PIMCO Canada Corp.
Headnote
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) -- relief from the requirement in section 11.2 of NI 31-103 to designate one individual to be the ultimate designated person (UDP), and instead be permitted to designate two individuals as UDPs in respect of two distinct operational divisions of the Filer.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.2 and 15.1(1).
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, s. 3.6(3).
June 24, 2024
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 PIMCO CANADA CORP. (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 of the principal regulator (the Legislation) for relief, pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), from the requirement contained in section 11.2 of NI 31-103 to designate an individual to be the ultimate designated person (UDP), in order to permit the Filer to designate and register two individuals as UDPs in respect of two distinct lines of businesses of the Filer (the Exemption Sought).
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 (Principal Regulator), 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 all of the jurisdictions in Canada outside of Ontario (together with the Jurisdiction, the Filing Jurisdictions).
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.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Nova Scotia. The Filer's head office is located in Toronto, Ontario.
2. The Filer is registered as (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; (ii) a portfolio manager in each of the provinces of Canada; (iii) an exempt market dealer in each of the provinces of Canada; (iv) a commodity trading manager in Ontario; and (v) an adviser under the Commodity Futures Act (Manitoba).
3. The Filer is not in default of any of the requirements of the securities legislation in any Jurisdiction of Canada.
Operational Structure
4. The Filer operates two distinct operating lines of securities business based on the nature of the services provided (each a Division and collectively, the Divisions):
(a) one Division (the Retail Division), undertakes the retail line of business of the Filer, which includes the management of investment funds. The Retail Division is responsible for the creation of investment funds (which includes establishing the product mandate), as well as directing the business, operations and affairs of the investment funds managed by the Filer. This includes monitoring adherence to the investment objective of the investment funds, conducting investment activities of the investment funds, marketing of the proprietary investment funds to registered dealers, as well as oversight of the funds' service providers;
(b) the other Division (the Institutional Division), undertakes the institutional line of business of the Filer, which includes providing managed account services, and distributing investment products managed by the Filer's affiliates, to institutional clients. The Institutional Division offers fully discretionary accounts to institutional investors that it manages and also acts as the dealer for the sale of investment products managed by the Filer and its affiliates to non-discretionary institutional clients as an exempt market dealer.
5. Each Division has separate and distinct senior management and operating structures.
The UDPs
6. Currently, the Divisions share the same UDP. The Filer does not have a CEO; instead, the Filer has a President who is the UDP, and who will be retiring on June 30, 2024. The Filer intends to replace the President with two co-heads.
7. Currently, the person with the title President has ultimate responsibility and oversight of both the Retail Division and the Institutional Division. With the retirement of the President, the Board of Directors of the Filer (the Board) is transitioning responsibility and oversight of each Division to its head (each a Division Head) in order to position the Filer to handle its business and to address succession planning. The Division Heads will, together, be the co-heads of the Filer.
8. If the exemption sought is granted, the Filer intends to have two UDPs. The Division Heads, being the most senior officer of each Division, will each be designated and registered as UDP for their respective Division.
9. The Division Heads, regardless of their title from time to time, will each have the role that is the functional equivalent of a chief executive officer in respect of the Division for which they are responsible and will be the most senior and final decision maker for their Division. This means that each UDP fulfills the following roles for their respective Division:
(a) supervises, oversees and otherwise is responsible for running the Division;
(b) provides clear leadership and promotes a culture of compliance within the Division;
(c) implements the objectives, strategy and plans for the Division;
(d) is accountable for the operations and financial performance of the Division;
(e) is the individual that the executive management within the Division report to;
(f) is accountable for reporting at least annually to the Board with respect to the Division;
(g) promotes compliance with industry rules and applicable securities laws and applicable securities laws;
(h) supervises the activities of the Filer directed toward ensuring compliance with industry rules and applicable securities law requirements;
(i) is responsible for the overall conduct of and supervision of its employees;
(j) ensures that supervisory policies and procedures are developed and implemented and adequately reflect the regulatory requirements;
(k) has ultimate authority over compliance-related matters for the Division.
10. While the Division Heads will work together to run the Filer, there will be no line of reporting between the Division Heads. Each Division Head will have direct access to the Board and will report independently to the Board in respect of the Division for which they are responsible.
11. No other executive officer of the Filer will have the authority to overrule a decision of the applicable Division Head or control either of the Division Head's access to the Board. For clarity, neither Division Head will have the authority to overrule a decision of the other Division Head in connection with the Division over which that person is not the division head.
12. The Filer's Compliance team has been, and will continue to be, led by a single Chief Compliance Officer (the CCO). The CCO of the Filer will have direct access to each UDP and the Board.
Reasons for the Exemption Sought
13. Under section 11.2 of NI 31-103, a registered firm is required to designate and have registered an individual to be the UDP (the UDP Requirement). The UDP must be: (i) the chief executive officer of the registered firm or, if the firm does not have a chief executive officer, an individual acting in a capacity similar to a chief executive officer; (ii) the sole proprietor of the registered firm; or (iii) an officer in charge of a division of the registered firm, if the activity that requires the firm to register occurs only in the division and the firm has significant other business activities. Applications to designate and register UDPs must be submitted pursuant to the process set out in National Instrument 33-109, Registration Information.
14. Granting the Exemption Sought would be consistent with the policy objectives that the UDP Requirement is intended to achieve because:
(a) the Divisions are independent operations that are distinct from each other; and
(b) the Division Heads shall be the most senior executive members of their respective Divisions.
15. Granting of the Exemption Sought will allow the Filer to operate with enhanced compliance effectiveness, since one UDP would not be required to divide their time between the compliance oversight of two Divisions, including one Division over which they are not the ultimate decision maker. Granting the Exemption Sought will also increase the UDP's ability to respond quickly to address the Filer's compliance needs.
16. Accordingly, the Filer submits that aligning the UDPs and the compliance structure with the Filers business model would be effective in fulfilling the policy objectives of the UDP Requirement and will facilitate maintaining an effective compliance program.
Decision
17. The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
18. The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) Each Division shall have its own UDP, who shall be the equivalent of the chief executive officer in respect of the Division for which they are the UDP;
(b) Only one individual shall be the UDP of each Division;
(c) Each UDP has direct access to the Board; and
(d) Each UDP shall fulfill the responsibilities set out in section 5.1 of NI 31-103, and any successor provision thereto, in respect of the Division for which they are designated UDP.
OSC File #: 2024/0251