Baillie Gifford Overseas Limited and Baillie Gifford International LLC
Headnote
Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the prohibition on the use of corporate officer titles by certain registered individuals in respect of institutional clients -- Relief does not extend to interactions by registered individuals with retail clients.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.18(2)(b) and 15.1(2).
January 24, 2022
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 BAILLIE GIFFORD OVERSEAS LIMITED (BGO) AND BAILLIE GIFFORD INTERNATIONAL LLC (BGI) (collectively, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) that pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), each Filer and its Registered Individuals (as defined below) are exempt from the prohibition in paragraph 13.18(2)(b) of NI 31-103 that a registered individual may not use a corporate officer title when interacting with clients, unless the individual has been appointed to that corporate office by their sponsoring firm pursuant to applicable corporate law, in respect of Clients (as defined below) (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) each Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11102 Passport System (MI 11-102) is intended to be relied upon by the Filer and its Registered Individuals (as defined below) in each of the other provinces and territories of Canada (together with the Jurisdiction, the Jurisdictions) in respect of the Exemption Sought.
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions 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. BGO is registered as an exempt market dealer and portfolio manager in each of Ontario, Alberta, Manitoba, Newfoundland, Québec and Saskatchewan and as an exempt market dealer in each of British Columbia, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island and Yukon. The head office of BGO is in Edinburgh, Scotland. BGO is authorized in the United Kingdom by the Financial Conduct Authority and is also registered as an investment adviser with the U.S. Securities and Exchange Commission (SEC).
2. BGI is registered as an exempt market dealer in each Jurisdiction and has an office in Ontario. The head office of BGI is in New York, New York, USA. BGI is registered as an investment adviser with the SEC.
3. Other than with respect to the subject of this decision, neither Filer is in default of securities legislation in any the Jurisdictions.
4. BGO and BGI are wholly-owned subsidiaries of the same ultimate parent entity, Baillie Gifford & Co and are therefore affiliates. Baillie Gifford & Co and its subsidiaries are collectively referred to herein as Baillie Gifford.
5. BGO provides investment management services to a range of institutional clients in Canada, including pension funds, charities, endowments and foundations. BGO acts as sub-adviser to several Canadian mutual funds, all of which are "permitted clients" as defined in NI 31-103. BGO also manages seven Canadian pooled funds and acts as an exempt market dealer primarily to distribute these Canadian pooled funds to institutional investors and other high net worth clients that qualify as "accredited investors" as defined in National Instrument 45-106 Prospectus Exemptions (NI 45-106) and "permitted clients" as defined in NI 31-103.
6. BGI acts as agent for Baillie Gifford for the provision of client service and marketing support in Canada for the investment funds managed by Baillie Gifford. BGI does not act as dealer of record for any clients in Canada, but rather, acts in a marketing and business development role to build the Baillie Gifford brand at a strategy level. All clients are clients of BGO, which acts as dealer of record. BGI has no clients and is solely the marketing entity. All clients are contracted with BGO. This arrangement is consistent with Baillie Gifford's organizational structure outside of Canada. BGI also acts as agent for BGO, in its capacity as sub-advisor for investment funds managed by third parties, for the provision of certain marketing services in Canada.
7. Each Filer is the sponsoring firm for registered individuals that interact with clients and use a corporate officer title without being appointed to the corporate office of the Filer pursuant to applicable corporate law (the Registered Individuals). The number of Registered Individuals may increase or decrease from time to time as the business of the Filer changes. As of the date of this decision, BGO has approximately 13 Registered Individuals and BGI has one Registered Individual, who, pursuant to exemptive relief from section 4.1 of NI 31-103, is also registered with BGO.
8. The current titles used by the Registered Individuals include the word "Director" and the Registered Individuals may use additional corporate officer titles in the future (collectively, the Titles). The Titles used by the Registered Individuals are consistent with the titles used by other Baillie Gifford entities.
9. Each Filer has a process in place for awarding the Titles, which sets out the criteria for each of the Titles. The Titles are based on criteria including seniority and experience, and a Registered Individual's sales activity or revenue generation is not a primary factor in the decision by a Filer to award one of the Titles.
10. The Registered Individuals interact only with institutional clients that are, each, a non-individual "permitted client", as defined in subsection 1.1 of NI 31-103 (the Clients).
11. Section 13.18 of NI 31-103 prohibits registered individuals in their client-facing relationships from, among other things, using titles or designations that could reasonably be expected to deceive or mislead existing and prospective clients. Paragraph 13.18(2)(b) of NI 31-103 specifically prohibits the use of corporate officer titles by registered individuals who interact with clients unless the individuals have been appointed to those corporate offices by their sponsoring firms pursuant to applicable corporate law.
12. There would be significant operational and human resources challenges for the Filers to comply with the prohibition in paragraph 13.18(2)(b). In addition, the Titles are widely used and recognized throughout the institutional segment of the financial services industry within Canada and globally, and being unable to use the Titles has the potential to put the Filers and their Registered Individuals at a competitive disadvantage as compared to non-Canadian firms that are not subject to the prohibition and who compete for the same institutional clients.
13. Given their nature and sophistication, the use of the Titles by the Registered Individuals would not be expected to deceive or mislead existing and prospective Clients.
14. For the reasons provided above, it would not be prejudicial to the public interest to grant the Exemption Sought.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that, when using the Titles, each Filer and its Registered Individuals interact only with existing and prospective clients that are exclusively non-individual "permitted clients" as defined in NI 31-103.
This decision will terminate six months, or such other transition period as may be provided by law, after the coming into force of any amendment to NI 31-103 or other applicable securities law that affects the ability of the Registered Individuals to use the Titles in the circumstances described in this decision.