Blackheath Fund Management Inc., Foster & Associates Financial Services Inc.
Headnote
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 one 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 and 15.1.
April 25, 2022
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 BLACKHEATH FUND MANAGEMENT INC. (BFM) AND FOSTER & ASSOCIATES FINANCIAL SERVICES INC. (F&A, and together with BFM, 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 (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) (such restriction, the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Mr. Christopher Foster (the Representative) to be registered as a dealing representative of F&A and as an advising representative (portfolio manager) of BFM (the Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) 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 in Alberta and British Columbia (collectively with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, NI 31-103 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. BFM is presently registered as a commodity trading manager in Ontario. BFM is also registered as a portfolio manager Ontario, Alberta and British Columbia. BFM presently carries on business in Ontario, Alberta and British Columbia. The head office of BFM is in Toronto, Ontario.
2. BFM currently engages in the business of managing trading in commodity futures contracts and options on behalf of its clients through discretionary authority granted by such clients. BFM engages in advising on and managing investment strategies for high net worth, corporate and institutional clients.
3. F&A is registered (i) in the category of investment dealer in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, and Québec and is a member of the Investment Industry Regulatory Organization of Canada (IIROC); and (ii) as a derivatives dealer in Québec. F&A carries on business in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, and Québec. The head office of F&A is in Toronto, Ontario.
4. F&A provides the full range of dealer services that IIROC member firms are authorized to provide to retail clients in the above-noted jurisdictions.
5. The principal regulator of both Filers is the OSC.
6. BFM and F&A are wholly-owned subsidiaries of FAFS Holding Corporation, and are therefore affiliates. A majority of the shares of FAFS Holding Corporation are controlled by the Representative's family holding company.
7. Neither Filer is in default of any requirement of securities legislation in any jurisdiction of Canada.
8. There is no overlap in the businesses of the Filers. The Filers have different client bases, and the investment strategies and portfolio of securities of each Filer are different.
9. F&A exclusively trades in traditional investments such as stocks, bonds, funds, and ETFs. F&A caters to retail clients and its investment strategy typically involves the use of registered plans such as RSPs, TFSAs, RRIFs etc.
10. BFM provides portfolio management services to its clients and has historically offered speculative strategies in futures and future options to high-net-worth clients who are accredited investors or permitted clients. BFM does not offer any traditional investment services or investment in registered plans such as RESPs, RSPs, TFSAs etc.
11. The Representative is registered as an advising representative (commodity trading manager) and as the Ultimate Designated Person of BFM in Ontario. Subject to the Relief Sought being granted, the Representative will be registered as an advising representative of BFM. He has been registered with BFM since 2009.
12. The Representative is also registered as a dealing representative (investment dealer) of F&A in Ontario, and as the Ultimate Designated Person of F&A in Alberta, British Columbia, Nova Scotia, Ontario, and Québec. The Representative has been registered with F&A since 2016.
13. It is proposed that the Representative, as an advising representative of BFM, will provide portfolio management services to clients of BFM. He will also continue to provide services in his capacities as a dealing representative of F&A.
14. The Filers wish to leverage the Representative's knowledge, expertise and experience for the benefit of their respective clients, and to permit the Representative to support the business activities and interests of both Filers. The Representative's dual registration will also help optimize the Filers' resources and will increase their operational efficiency.
15. The Filers are affiliates and are both wholly-owned by FAFS Holding Corporation. The Representative will be overseeing two different business lines with no or minimal overlap. Accordingly, the dual registration of the Representative 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 in conjunction with the services provided to their respective clients and therefore the potential for conflicts of interest arising from the dual registration is mitigated.
16. The Filers do not expect that the dual registration of the Representative will create significant additional work and are confident that he will have sufficient time to adequately serve both firms, especially given the current roles that the Representative currently performs.
17. The Representative is subject to supervision by each of the Filers and come under the applicable compliance requirements of both Filers.
18. The Chief Compliance Officer and Ultimate Designated Person of each Filer will ensure that the Representative has sufficient time and resources to adequately serve each Filer and its clients.
19. 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 the Representative and will be able to deal appropriately with any such conflicts.
20. Disclosure regarding the dual employment of the Representative will be disclosed in writing to clients of both BFM and F&A in the form of an updated Relationship Disclosure Information form, which will detail the potential for conflicts of interest. The updated form will be sent to the clients of both BFM and F&A upon the Relief Sought being granted.
21. The Representative will deal fairly, honestly and in good faith with all clients of each Filer.
22. In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representative to be registered as an advising representative of BFM under its portfolio manager registration while the individual is registered as a dealing representative of F&A, even though the Filers are affiliates and have controls and compliance procedures in place to deal with the Representative'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 on the following conditions:
i. The Representative is subject to supervision by, and the applicable compliance requirements of, both Filers;
ii. The Chief Compliance Officer and the Ultimate Designated Person of each Filer ensure that the Representative has sufficient time and resources to adequately serve each Filer and its respective clients;
iii. Each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representative and deal appropriately with any such conflicts; and
iv. The relationship between the Filers and the fact that the Representative is dually registered with both of the Filers is fully disclosed in writing to clients of each of them that deal with the Representative.
"Felicia Tedesco"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission
OSC File #: 2021/0486