National Bank Investments 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 ("NI 31-103") -- Revocation and replacement of previous relief from the requirement contained in section 11.2 of NI 31-103 to designate an individual to be the UDP, and instead be permitted to designate and register two individuals as UDPs in respect of the two distinct operational divisions of the Filer -- Relief from the requirement contained in section 11.3 of NI 31-103 to designate an individual to be the CCO, and instead be permitted to designate and register two individuals as CCOs in respect of the two distinct operational divisions of the Filer.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.2, 11.3 and 15.1.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
[Translation]
November 1, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NATIONAL BANK INVESTMENTS INC. (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer, for a decision under the securities legislation of the Jurisdictions (the Legislation) for:
A. the revocation of the decision of the Decision Makers dated February 26, 2020 In the Matter of National Bank Investments Inc. (the Previous Relief), which exempted the Filer from the UDP Designation Requirement (as defined below), in order to permit the Filer to designate two individuals as ultimate designated person (UDP), where each UDP performs the functions described in section 5.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) in respect of their corresponding Division (as defined below) (the Revocation Sought);
B. an exemption pursuant to section 15.1 of NI 31-103 from the UDP Designation Requirement (as defined below), in order to permit the Filer to designate two individuals as UDP, where each UDP performs the functions described in section 5.1 of NI 31-103 in respect of their corresponding Division (as defined below) (the UDP Exemption Sought); and
C. an exemption pursuant to section 15.1 of NI 31-103 from the CCO Designation Requirement (as defined below), in order to permit the Filer to designate two individuals as chief compliance officer (CCO), where each CCO performs the functions described in section 5.2 of NI 31-103 in respect of their corresponding Division (the CCO Exemption Sought, and together with the UDP Exemption Sought, the Exemptions Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application;
b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Québec and Ontario; 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.
For the purposes of this decision, the following terms are defined:
"CCO Designation Requirement" means the requirement under section 11.3(1) of NI 31-103 that a registered firm designate an individual who is registered under securities legislation in the category of CCO to perform the functions described in section 5.2 of NI 31-103;
"Division" means each of the Investment Fund Manager Division and the Mutual Fund Dealer Division of the Filer;
"Division Head" means the most senior executive officer in charge of a Division;
"Investment Fund Manager Division" means the product development and manufacturing division of the Filer that is responsible for all activities of the Filer related to the creation and management of mutual funds, including all activities related to its independent review committee, the preparation of all outbound documents of the Filer, and the distribution of the Filer's products through dealers other than the Filer;
"Mutual Fund Dealer Division" means the internal dealer distribution division of the Filer that is responsible for all product distribution activities of the Filer within its own dealer network, i.e., all activities of the Filer related to its registered dealing representatives, the implementation of a distribution network with a compliance supervision model for its branches, of which there are currently 444, and the implementation of procedures pertaining to the validation of the suitability of transactions;
"NBC" means National Bank of Canada, the parent entity of the Filer;
"UDP Designation Requirement" means the requirement under section 11.2 of NI 31-103 that a registered firm designate an individual who is registered under securities legislation in the category of UDP to perform the functions described in section 5.1 of NI 31-103, and that this individual be one of the following: (i) the chief executive officer (CEO) of the firm or, if the firm does not have a CEO, an individual acting in a capacity similar to a CEO; (ii) the sole proprietor of the firm; or (iii) the officer in charge of a division of the firm, if the activity that requires the firm to register occurs only in the division and the firm has significant other business activities.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer, formerly known as National Bank Securities Inc., is a corporation resulting from a merger performed under the Canada Business Corporations Act.
2. The Filer's head office is located in Montréal, Québec.
3. The Filer is registered as:
(a) a mutual fund dealer under the securities legislation of each of the jurisdictions of Canada; and
(b) an investment fund manager in the provinces of Québec, Ontario and Newfoundland and Labrador.
4. The Filer is not in default of any requirements of securities legislation in any jurisdiction of Canada.
Operational structure
5. The Filer's operational structure is organized in two divisions, the Investment Fund Manager Division and the Mutual Fund Dealer Division, which are based on the nature of the Filer's operations, and no activities that require registration under securities legislation are carried out by the Filer outside of the Divisions.
6. The Investment Fund Manager Division and the Mutual Fund Dealer Division each have separate and distinct senior management structures. Although they are part of the same corporate entity, each Division is functionally a stand-alone operation within the Filer's business.
7. The Filer has applied for the Exemption Sought to permit its compliance supervision and operational structure to be properly aligned with its business model, while effectively meeting the policy objectives of sections 11.2 and 11.3 of NI 31-103, as well as sections 5.1 and 5.2 of NI 31-103.
Compliance Structure: Division Heads
8. Pursuant to the Previous Relief, the Filer designated each Division Head as UDP of their corresponding Division, where each UDP performs the functions described in section 5.1 of NI 31-103 in respect of their corresponding Division.
9. Despite the fact that only the most senior executive officer in charge of the Investment Fund Manager Division currently holds the title of "Chief Executive Officer" of the Filer, each of the two Division Heads acts in a similar capacity to that of a CEO in respect of their corresponding Division. There is no line of reporting between the Division Heads and each Division Head reports independently to different members of the senior management team of NBC and has direct access to the Filer's Board of Directors.
10. No executive officer of the Filer has authority to overrule a decision of either of the Division Heads or control either of the Division Heads' access to the Board of Directors of the Filer.
Compliance Structure: Chief Compliance Officers
11. The Filer has designated under section 11.3 of NI 31-103 only one individual who is currently registered under securities legislation as the CCO to perform the functions described in section 5.2 of NI 31-103 in respect of the Filer. Recent changes to the structure and organization of NBC's compliance functions contemplate the designation of a separate CCO for each Division.
12. The Filer currently has only one compliance team that is part of the NBC Corporate Compliance function and is composed of the Investment Fund Manager Division compliance staff and the Mutual Fund Dealer Division compliance staff, now reporting to two senior managers. In total, three dedicated staff members are responsible for the Filer's compliance supervision for the Mutual Fund Dealer Division and two dedicated staff are responsible for the Filer's compliance supervision for the Investment Fund Manager Division.
Reasons for the Exemption Sought
13. The Filer submits that granting the Exemptions Sought would allow a more effective supervision of controls, without affecting its manufacturing and distribution activities, which have been well defined and governed as separate divisions for several years.
14. If the Exemptions Sought are granted, the Filer will keep each of the current Division Heads as UDPs for their respective Divisions and will designate one CCO for each Division.
15. If the CCO Exemption Sought is granted and the Filer designates separate individuals to act as the CCO for each Division, the CCO of each Division will (i) benefit from the expertise of the NBC Corporate Compliance team, which now includes more than 170 employees with different specializations such as conduct of business, regulatory watch, inspections, anti-money laundering, proceeds of crime, strategy and governance; (ii) have access to the NBC Wealth Management legal team for the settlement of client complaints and the processing of internal investigations; and (iii) report and have access to their respective Division Head and UDP; and (iv) have direct access to the Filer's Board of Directors and report to the Board independently of one another.
16. The Filer further submits that granting the Exemptions Sought would be consistent with the policy objectives that the UDP Designation Requirement and CCO Designation Requirement are intended to achieve, because:
a. each Division is an independent operation that is distinct from the other and is conducted on a very large scale;
b. the individuals who occupy the position of Division Head, who are currently designated and registered as UDPs of the Filer pursuant to the Previous Relief, are effectively the most senior executive officers of their respective Divisions; and
c. section 5.2 of the Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations suggests that, in large firms, the scale and kind of activities carried out by different operating divisions in a large firm may warrant the designation of more than one CCO.
Decision
Each of the Decision Makers 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 Makers under the Legislation is that:
A. the Revocation Sought is granted;
B. the UDP Exemption Sought is granted provided that:
i. each Division shall have its own UDP, who shall be its Division Head;
ii. each UDP fulfils the responsibilities set out in section 5.1 of NI 31-103, and any successor provisions thereto, in respect of the Division for which they are designated by the Filer as its UDP; and
iii. each UDP has direct access to the board of directors of the Filer;
C. the CCO Exemption Sought is granted provided that:
i. each Division shall have its own CCO;
ii. each CCO fulfills the responsibilities set out in section 5.2 of NI 31-103, and any successor provision thereto, in respect of the Division for which they are designated by the Filer as its CCO;
iii. each CCO reports and has direct access to the UDP; and
iv. each CCO has direct access to the board of directors of the Filer.