Sun Life Global Investments (Canada) Inc. and Excel Investment Counsel Inc.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. Under 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 a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for three representatives 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 a limited period of time.
March 20, 2018
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Principal Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF SUN LIFE GLOBAL INVESTMENTS (CANADA) INC. (Sun Life) AND EXCEL INVESTMENT COUNSEL INC. (EIC, and together with Sun Life, the Filers)
DECISION
Background
The regulator in the Principal Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Principal Jurisdiction (the Legislation) for relief from the restriction in paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit Sadiq Adatia, Chhadeep Aul, and Kathrin Forrest (collectively, the Representatives) to each be registered as an advising representative of both Filers (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; and
b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each jurisdiction of Canada outside of 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.
Representations
This decision is based on the following facts represented by the Filers:
1. Sun Life is a corporation incorporated under the federal laws of Canada with its head office in Toronto, Ontario. Sun Life is a wholly-owned indirect subsidiary of Sun Life Financial Inc., a public company incorporated under the Insurance Companies Act (Canada) and listed on the Toronto Stock Exchange, the New York Stock Exchange and the Philippines Stock Exchange.
2. Sun Life is registered as an investment fund manager, commodity trading manager, mutual fund dealer and portfolio manager in Ontario; an investment fund manager and mutual fund dealer in Quebec and Newfoundland and Labrador; and a mutual fund dealer in each of Alberta, British Columbia, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon.
3. Sun Life is the investment fund manager and portfolio manager of prospectus-qualified mutual funds that are sold primarily to retail investors in Canada (the Sun Life Funds).
4. EIC is registered as a portfolio manager and exempt market dealer in Ontario; and an exempt market dealer in Quebec. The head office of EIC is located in Mississauga, Ontario.
5. EIC's main line of business is providing portfolio management services to the following investment funds: Excel China Fund, Excel Chindia Fund, Excel Emerging Markets Balanced Fund (formerly, Excel EM Blue Chip Balanced Fund), Excel Emerging Markets Fund, Excel High Income Fund, Excel India Balanced Fund, Excel India Fund, Excel New India Leaders Fund, Excel Money Market Fund, Excel Global Growth Asset Allocation ETF and Excel Global Balanced Asset Allocation ETF (collectively, the Excel Funds).
6. The Filers are not in default of any requirements under applicable securities, commodity futures or derivatives legislation.
7. On January 2, 2018, Sun Life acquired all of the outstanding shares of EIC (the Acquisition). As a result of the Acquisition, EIC became a subsidiary of Sun Life.
8. Within a foreseeable period of time following the Acquisition, it is anticipated that Sun Life will take steps to integrate the business, operations and management of the Excel Funds with that of the Sun Life Funds. It is anticipated that EIC will either be wound up or amalgamated with Sun Life.
9. The assets of the Excel Funds represent a small fraction (approximately 4%) of the overall assets of Sun Life.
10. In the period prior to the wind up or amalgamation of EIC, EIC will remain the portfolio manager of the Excel Funds.
11. In the period prior to the wind up or amalgamation of EIC, the Filers propose to register the Representatives, who are currently registered as advising representatives of Sun Life, as advising representatives of both Filers, as needed, to provide discretionary portfolio management services to the Excel Funds as well as the Sun Life Funds.
12. There are valid business reasons for the Representatives to be registered with both Filers, namely:
a) to continue the seamless servicing of clients of each of the Filers through two business lines that will eventually be merged;
b) to give EIC access to a larger talent pool of advising representatives during the interim period as Sun Life integrates EIC into its business; and
c) to give clients of the Filers, in particular investors in the Sun Life Funds and the Excel Funds, the benefit of the portfolio management services from the Representatives, as the case may be.
13. The Representatives will be subject to supervision by, and the compliance requirements of, both Filers.
14. Each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representatives (the Dual Registration) and deal appropriately with any such conflicts.
15. The Filers do not expect that the Dual Registration will create significant additional work for the Representatives and are confident that the Representatives will have sufficient time to adequately serve both firms. The Chief Compliance Officer and Ultimate Designated Person of each Filer will ensure that each Representative has sufficient time and resources to adequately serve the respective Filer and its clients.
16. The Filers do not anticipate that any of the Representatives will have any direct interaction with the Filers' clients other than the Sun Life Funds and the Excel Funds. To the extent that any Representative has any direct interaction with a client, the relationship of the Filers and the fact that the Representative is dually registered with both Filers will be fully disclosed in writing to the client.
17. As a result of the Acquisition, the Filers are affiliates and accordingly, the Dual Registration of the Representatives will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm's length firms. The interests of the Filers are aligned, and as the role of the Representatives will be to support the business activities and interests of the Filers in connection with the Sun Life Funds and the Excel Funds, the potential for conflicts of interest is remote.
18. Further, the Sun Life Funds that the Representatives advise have different investment strategies than, and are not expected to compete for the same investments with, any Excel Funds that the Representatives will advise should the Exemption Sought be granted. This will further mitigate the risk of conflicts of interest arising from the Dual Registration.
19. In the absence of the Exemption Sought, the Filers would be prohibited from permitting any Representative to act as an advising representative of both Filers, even though the Filers are affiliates and each Filer has appropriate controls and compliance procedures in place to deal with the advising activities of the Representatives.
Decision
The Decision Maker 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 Maker under the Legislation is that the Exemption Sought is granted on the following conditions:
a) each Representative is subject to supervision by, and the compliance requirements of, both Filers;
b) the Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that each Representative has sufficient time and resources to adequately serve the respective Filer and its clients;
c) each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the Dual Registration of the Representatives, and deal appropriately with any such conflicts; and
d) the relationship between the Filers and the fact that a Representative is dually registered with both of them is fully disclosed in writing to clients of each of them that deal with such Representative.
The Exemption Sought shall cease to be effective when the business of EIC is wound up or amalgamated with that of Sun Life.