RBC Global Asset Management Inc and RBC Global Asset Management (UK) Limited – s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirement of subsection 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).
Applicable Legislative Provisions
Commodity Futures Act, R.S.O. 1990, c.C.20, as am., ss. 1(1), 22(1)(b) 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.
February 13, 2015
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 (Section 80 of the CFA)
UPON the application (the Application) of RBC Global Asset Management (UK) Limited (the Sub-Adviser) and RBC Global Asset Management Inc. (the Principal Adviser) to the Ontario Securities Commission (the Commission) for an order, 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 to the Principal Adviser in respect of the Clients (as defined below) in respect of commodity futures contracts and commodity futures options traded on commodity futures exchanges (collectively, the Contracts) and cleared through clearing corporations;
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 located in Toronto, Ontario. The Principal Adviser is registered as an adviser in the category of portfolio manager under the securities legislation in all the provinces and territories of Canada, as a dealer in the category of exempt market dealer under the Securities Act (Ontario) (the OSA) and under the securities legislation in Newfoundland and Labrador, and as an investment fund manager under the OSA and the securities legislation of Quebec, British Columbia and Newfoundland and Labrador. The Principal Adviser is also registered under the CFA as an adviser in the category of commodity trading manager.
2. The Principal Adviser is not in default of securities legislation of Ontario.
3. The Principal Adviser provides investment advice and/or 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 and Registration 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).
4. Certain of the Clients may, as part of their investment program, invest in Contracts.
5. The Principal Adviser acts as a commodity trading manager in respect of such Clients.
6. The Sub-Adviser is a corporation incorporated under the laws of England and Wales. The head office of the Sub-Adviser is located in London, United Kingdom.
7. The Sub-Adviser and the Principal Adviser are affiliates, and are indirect subsidiaries of Royal Bank of Canada.
8. 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, 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.
9. The Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodities futures or other applicable legislation of the United Kingdom, 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.
10. The Sub-Adviser engages in the business of an adviser in respect of Contracts in the United Kingdom.
11. The Sub-Adviser is not resident in any province or territory of Canada.
12. The Sub-Adviser is not registered in any capacity under the CFA or the OSA.
13. In connection with the Principal Adviser acting as an adviser to Clients in respect of the purchase or sale of securities and 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 for the Principal Adviser in respect of securities and 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:
(a) in each case, the Contracts must be cleared through an "acceptable clearing corporation" (as defined in National Instrument 81-102 Mutual Funds, or any successor thereto (NI 81-102)) or a clearing corporation that clears and settles transactions made on a futures exchange listed in Appendix A of NI 81-102, or any successor thereto; and
(b) such investments are consistent with the investment objectives and strategies of the applicable Client.
14. 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.
15. 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 partner or an officer of a registered adviser and is acting on behalf of a registered adviser.
16. 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 as a representative of an adviser, as the case may be, under the CFA.
17. There is presently no rule under the CFA that provides an exemption from the adviser registration requirement in paragraph 22(1)(b) of the CFA that is similar to the exemption from the adviser registration requirement in section 25(3) of the OSA which is provided under section 8.26.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
18. The relationship among the Principal Adviser, the Sub-Adviser and any Client satisfies the requirements of section 8.26.1 of NI 31-103.
19. 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.
20. The Principal Adviser will deliver to the Clients all applicable reports and statements under applicable securities and derivatives legislation.
21. 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 contract 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).
22. The prospectus or similar offering document 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 will include the following 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. In circumstances where a 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 does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors of the Client who are Ontario residents will receive written disclosure prior to the purchasing of any Contracts for such Client that includes:
(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.
24. Each Client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will receive written disclosure prior to the purchasing of any Contracts for such Client that includes:
(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.
25. The Principal Advisor and the Sub-Advisor obtained substantially similar relief in Re: RBC Global Asset Management Inc. and RBC Global Asset Management (UK) Limited dated January 28, 2014 (the 2014 Order) pursuant to which the Sub-Advisor provided Sub-Advisory Services to the Principal Advisor in respect of the Clients. The 2014 Order expired on January 11, 2015.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested;
IT IS ORDERED, pursuant to section 80 of the CFA, that the Sub-Adviser and its Representatives are exempt from the adviser registration requirement in paragraph 22(1)(b) of the CFA when acting as sub-adviser to the Principal Adviser in respect of the Sub-Advisory Services, for a period of five years, provided that at the relevant time:
(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 foreign jurisdiction;
(c) the Sub-Adviser is registered in a category of registration, or operates under an exemption from registration, under the commodities futures or other applicable legislation of the foreign jurisdiction 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 foreign jurisdiction in which 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 the Clients, agreeing to be responsible for any loss that arises out of any failure of the Sub-Adviser to meet the Assumed Obligations;
(g) the prospectus or similar offering document 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 will include the following disclosure:
(i) 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
(ii) 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; and
(h) in circumstances where a 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 does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors of the Client who are Ontario residents will receive written disclosure prior to the purchasing of any Contracts for such Client that includes:
(i) 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
(ii) 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; and
(i) each Client that is a Managed Account for which the Principal Adviser engages the Sub-Adviser to provide the Sub-Advisory Services will receive written disclosure prior to the purchasing of any Contracts for such Client that includes:
(i) 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
(ii) 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.
DATED at Toronto, Ontario this 13th day of February, 2015.