Uxbridge Capital Funding Inc. - Opportunity to be Heard
[Update: The terms and conditions imposed by the Director in this decision were removed as at June 30, 2010.]
In the Matter of
Uxbridge Capital Funding Inc.
Opportunity to be Heard by the Director
under Subsection 26(3) of the Securities Act
Uxbridge Capital Funding Inc.
Opportunity to be Heard by the Director
under Subsection 26(3) of the Securities Act
| Date of decision: | August 26, 2009 |
| Director: | Marrianne Bridge, FCA Manager, Compliance Ontario Securities Commission |
| Submissions: | Isabelita Chichioco For Ontario Securities Commission staff Chris Carmichael For Uxbridge Capital Funding Inc. Chief Financial Officer Uxbridge Capital Funding Inc. |
Overview
By letter dated June 2, 2009, staff advised Uxbridge that it was deficient in meeting the minimum capital requirements in Regulation 107(3) under the Securities Act (Ontario) (Act) by $2,535 based on annual audited financial statements as at December 31, 2008. The capital deficiency was subsequently rectified.
As a direct consequence of the capital deficiency, staff recommended that terms and conditions be imposed on Uxbridge’s registration for a minimum period of six months. The terms and conditions require the filing of monthly year-to-date unaudited financial statements (including a balance sheet and an income statement prepared in accordance with generally accepted accounting principles) and monthly capital calculations. The terms and conditions also require Uxbridge to review its procedures for compliance with Ontario securities law and file a report including:
- The reasons for its failure to meet the minimum capital requirements
- A certification from its Chief Compliance Officer that the firm has reviewed its systems for ongoing compliance with Ontario securities law and rectified the problem(s) that led to its failure to meet the minimum capital requirements
- Details of the specific measures that will be taken to sure that the minimum capital requirements will be satisfied at all times in the future.
Prior to a decision being made by the Director, Uxbridge had the option to oppose staff’s recommendation for terms and conditions by requesting an opportunity to be heard under section 26(3) of the Act. Uxbridge had two options – it could either be heard through written submissions or through a personal appearance before the Director. By letter dated June 12, 2009, Chris Carmichael, Chief Financial Officer of Uxbridge, requested an opportunity to be heard through written submissions. Written submissions of Uxbridge were provided by letter of Chris Carmichael dated August 13, 2009.
This is the Director’s decision based on staff’s and Uxbridge’s written submissions.
Submissions
Staff submissions
Maintaining adequate minimum capital by registrants is one of the most serious regulatory requirements in the Act. Financial solvency is one of the essential components of an adviser’s continued suitability for registration. Capital deficiencies, regardless of their size, raise serious potential regulatory concerns and need to be addressed in a serious fashion.
For these reasons, staff generally recommend terms and conditions on registrants that are capital deficient. Staff does this notwithstanding the variety of reasons registrants provide for capital deficiencies including inadvertence/oversight, change in staffing at the registrant or its auditors, misclassification of accounts, or errors. In staff’s opinion, maintaining adequate minimum capital is a serious regulatory obligation for registrants and only in extremely rare circumstances would staff consider not imposing terms and conditions. Staff argues that those circumstances are not present in this case.
Uxbridge submissions
Uxbridge submits that its capital deficiency resulted from start-up and audit costs. As a result, Uxbridge argues that its capital deficiency was a one-time occurrence and that it has since been rectified. Uxbridge submits that it will, on a go forward basis, segregate sufficient funds for required regulatory capital and its ongoing annual overhead costs. Uxbridge will also monitor its regulatory capital position on a monthly basis to ensure that it maintains sufficient regulatory capital. Uxbridge does not anticipate that it will have a regulatory capital deficiency “at any time in the near future”.
Decision and reasons
My decision is to impose the recommended terms and conditions on the registration of Uxbridge Capital Funding Inc. for a minimum six month period. These terms and conditions are as follows:
Uxbridge Capital Funding Inc. shall file on a monthly basis with the Compliance team of the Ontario Securities Commission, attention Financial Analyst, starting with the month ending August 31, 2009 the following information:I agree with staff’s submissions that the extremely rare circumstances that would result in staff not imposing terms and conditions for a registrant’s failure to meet maintain adequate minimum capital are not present in this case. Registrants have an ongoing obligation to ensure that they maintain minimum regulatory capital at all times – including when they are relatively new registrants in the start-up phase of their operations.
(a) year-to-date unaudited financial statements including a balance sheet and an income statement, both prepared in accordance with generally accepted accounting principles; and
(b) month end calculation of minimum required capital;
no later than three weeks after each month end.
The Firm will review its procedures for compliance with Ontario securities law and, no later than September 18, 2009, will file with the Compliance section of the Ontario Securities Commission, addressed to the attention of the “Assistant Manager”, a report (the Compliance Report) setting out:
(a) the reasons for its failure to meet the minimum capital requirements as at December 31, 2008 as required under Ontario securities law (the Capital Requirement);
(b) a certification from its Chief Compliance Officer to the effect that the Firm has reviewed its system for on-going compliance with Ontario securities law and rectified the problem(s) that led to its failure to satisfy the Capital Requirement; and
(c) details of the specific measures that will be taken to ensure that the Capital Requirement will be satisfied at all times in the future.
August 26, 2009
“Marrianne Bridge, FCA”
Manager, Compliance
Ontario Securities Commission