National Bank Trust Inc.
Headnote
The conflicts of interest that are potentially generated by dual registration are considered significant by the CSA. As part of the review of each individual's fitness for registration, the CSA considers all of the individual's employment activities, including outside business activities, with one or more registered firms in any jurisdiction of Canada. Pursuant to 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 an advising or associate advising representative of the registered firm if the individual is registered as an advising or associate advising representative of another registered firm. The legislative intent of this dual registration prohibition is to put the onus on firms, which often operate in multiple jurisdictions, to bring to the regulators' attention circumstances where conflicts of interest are potentially generated by dual registration. The Filers are affiliated entities and have valid business reasons for the individuals 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 for current and future dealing representatives.
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, 15.1.
May 2, 2013
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 TRUST INC.
(the Filer or NBT)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement in section 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), so as to permit current and future registered advising and associate advising representatives (Representatives) to act as advising and associate advising representatives of the Filer if such representatives are also registered as representatives of Natcan Trust Company (NTC and, collectively with the Filer, the National Bank Entities) (the Dual Registration), in connection with the offering by the National Bank Entities of their "Private Investment Management" service (PIM) to clients (the Exemption 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; and
(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 by NBT in New Brunswick, Newfoundland and Labrador, Prince Edward Island and Saskatchewan (collectively with Québec and Ontario, the Filing Jurisdictions)
This decision is being provided concurrently and in conjunction with a decision granting relief to NTC by the securities regulator in Alberta, set out in 2013 ABASC 126 (the Alberta Decision).
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision unless otherwise defined herein.
Representations
This decision is based on the following facts represented by the Filer:
1. NBT is a subsisting company under An Act respecting trust companies and savings companies (Québec) and is also a wholly-owned subsidiary of National Bank of Canada (National Bank). NBT is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan. In Québec, Ontario and Newfoundland and Labrador, NBT is also registered as an investment fund manager.
2. NTC is a subsisting company under the Trust and Loan Companies Act (Canada) and a wholly-owned subsidiary of National Bank. NTC is registered as an adviser in the category of portfolio manager in Alberta, British Columbia, Manitoba and Nova Scotia. In Ontario and Newfoundland and Labrador, NTC is exempt from registration as a portfolio manager.
3. The National Bank Entities are not in default of any requirement of securities legislation in any Canadian jurisdiction.
4. For various business and other reasons, National Bank has historically caused, and continues to require the PIM business to be conducted through the National Bank Entities. In Saskatchewan, Québec, New Brunswick and Prince Edward Island (the NBT Jurisdictions), PIM is offered through NBT. In British Columbia, Alberta, Manitoba, Ontario, Nova Scotia and Newfoundland and Labrador (the NTC Jurisdictions), PIM is offered through NTC.
5. The National Bank Entities carry on the PIM business with the same employees and under the trade name "National Bank Trust". It is on the basis of this trade name that clients deal with the National Bank Entities.
6. PIM is a discretionary portfolio management service provided by the National Bank Entities to affluent clients. The National Bank Entities manage client portfolios primarily by means of private mutual funds whose securities have been subscribed for by NBT alone for the wholly-managed accounts of clients (the NBT Pooled Funds). The National Bank Entities act as portfolio managers, and NBT acts as investment fund manager, trustee and custodian, for the NBT Pooled Funds.
7. The National Bank Entities conduct the PIM business under a single set of account opening form and related documents. In these documents, clients are informed that if they are residents of any of the NBT Jurisdictions, their portfolio manager will be NBT, whereas if they are residents of any of the NTC Jurisdictions, NTC will be their portfolio manager and that Representatives could therefore be dually registered with NBT and NTC.
8. Consistent with the foregoing, the National Bank Entities have established one fully harmonized compliance team and structure that oversees the operations and activities of both National Bank Entities in connection with the PIM business.
9. In connection with paragraph 8 above:
a. the National Bank Entities share the same senior management structure with the same individual acting as President and Chief Executive Officer (CEO), who reports to the Executive Vice President, Wealth Management of National Bank Financial Group and has final authority to effect decisions in respect of each of the National Bank Entities. Also, the National Bank Entities share the same Chief Compliance Officer (CCO), who has access to the CEO;
b. the CCO heads an integrated compliance department which serves both National Bank Entities and supervises all portfolio management activities of the National Bank Entities, regardless of whether such activity is conducted through NBT or NTC;
c. the compliance structure for the National Bank Entities has been designed to ensure that all activities conducted by them are supervised according to the requirements established by all applicable regulatory bodies, regardless of which of the National Bank Entities is conducting the portfolio management activity; and
d. the National Bank Entities have entered into, and renew on a yearly basis, a service agreement whereby they agree to provide each other with administrative, operational, trust and portfolio management services, which cover all products and services, present and future, offered to all clients of the National Bank Entities in compliance with their constituting acts and the laws applicable to their activities, products and services, including PIM.
10. The compliance structure for the National Bank Entities has been in place for a significant period of time and, accordingly, the persons responsible for compliance for the National Bank Entities are sensitive to, and organized to effectively monitor and address, the respective compliance obligations of the National Bank Entities relating to the PIM business.
11. The Representatives are, or will be, under the direct supervision and control of both National Bank Entities and they are, or will be, subject to all securities-related conflicts of interest policies and procedures of the National Bank Entities.
12. In addition to the reasons provided in paragraphs 5 and 7, Dual Registration will not be a source of any client confusion because:
a. PIM is only offered to investors resident in the NTC Jurisdictions by NTC, while PIM is only offered to investors resident in the NBT Jurisdictions by NBT;
b. the Representatives will have sufficient time to adequately serve each National Bank Entity and its clients; and
c. the Representatives will act in the best interests of both their NBT clients and their NTC clients and deal fairly, honestly and in good faith.
13. Certain Representatives were granted dual registration as advising or associate advising representatives of the National Bank Entities before July 11, 2011, in reliance upon the grandfathering provision in section 4.1(2) of NI 31-103. However, Representatives registered on or after July 11, 2011 have only been granted registration with one of the National Bank Entities, and therefore prohibited from marketing PIM in jurisdictions where their sponsoring firm is not registered or otherwise permitted to carry on business.
14. In the absence of the Exemption Sought, the prohibition against Dual Registration in section 4.1(1)(b) of NI 31-103 has the potential over time to significantly hinder the competitive advantage of the National Bank Entities, even though NBT is an affiliate of NTC.
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 Exemption Sought is granted, so long as the circumstances described in paragraphs 5, 8, 10 and 11 above remain in place.