Hampton Securities Limited et al.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- under paragraphs 4.1(1)(a) and 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 acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm or if the individual is registered as a dealing, advising or associate advising representative of another registered firm -- firms are not affiliated entities -- first registered firm acquiring second registered firm's client accounts -- second registered firm intends to surrender registration -- the firms have valid business reasons for individual to be registered with both firms -- individual has sufficient time to adequately serve both firms -- since one firm is winding up, conflicts of interest are unlikely to arise -- the firms have policies in place to handle potential conflicts of interest -- the firms are exempted from the prohibition for a limited period of time.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
January 13, 2017
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 HAMPTON SECURITIES LIMITED, ("HSL"), ALL GROUP FINANCIAL SERVICES ("AGFS"), JAMES MOON ("Moon"), AND MICHAEL COMEAU ("Comeau")
DECISION
Background
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from HSL and AGFS (the Filers) for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from the restrictions in paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit Moon to act as the Ultimate Designated Person (UDP), Chief Compliance Officer (CCO), an officer (CFO) and a director of AGFS; and to permit Comeau to act as a director of AGFS, while also acting as dealing representatives of HSL for a limited period of time following the acquisition of all of the client assets of AGFS by HSL (the Exemption 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 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 by HSL in Alberta, British Columbia, Manitoba, Northwest Territories, Nova Scotia, Ontario and Quebec.
Interpretation
Terms defined in MI 11-102, NI 31-103 and National Instrument 14-101 Definitions have the same meaning in this decision unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
AGFS
1. AGFS is registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Saskatchewan in the category of Investment Dealer.
2. The principal regulator of AGFS is the OSC.
3. AGFS has notified the OSC of its intention to surrender its registration in all jurisdictions other than Ontario.
4. AGFS has consented to terms and conditions providing that AGFS shall not:
(a) accept any new clients or open any new client accounts; or,
(b) trade in any security.
5. AGFS is in default of applicable securities legislation in the following respects:
• It does not currently have sufficient regulatory capital; and,
• It notified the OSC of a transaction involving the acquisition of 10% or more of the firm's securities after the transaction had already taken place, contrary to s. 11.9 of NI 31-103. The application for OSC approval of the transaction was subsequently withdrawn and therefore no approval was obtained, contrary to s. 11.9 of NI 31-103.
6. AGFS' registration is currently subject to business restriction terms and conditions imposed by the OSC due to compliance concerns at AGFS.
7. The OSC is aware of an on-going IIROC Enforcement matter involving AGFS, Moon and Comeau. This matter has been disclosed to HSL.
HSL
8. HSL is registered in the provinces of Alberta, British Columbia, Manitoba, Northwest Territories, Nova Scotia and Ontario in the category of Investment Dealer, and in the province of Québec in the categories of Investment Dealer and Derivatives Dealer.
9. The principal regulator of HSL is the OSC.
10. HSL is not in default of any requirement of securities legislation in any jurisdiction of Canada.
The Transaction
11. The Filers are each independently owned and are not affiliates of one another.
12. The application for the Exemption Sought is made in relation to the transfer of AGFS's client accounts to HSL (the Transaction). In connection with the Transaction, Moon and Comeau will seek registration as dealing representatives of HSL under the securities legislation of each of Alberta, British Columbia, Manitoba, Northwest Territories, Nova Scotia, Ontario and Quebec.
13. AGFS will transfer all of its client accounts to HSL on or about January 20, 2017 via bulk transfer. Following the bulk transfer, AGFS will submit an application for voluntary surrender of its registration in jurisdictions other than Ontario, to the OSC, its principal regulator. AGFS will remain registered in Ontario for the purpose of winding up the business, until such time as its registration is terminated by the OSC.
Dual Registration
14. Moon is a director and officer of AGFS and is registered as the UDP, the CCO, a dealing representative and permitted individual of AGFS. Comeau is a director and officer of AGFS and is registered as a dealing representative with AGFS. AGFS' current CFO has provided notice of her intention to resign from her position with AGFS at the end of January, 2017. Upon her resignation, Mr. Moon will become the CFO of AGFS.
15. Following the completion of the bulk transfer, HSL will make a filing via the National Registration Database to add HSL as an additional sponsoring firm of Moon and Comeau.
16. The Exemption Sought will permit Moon to act as the UDP, CCO and an officer (CFO) and a director of AGFS; and to permit Comeau to act as a director of AGFS, to facilitate the orderly wind-up of AGFS's registerable business and operations, including the voluntary surrender of AGFS's registration under applicable securities legislation; and to permit Moon and Comeau to act as dealing representatives of HSL to provide services in relation to former clients of AGFS (who will become clients of HSL) that are similar to the services they performed on behalf of AGFS. Moon and Comeau will surrender their registrations as dealing representatives with AGFS prior to being registered as dealing representatives with HSL.
17. Following the completion of the bulk transfer, Moon, as AGFS' UDP, CCO and an officer and a director and Comeau, as AGFS' director, will act in such capacity only to comply with regulatory requirements, including, as necessary, to surrender AGFS's registration under securities legislation, and bring about the wind-up or sale of AGFS.
18. Moon and Comeau will have sufficient time and resources to adequately meet their obligations to each of the Filers.
19. AGFS will ensure that Moon and Comeau adhere to the terms and conditions imposed on the registration of AGFS.
20. The Filers have in place policies and procedures to address any conflicts of interest that may arise as a result of the dual registration of Moon and Comeau. Following the transfer of its client accounts to HSL, the activities of AGFS will be administrative in nature and will not include registerable activities of any kind, which should result in there being few, if any, conflicts of interest.
21. HSL has compliance and supervisory policies and procedures in place to monitor the conduct of its representatives, including Moon and Comeau, and to ensure that HSL can deal appropriately with any conflicts of interest that may arise.
22. HSL will supervise the activities that Moon and Comeau will conduct on behalf of AGFS in the same way that it does other outside business activities of its registered individuals, including by holding meetings regularly with them and by obtaining regular status reports from them.
23. In the absence of the Exemption Sought, the Filers would be prohibited under paragraph 4.1(1)(a) of NI 31-103 from permitting Moon and Comeau to act as a director and/or officer of AGFS while also acting as dealing representatives of HSL.
Decision
The 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 the Decision Maker under the Legislation is that the Exemption Sought is granted provided that (1) the circumstances described above remain in place, and (2) the Exemption Sought expires on the date on which AGFS' registration is terminated by the OSC.