Chelsea Avondale Ltd. – s. 74
Headnote
Application to the Ontario Securities Commission for a ruling pursuant to subsection 74(1) of the Securities Act (Ontario) (the Act) for a ruling that the Applicant be exempted from the adviser registration requirements in subsection 25(3) of the Act. The Applicant will provide advice to an affiliated insurance company in Ontario for so long as such affiliate remains an affiliate of the Applicant.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(3), 74(1).
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (THE ACT) AND IN THE MATTER OF CHELSEA AVONDALE LTD.
RULING (SECTION 74 OF THE ACT)
UPON the application (the Application) of Chelsea Avondale Ltd. (the Applicant) to the Ontario Securities Commission (the Commission) for a ruling pursuant to subsection 74(1) of the Act that the Applicant be exempted from the adviser registration requirements in subsection 25(3) of the Act;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission as follows:
1. The Applicant is a corporation existing under the laws of Bermuda. The Applicant's head office and principal place of business is in Bermuda. The Applicant does not have an office or employees in Canada.
2. The Applicant's principal business is to acquire property and casualty insurance companies and to invest the assets of its subsidiary companies utilizing a value-oriented equity investment strategy.
3. The Applicant is exempt from the requirement to register as an investment adviser with the Bermuda Monetary Authority under the Bermuda Investment Business Act of 2003. This exemption is available to entities which are providing investment services to not more than 20 persons at any time, and not providing investment services to, or soliciting investment business from, the public.
4. The Applicant is in compliance in all material respects with the securities laws of Bermuda. The Applicant is not in default of any requirements of securities legislation in any jurisdiction of Canada.
5. The Applicant is an affiliate of three Canadian companies, specifically: (1) Max Insurance ("Max Insurance"), (2) Chelsea Avondale Holdings (Canada) Inc. ("Chelsea Holdings"); and (3) Chelsea Avondale Insurance Services Inc., ("Chelsea Canada") (collectively referred to herein as the "Ontario Affiliates").
6. Max Insurance was incorporated under the Corporations Act (Ontario) on June 28, 2002 as Max Canada Insurance Company and changed its name to Max Insurance by Supplementary Letters Patent dated December 6, 2017. Max Insurance is an indirect wholly-owned subsidiary of the Applicant. Max Insurance is licensed or otherwise duly permitted or authorized to carry on the business of an insurance company in the provinces of Ontario, British Columbia, Alberta, Saskatchewan and Manitoba.
7. Chelsea Holdings was incorporated under the Canada Business Corporations Act (the "CBCA") on July 5, 2016 and is a wholly-owned subsidiary of the Applicant. Chelsea Holdings is a holding company with its principal business activity being to hold securities of one or more affiliates that are or will be licensed or otherwise duly permitted or authorized to carry on business as an insurance company or in certain provinces of Canada.
8. Chelsea Canada was incorporated under the CBCA on July 5, 2016 and is an indirect wholly-owned subsidiary of the Applicant. Chelsea Canada and is a holding company with its principal business activity being to hold securities of one or more affiliates that are or will be licensed or otherwise duly permitted or authorized to carry on business as an insurance company in certain provinces of Canada.
9. The Applicant wishes to provide portfolio management services to the Ontario Affiliates and any other affiliates in Ontario which may be formed in the future that (i) are licensed or otherwise duly permitted or authorized to carry on the business of an insurance company in Canada or a branch of a foreign insurance company in Canada, or (ii) are holding companies that have as their principal business activity to hold securities of one or more affiliates that are each licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada. These services will include discretionary investment advisory and portfolio management services (the "Advisory Services") in respect of the proprietary assets of the Ontario Affiliates. The investment strategies to be employed by the Applicant relate primarily to investments in North American publicly-traded equity securities.
10. Each of the Ontario Affiliates is a "permitted client" as defined in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103").
11. No management fee will be charged to the Ontario Affiliates in relation to the provision of the Advisory Services by the Applicant. However, the arrangement between the Applicant and the Ontario Affiliates will provide for the sharing of profits resulting from the provision of the Advisory Services between the Applicant and the Ontario Affiliate. The profit-sharing arrangement will entitle the Applicant to receive fixed percentage of the net profits realized from the performance of the Advisory Services and will be structured in accordance with applicable tax, regulatory and other laws.
12. The Applicant will not provide Advisory Services to any person or company in Canada other than the Ontario Affiliates.
13. The Applicant will provide Advisory Services to the Ontario Affiliates with respect to the proprietary assets of the Ontario Affiliates maintained in connection with their respective businesses. On occasion, the Applicant may provide Advisory Services to other companies located outside of Canada that are wholly-owned by affiliates of the Applicant.
14. The Applicant is not registered as an adviser in any jurisdiction of Canada and cannot rely on the international adviser exemption set out in section 8.26 of NI 31-103 because the Applicant may provide advice on a security that is not a "foreign security" (as defined in section 8.26(2) of NI 31-103).
15. There is no requirement for employees of a corporation to be registered as advisers under the Act if such employees provide investment advice to their corporate employers with respect to the proprietary assets of the corporate employers. The Ontario Affiliates do not currently employ individuals to provide investment advice with respect to its Canadian proprietary assets, but rather the Ontario Affiliates will contract with the Applicant to obtain the Advisory Services as permitted under the Insurance Act (Ontario).
16. The assets to be managed by the Applicant are directly owned by Ontario Affiliates. There are no external stakeholders (such as, for example, holders of variable annuity contracts or segregated funds/separate accounts for policy holders) that have any direct or indirect interest in the performance of such portfolios. Accordingly, there are no stakeholders in Ontario or elsewhere other than the Ontario Affiliates that will be affected by the results of the Advisory Services provided by the Applicant. None of the Ontario Affiliates have insurance or annuity products, separate accounts or products where the customer participates in the investment performance.
AND WHEREAS section 74 of the Act provides that a ruling may be made by the Commission that a person or company is not subject to section 25 of the Act, subject to such terms and conditions as the Commission considers necessary, where the Commission is satisfied that to do so would not be prejudicial to the public interest;
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED, pursuant to section 74 of the Act, that the Applicant is exempt from the adviser registration requirements of subsection 25(3) of the Act in respect of advice it provides to affiliates in Ontario, provided that:
(a) the Applicant provides investment advice and portfolio management services in Ontario only to its affiliates that (i) are licensed or otherwise duly permitted or authorized to carry on the business of an insurance company in Canada or a branch of a foreign insurance company in Canada, or (ii) are holding companies that have as their principal business activity to hold securities of one or more affiliates that are each licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada;
(b) with respect to any particular affiliate described in paragraph (a), the investment advice and portfolio management services are provided only as long as that affiliate remains (i) an "affiliate" of the Applicant, as defined in the Act, and (ii) a "permitted client" as defined in NI 31-103;
(c) the Applicant notifies the Commission of any regulatory action initiated after the date of this decision in respect of the Applicant, or any predecessors or "specified affiliates" (as defined in Form 33-109F6 to National Instrument 33-109 Registration Information) of the Applicant, by completing and filing with the Commission Appendix "A" hereto within ten days of the commencement of such action;
(d) the Applicant, in the course of its dealings with any particular affiliate described in paragraph (a), acts fairly, honestly and in good faith;
(e) the Applicant is in compliance with, and remains in compliance with, any applicable adviser licensing or registration requirements under applicable securities legislation in Bermuda; and
(f) the decision will terminate on the earlier of:
(i) five years after the date of this decision; and
(ii) the coming into force of a change in securities legislation that exempts the Applicant from the registration requirement in connection with the advising activity it provides to any particular affiliate described in paragraph (a) on terms and conditions other than those set out in this decision.
February 20, 2018
APPENDIX "A"
NOTICE OF REGULATORY ACTION
1. Has the firm, or any predecessors or specified affiliates{1} of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?
Yes _____ No _____
If yes, provide the following information for each settlement agreement:
- - - - - - - - - - - - - - - - - - - -
Name of entity
Regulator/organization
Date of settlement (yyyy/mm/dd)
Details of settlement
Jurisdiction
- - - - - - - - - - - - - - - - - - - -
2. Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:
Yes
No
a)
Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?
_____
_____
(b)
Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?
_____
_____
(c)
Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(d)
Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(e)
Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?
_____
_____
(f)
Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?
_____
_____
(g)
Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?
_____
_____
If yes, provide the following information for each action:
- - - - - - - - - - - - - - - - - - - -
Name of entity
Type of action
Regulator/organization
Date of action (yyyy/mm/dd)
Reason for action
Jurisdiction
- - - - - - - - - - - - - - - - - - - -
3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates is the subject?
Yes _____ No _____
If yes, provide the following information for each investigation:
- - - - - - - - - - - - - - - - - - - -
Name of entity
Reason or purpose of investigation
Regulator/organization
Date investigation commenced (yyyy/mm/dd)
Jurisdiction
- - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - -
Name of firm:
Name of firm's authorized signing officer or partner
Title of firm's authorized signing officer or partner
Signature
Date (yyyy/mm/dd)
- - - - - - - - - - - - - - - - - - - -
Witness
The witness must be a lawyer, notary public or commissioner of oaths.
- - - - - - - - - - - - - - - - - - - -
Name of witness
Title of witness
Signature
Date (yyyy/mm/dd)
- - - - - - - - - - - - - - - - - - - -
This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission's Electronic Filing Portal: https://www.osc.gov.on.ca/filings
{1} In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.