual to be the chief compliance officer (CCO), in order to permit the Amalgamated Corporation to designate and register two individuals as CCOs, one of whom has accountability for the retail investor line of business of the Amalgamated Corporation and one of whom has accountability for the institutional investor line of business of the Amalgamated Corporation,
(the Exemption Sought).
Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application, and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each jurisdiction of Canada, other than Alberta and Ontario (together with the Jurisdictions, the Filing Jurisdictions), and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
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:
ATBSI
1. ATBSI is a wholly-owned subsidiary of ATB Financial.
2. ATBSI is registered as an investment dealer in each of the Jurisdictions other than Québec and Nunavut, and is currently seeking registration as an investment dealer in Québec and Nunavut. ATBSI is a member of the Canadian Investment Regulatory Organization (CIRO) and has its head office in Edmonton, Alberta.
3. ATBSI primarily provides non-discretionary investment advisory services to retail clients, offering equity securities, fixed income securities, mutual funds and other investment products (the ATBSI Retail Business).
4. ATBSI has approximately 200 registered representatives carrying on business in Alberta.
5. ATBSI is not in default of any requirements of securities legislation in the Jurisdictions.
ATBCM
6. ATBCM is a wholly-owned subsidiary of ATB Financial.
7. ATBCM is registered as an investment dealer in each of the Jurisdictions, is a member of CIRO and has its head office in Calgary, Alberta.
8. ATBCM primarily provides a broad spectrum of services to institutional clients, including corporate financial services, equity underwriting, debt underwriting, corporate and asset advisory services, institutional research and sales and trading (the Institutional Business). Additionally, ATBCM also has a small number of retail clients (ATBCM Retail Business).
9. ATBCM has approximately 24 registered representatives carrying on business in Alberta.
10. ATBCM is not in default of any requirements of securities legislation in the Jurisdictions.
The Amalgamation
11. For various business reasons, on January 1, 2024 the Filers intend to amalgamate.
12. The Amalgamation will be effected under the Business Corporations Act (Alberta) as a horizontal short form amalgamation. As such, after the Amalgamation, the Filers will continue as a single legal entity with the name "ATB Securities Inc." (with the French version being "Valeurs mobilières ATB").
13. Upon the Amalgamation, the Amalgamated Corporation will carry on the activities currently conducted by the Filers in the following two distinct operating lines of business (the Divisions):
(a) one Division (the Institutional Division), which will undertake the Institutional Business currently carried on by ATBCM;
(b) another Division (the Retail Division), which will undertake the ATBSI Retail Business and the ATBCM Retail Business, currently carried on by ATBSI and ATBCM, respectively.
14. The Amalgamated Corporation results from the amalgamation of two distinct corporate entities with two distinct lines of business. As a result, each Division will have a well-established and distinct supervisory and compliance structure, with compliance personnel clearly assigned to each Division, which are the residual compliance divisions of ATBSI and ATBCM before the Amalgamation.
15. Additionally, although the divisions will be housed within the same corporate structure for legal, tax, accounting and other entity-level reporting purposes, the divisions will have distinct business plans, service offerings, distribution lines, and client segmentation and thus operate in a distinct manner from each other.
The UDPs
16. After the Amalgamation, the Filers intend that the Amalgamated Corporation will designate one individual as UDP of the Retail Division and a different individual as UDP of the Institutional Division.
17. The Filers intend that the Amalgamated Corporation will designate the current UDP of ATBSI to be the initial UDP of the Retail Division, and the current UDP of ATBCM to be the initial UDP of the Institutional Division.
18. The Filers will structure the Amalgamated Corporation to ensure that each of the UDPs will be the most senior manager of their respective Division and will be a senior officer of the Amalgamated Corporation. The UDP of each Division, regardless of their title from time to time, will have the role that is the functional equivalent of chief executive officer in respect of the Division for which they are responsible and will be the most senior and final decision maker for their Division. This means that each UDP will fulfill the following roles for their Division:
(a) supervise, oversee and otherwise be responsible for running the Division;
(b) provide clear leadership and promote a culture of compliance within the Division;
(c) be accountable for the operations and financial performance of the Division;
(d) be the individual that the executive management within the Division report to;
(e) be accountable for reporting at least annually to the Board of Directors of the Amalgamated Corporation with respect to the Division; and
(f) have ultimate authority over compliance-related matters for the Division within the Amalgamated Corporation.
19. The Filers will structure the Amalgamated Corporation to ensure that there will be no line of reporting between the two UDPs. Each UDP will have direct access to the Board of Directors of the Amalgamated Corporation and no other executive officer of the Amalgamated Corporation will have the authority to overrule a decision of either of them.
The CCOs
20. After the Amalgamation, the Filers intend that the Amalgamated Corporation will designate one individual as CCO of the Retail Division and a different individual as CCO of the Institutional Division.
21. The Filers intend that the Amalgamated Corporation will designate the current CCO of ATBSI to be the initial CCO of the Retail Division, and the current CCO of ATBCM to be the initial CCO of the Institutional Division.
22. Each of the CCOs will meet the proficiency requirements to act in the role, as provided for in NI 31-103.
23. Upon the Exemption Sought being granted, the CCO of the Retail Division will focus on the needs of retail clients and will oversee compliance systems that are reasonably designed to ensure suitability of investment advice and products and services for retail clients.
24. Upon the Exemption Sought being granted, the CCO of the Institutional Division will focus on the needs of institutional clients and will oversee compliance systems that are reasonably designed to ensure integrity of the marketplace and the needs of institutional clients.
25. Upon the Exemption Sought being granted, each CCO will have direct access to the UDP of the same Division, will provide reports to the Board of Directors of the Amalgamated Corporation and will comply in all other respects with applicable securities law requirements, including the requirements set out in NI 31-103.
REASONS FOR EXEMPTION SOUGHT
26. Under section 11.2 of NI 31-103, a registered firm is required to designate and have registered an individual to be the UDP (the UDP Requirement). The UDP must be: (a) the chief executive officer of the registered firm or, if the firm does not have a chief executive officer, an individual acting in a capacity similar to a chief executive officer; (b) the sole proprietor of the registered firm; or (c) an officer in charge of a division of the registered firm, if the activity that requires the firm to register occurs only in the division and the firm has significant other business activities. Absent the Exemption Sought, the Amalgamated Corporation would be required to designate one individual as UDP with ultimate responsibility for both Divisions.
27. Under section 11.3 of NI 31-103, a registered firm is required to designate and have registered an individual to be the CCO (the CCO Requirement). Absent the Exemption Sought, the Amalgamated Corporation would be required to designate one individual as CCO with compliance oversight responsibility for both Divisions.
28. In section 5.2 of Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations, the Canadian Securities Administrators (CSA) indicate that:
"Firms must designate one CCO. However, in large firms, the scale and kind of activities carried out by different operating divisions may warrant the designation of more than one CCO. We will consider applications, on a case-by-case basis, for different individuals to act as the CCO of a firm's operating divisions."
29. Additionally, CSA Staff Notice 31-358 Guidance on Registration Requirements for Chief Compliance Officers and Request for Comments indicates that the CSA may allow registered firms to implement their CCO responsibilities in a manner that better aligns with their operational needs and business models. It acknowledges that larger firms may benefit from implementing a multiple CCO model where they have distinct business lines or registration categories and require, inter alia, that a firm must demonstrate that each CCO has their own separate responsibilities and that no CCO delegates or transfers to another CCO their responsibilities under section 5.2 of NI 31-103 .
30. Given the scope, specialized, and diversified business operations within each of the Retail Division and the Institutional Division, it would be:
(a) challenging for one individual to be expected to effectively carry out all of the responsibilities of the UDP, and for one individual to be expected to effectively carry out all of the responsibilities of the CCO, for both the Retail Division and the Institutional Division;
(b) challenging for one UDP and one CCO to effectively identify and stay abreast of the different issues and risks applicable to clients and the capital markets stemming from both the Retail Division and the Institutional Division; and
(c) challenging for one CCO to escalate all such issues and risks to one UDP and the Board of Directors of the Amalgamated Corporation in a timely and effective manner.
31. Aligning the UDP, CCO and the compliance structure with the Amalgamated Corporation's business model would be effective in fulfilling the policy objectives of the UDP Requirement and the CCO Requirement and facilitates maintaining an effective compliance program.
Decision
Each Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of each Decision Maker under the Legislation is that the Exemption Sought is granted so that the Amalgamated Corporation may designate and register a separate UDP and a separate CCO for each of the Retail Division and Institutional Division of the Amalgamated Corporation, provided that:
(a) each Division shall have its own UDP, who shall be the equivalent of the chief executive officer in respect of the Division for which they are the UDP;
(b) only one individual is the UDP of each Division;
(c) each UDP fulfills the responsibilities set out in section 5.1 of NI 31-103, or any successor provision thereto, in respect of the Division for which they are the designated UDP;
(d) each Division shall have its own CCO;
(e) only one individual is the CCO of each Division;
(f) each CCO reports to the UDP of the Division for which they are the designated CCO;
(g) each CCO fulfills the responsibilities set out in section 5.2 of NI 31-103, or any successor provision thereto, in respect of the Division for which they are the designated CCO; and
(h) each UDP and each CCO has direct access to the Board of Directors of the Amalgamated Corporation.
This decision shall become effective upon the amalgamation of the Filers.