RBC Global Asset Management Inc. and RBC Global Asset Management (UK) Limited – ss. 78(1), 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) (the CFA) -- Relief from the adviser registration requirement of paragraph 22(1)(b) of the CFA granted to a sub-adviser headquartered in a foreign jurisdiction in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions -- Relief mirrors exemption available in section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations made under the Securities Act (Ontario) -- Relief is subject to a sunset clause.
Subsection 78(1) of the Commodity Futures Act (Ontario) -- Order also revokes prior order of the Commission dated February 13, 2015, In the Matter of RBC Global Asset Management Inc. and RBC Global Asset Management (UK) Limited that would otherwise have expired on February 13, 2020.
Applicable Legislative Provisions
Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 1(1), 22(1)(b), 78(1) and 80.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.26.1.
Ontario Securities Commission Rule 35-502 Non-Resident Advisers, s. 7.11.
Applicable Orders
In the Matter of RBC Global Asset Management Inc. and RBC Global Asset Management (UK) Limited, (2015), 38 OSCB 1880
February 10, 2020
IN THE MATTER OF THE COMMODITY FUTURES ACT, R.S.O. 1990, CHAPTER C.20, AS AMENDED (the CFA) AND IN THE MATTER OF RBC GLOBAL ASSET MANAGEMENT INC. AND RBC GLOBAL ASSET MANAGEMENT (UK) LIMITED
ORDER (Subsection 78(1) and Section 80 of the CFA)
UPON the application (the Application) of RBC Global Asset Management Inc. (the Principal Adviser) and RBC Global Asset Management (UK) Limited (the Sub-Adviser) to the Ontario Securities Commission (the Commission) for an order (the Order) (a) pursuant to subsection 78(1) of the CFA, revoking the exemption order granted by the Commission to the Principal Adviser and the Sub-Adviser on February 13, 2015 (the Previous Order) and (b) pursuant to section 80 of the CFA that the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services (as defined below) (the Representatives) be exempt for a specified period of time, from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser for the Principal Adviser in respect of the Clients (as defined below) regarding commodity futures contracts and commodity futures options (collectively, the Contracts) traded on commodity futures exchanges and cleared through clearing corporations (the Relief Sought);
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Sub-Adviser and the Principal Adviser having represented to the Commission that:
1. The Principal Adviser is a corporation organized under the federal laws of Canada, with its head office in Toronto, Ontario.
2. The Principal Adviser is registered (i) as an adviser in the category of portfolio manager and exempt market dealer under the securities legislation in all provinces and territories of Canada; (ii) as an investment fund manager under the Securities Act (Ontario) and the securities legislation of Quebec, British Columbia and Newfoundland and Labrador; and (iii) as an adviser in the category of commodity trading manager under the CFA.
3. The Sub-Adviser is a corporation incorporated under the laws of England and Wales with its head office located in London, United Kingdom.
4. The Sub-Adviser is authorised and regulated in the United Kingdom by the Financial Conduct Authority, and in the United States by the U.S. Securities and Exchange Commission, where it is registered as an investment adviser. In the United Kingdom, the Sub-Advisor is authorized and permitted to conduct the Sub-Advisory Services (as defined below), including the following activities: (i) advising on investments (except on pensions transfers and pension opt outs); (ii) agreeing to carry on a regulated activity; (iii) arranging deals in investments; (iv) dealing in investments as an agent; (v) making arrangements with a view to transactions in investments; and (vi) managing investments.
5. The Sub-Adviser and the Principal Adviser are affiliates, and are indirect subsidiaries of Royal Bank of Canada.
6. The Sub-Adviser is registered or licensed or is entitled to rely on appropriate exemptions from such registrations or licenses to provide advice to the Principal Adviser pursuant to the applicable legislation of its principal jurisdiction.
7. The Sub-Adviser is not resident in any province or territory of Canada.
8. The Sub-Adviser engages in the business of an adviser in respect of Contracts in the United Kingdom.
9. The Sub-Adviser is not registered in any capacity under the CFA or the OSA.
10. The Principal Adviser and the Sub-Adviser are not in default of securities legislation, commodity futures legislation or derivatives legislation in any jurisdiction of Canada. The Sub-Adviser is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws in the United Kingdom and the United States.
11. The Principal Adviser is the investment manager of and/or provides discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (the Investment Funds); (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus Exemptions (the Pooled Funds); (iii) clients with managed accounts who have entered into investment management agreements with the Principal Adviser (the Managed Accounts); and (iv) other Investment Funds, Pooled Funds and Managed Accounts that may be established in the future in respect of which the Principal Adviser engages the Sub-Adviser to provide portfolio advisory services (the Future Clients) (each of the Investment Funds, Pooled Funds, Managed Accounts and Future Clients being referred to individually as a Client and collectively as the Clients).
12. Certain of the Clients may, as part of their investment program, invest in Contracts. The Principal Adviser acts as a commodity trading manager in respect of such Clients.
13. In connection with the Principal Adviser acting as an adviser to Clients in respect of the purchase or sale of Contracts, the Principal Adviser, pursuant to a written agreement made between the Principal Adviser and the Sub-Adviser, has retained the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of, inter alia, Contracts in which the Sub-Adviser has experience and expertise by exercising discretionary authority on behalf of the Principal Adviser, in respect of all or a portion of the assets of the investment portfolio of the respective Client, including discretionary authority to buy or sell Contracts for the Client (the Sub-Advisory Services), provided that such investments are consistent with the investment objectives and strategies of the applicable Client.
14. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser.
15. By providing the Sub-Advisory Services to the Principal Adviser in respect of the Clients, the Sub-Adviser and its Representatives will be engaging in, or holding himself, herself or itself out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.
16. There is presently no rule or regulation under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA for a person or company acting as an adviser in respect of commodity futures contracts and commodity futures options that is similar to the exemption from the adviser registration requirement in subsection 25(3) of the OSA that is provided under section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
17. The relationship among the Principal Adviser, the Sub-Adviser and any Clients will be consistent with the requirements of section 8.26.1 of NI 31-103.
18. The Sub-Adviser will only provide the Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager.
19. As would be required under section 8.26.1 of NI 31-103:
(a) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser; and
(b) the Principal Adviser has entered into a written agreement with each Client agreeing to be responsible for any loss that arises out of the failure of the Sub-Adviser:
(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and each Client; or
(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations).
20. The written agreement between the Principal Adviser and the Sub-Adviser sets out the obligations and duties of each party in connection with the Sub-Advisory Services and permits the Principal Adviser to exercise the degree of supervision and control it is required to exercise over the Sub-Adviser in respect of the Sub-Advisory Services.
21. The Principal Adviser will deliver to the Clients all required reports and statements under applicable securities, commodity futures and derivatives legislation.
22. The prospectus or other offering document (the Offering Document), if any, for each Client that is an Investment Fund or a Pooled Fund and for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services includes, or will include, as the case may be, the following disclosure (the Required Disclosure):
(a) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser (or any of its Representatives) because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
23. The Required Disclosure is provided in writing prior to the purchasing of any Contracts for each client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services.
24. The Principal Adviser and the Sub-Adviser obtained substantially similar relief in the Previous Order, pursuant to which the Sub-Adviser currently provides Sub-Advisory Services to the Principal Adviser for the benefit of the Clients.
25. The Principal Adviser and Sub-Adviser have complied with, and are currently in compliance with, all of the terms and conditions of the Previous Order.
26. The anticipated expiry of the five-year period set out in the sunset clause of the Previous Order has triggered the Relief Sought.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the relief requested;
IT IS ORDERED, pursuant to subsection 78(1) of the CFA, that the Previous Order is revoked;
AND IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirements of paragraph 22(1)(b) of the CFA when acting as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services, provided that at the time that such activities are engaged in:
(a) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager;
(b) the Sub-Adviser's head office or principal place of business is in a jurisdiction outside of Canada;
(c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodity futures or other applicable legislation of the jurisdiction outside of Canada in which its head office or principal place of business is located, that permits it to carry on the activities in that jurisdiction that registration as an adviser under the CFA would permit it to carry on in Ontario;
(d) the Sub-Adviser engages in the business of an adviser in respect of Contracts in the jurisdiction outside of Canada in which its head office or principal place of business is located;
(e) the obligations and duties of the Sub-Adviser are set out in a written agreement with the Principal Adviser;
(f) the Principal Adviser has entered into a written agreement with each Client agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;
(g) the Offering Document of each Client that is an Investment Fund or Pooled Fund for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will include the Required Disclosure; and
(h) the Required Disclosure was provided in writing prior to the purchasing of any Contracts for each Client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services;
IT IS FURTHER ORDERED that this Order will terminate on the earliest of:
(a) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;
(b) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the ability of the Sub-Adviser to act as a sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services; and
(c) five years after the date of this Order.
Decision
The decision of the principal regulator is that the Relief Sought Approval is granted.