Fidelity Investments Canada ULC

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Large portfolio manager, exempt market dealer, commodity trading counsel, commodity trading manager and investment fund manager with separate operating divisions exempted from the requirement to register an individual as a chief compliance officer (CCO) -- permitted to register three CCOs, one for each operating division.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.3 and 15.1.

March 8, 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 FIDELITY INVESTMENTS CANADA ULC (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirement in section 11.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the Filer to designate three individuals as chief compliance officer (CCO), with the result that there will be a separate CCO in respect of each of the three distinct lines of business carried on by the Filer (the Exemption Sought).

The principal regulator issued a decision dated August 10, 2021 (the Original Decision) providing similar relief to permit the Filer to designate two individuals as CCO, with the result that there currently is a separate CCO in respect of two different lines of business carried on by the Filer. The Filer has also applied for an order pursuant to the Legislation to revoke the Original Decision as of the date hereof.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has 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 of the other provinces and territories of Canada (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, MI 11-102 and NI 31-103 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation amalgamated under the laws of the Province of Alberta with its head office located in Toronto, Ontario. The Filer is registered:

(a) under the securities legislation of each of the Jurisdictions as a portfolio manager;

(b) under the securities legislation of each of the Jurisdictions as an exempt market dealer;

(c) under the securities legislation of each of the Jurisdictions as a mutual fund dealer;

(d) under the securities legislation of Ontario, Québec, and Newfoundland and Labrador as an investment fund manager; and

(e) under the Commodity Futures Act (Ontario) as a commodity trading manager.

2. The Filer is not in default of securities legislation in any Jurisdiction.

The Lines of Business

3. Since the Original Decision, the Filer has reorganized its business, previously consisting of two distinct operating lines of business, into three distinct operating lines of business (each, a Division):

(a) One Division (the IFM Division) currently provides investment fund management services to several families of investment funds and pooled funds (the Funds) with assets of approximately $210 billion under management;

(b) One Division (the PM Division) provides discretionary portfolio management services to the Funds and to institutional clients, including financial intermediaries, pension funds, endowments, foundations and corporations. As of December 1, 2021, the PM Division had approximately $70 billion of assets under management; and

(c) One Division (the Dealer Division) is being created to provide for the distribution of the Funds, securities and services to high net worth individuals and other investors.

4. Each of the IFM Division, PM Division and Dealer Division has a separate and distinct business supervisory and operational structure.

Original Decision

5. Pursuant to the Original Decision, as a result of the Filer's business being previously organized as two distinct operating lines of business , the IFM Division and the PM Division, the Filer currently has designated one individual who is registered in the category of CCO under the securities legislation of the Jurisdictions as CCO of the IFM Division and a different individual who is registered in the category of CCO under the securities legislation of the Jurisdictions as CCO of the PM Division. As noted in the Original Decision, due to the fact that certain executive management responsibilities at the Filer are currently fulfilled by the CCO of the IFM Division, the CCO of the PM Division currently reports to the CCO of the IFM Division for corporation organizational purposes.

6. With the formation of the Dealer Division, the Filer wishes to revoke and replace the Original Decision to permit the Filer to designate three individuals registered in the category of CCO under the securities legislation of the Jurisdictions, with the result that there will be a separate CCO in respect of each Division.

The CCO Requirement

7. Under section 11.3 of NI 31-103, a registered firm is required to designate an individual to be the CCO (the CCO Requirement).

Reasons for Exemption Sought

8. Given the size, diversity and increasing complexity of the Filer's Divisions, each CCO requires different subject matter and business expertise and focus to effectively discharge the role's compliance responsibilities and it is difficult for one individual to effectively (i) carry out all the responsibilities of the CCO for more than one Division, and (ii) identify and stay abreast of the different issues and risks applicable to clients and the capital markets stemming from the different Divisions.

9. Given the large scope and the specialized and diversified business operations of each Division, the Filer believes that having a separate CCO for each Division will allow it to more effectively manage its compliance program by enabling it to focus resources on the specific requirements of each Division.

10. If the Exemption Sought is granted,

(a) the CCO of the PM Division will oversee the compliance systems that are reasonably designed to ensure that each portfolio manager team, and each person acting on their behalf, complies with securities legislation. The CCO of the PM Division will focus on the applicable laws, regulations, rules, policies and codes of conduct which govern the portfolio management and commodity trading manager activities of the Filer in the jurisdictions in which it operates. To this end, the CCO of the PM Division will maintain a compliance process and infrastructure throughout the portfolio management business to enable the Filer's management to fulfill their portfolio management compliance responsibilities. This includes maintaining appropriate policies and procedures and overseeing a supervisory structure that monitors the portfolio management activities, employee trading, conflicts of interest, self-dealing and the commodity trading manager activities conducted by the Filer's personnel.

(b) the CCO of the IFM Division will oversee compliance systems that are reasonably designed to ensure that the investment fund manager business, and each person acting on its behalf, comply with securities legislation. To this end, the CCO of the IFM Division will maintain appropriate policies and procedures for investment fund management and will oversee a supervisory structure that monitors compliance. This will include overseeing compliance with the requirements governing: (i) public and private offering and continuous disclosure of the Funds; (ii) sales practices and sales communications; (iii) fiduciary obligations for management functions that are outsourced; (iv) conflict identification and management; and (v) self-dealing.

(c) the CCO of the Dealer Division will oversee compliance systems that are reasonably designed to ensure that the dealer businesses, and each person acting on their behalf, comply with securities legislation. To this end, the CCO of the Dealer Division will maintain appropriate policies and procedures for the dealer division, and will oversee a supervisory structure that monitors compliance for the dealer activities. This will include overseeing compliance with the requirements governing: (i) trading practices; and (ii) developing compliance strategies for new business lines.

(d) each of the IFM Division, PM Division and Dealer Division will have specific compliance professionals designated to each Division.

(e) considering the Filer is part of a large securities registrant and that certain executive management responsibilities at the Filer are currently fulfilled by the CCO of the IFM Division, the CCO of the PM Division and the CCO of the Dealer Division will report to the CCO of the IFM Division for corporate organizational purposes. The matters on which the CCO of the PM Division and the CCO of the Dealer Division will report to the CCO of the IFM Division include, but are not limited to, the following: human resources matters (including staffing levels, hiring decisions, performance appraisals and vacation approvals), departmental initiatives (including strategic planning, goal setting and efficiency evaluation) and governance reporting. However, in the event that either the CCO of the PM Division or the CCO of the Dealer Division determines, in their sole discretion, that any of these matters overlap with, or directly or indirectly influence or affect the functions described in section 5.2 of NI 31-103 [responsibilities of the chief compliance officer], the CCO of the PM Division and/or the CCO of the Dealer Division will report directly to the ultimate designated person (UDP) on such matters.

(f) each CCO will i) have direct access to the Filer's UDP; ii) have direct access to the board of directors at such times as each CCO may consider necessary or advisable in view of their responsibilities; iii) provide reports to the board of directors of the Filer; and iv) comply in all other respects with applicable securities requirements, including the requirements set out in NI 31-103.

(g) the Filer will continue its operations with enhanced compliance effectiveness, since each individual CCO will be able to focus on the compliance oversight of their respective Division.

11. Not granting the Exemption Sought would prevent the Filer from responding more quickly to address each Division's compliance issues, providing a higher level of senior participation on the Filer's compliance projects and initiatives, and undertaking more detailed reviews of the Filer's compliance monitoring programs to assist in reducing the risks of non-compliance.

12. In section 5.2 of Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations, the Canadian Securities Administrators state 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."

13. Allowing the Filer to designate and have registered a CCO for each Division is consistent with the policy objectives the CCO Requirement is intended to achieve because the PM Division, the Dealer Division and the IFM Division are independent operations that are distinct from one another in kind and conducted on a very large scale.

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

1. the Original Decision is revoked; and

2. the Exemption Sought is granted provided that:

(a) each CCO fulfils the functions described in section 5.2 of NI 31-103 [responsibilities of the chief compliance officer], or any successor provision thereto, in respect of the Division for which the individual is the designated CCO; and

(b) each CCO has direct access to the UDP and direct access to the board of directors of the Filer.

"Elizabeth King"
Deputy Director, Compliance & Registrant Regulation
Ontario Securities Commission

OSC File #: 2021/0760