BKC Capital Inc. and Sun Life Institutional Investments (Canada) 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 the individual to be registered with both firms. The Filers have agreed that up to a maximum of ten individuals will be dually registered under the exemption at any point in time. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
February 21, 2018
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 BKC CAPITAL INC. (BKC) AND SUN LIFE INSTITUTIONAL INVESTMENTS (CANADA) INC. (SLIIC, and together with BKC, 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 of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (such restriction, the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Mr. Michael Andrews (the Representative) -- and future individuals -- to be registered as an advising representative, associate advising representative, and/or dealing representative, as the case may be, of each of BKC and SLIIC (the Relief Sought). Previous dual registration relief was granted to BKC and SLIIC in January 2017 and to SLIIC (under its prior name of Sun Life Investment Management Inc.) in February 2014, though the Representative was not subject to either relief. Currently, there is 1 individual dually-registered with each of BKC and SLIIC (the Existing Representative). For clarity, the Relief Sought will apply to up to ten representatives at any one time including, for the purposes of the initial grant of the Relief Sought, the Representative and the Existing Representative. Any additional representatives will be comprised of future individuals registered as advising representatives, associate advising representatives, and/or dealing representatives, as the case may be, of BKC and SLIIC (collectively, the Future Representatives).
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 (together with Ontario, the Jurisdictions).
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. BKC is registered as a portfolio manager and exempt market dealer in each of the Jurisdictions and is also registered as an investment fund manager in each of Ontario, Québec and British Columbia.
2. SLIIC is registered as a portfolio manager, exempt market dealer and investment fund manager in each of the Jurisdictions and is also registered as a commodity trading manager in Ontario.
3. Sun Life Financial Inc. (SLF) is a publicly-listed company that trades on the Toronto, New York and Philippine stock exchanges and wholly-owns, indirectly, each of the Filers. Since each of SLIIC and BKC is under SLF's common control, each is an affiliate of the other.
4. BKC acts as the investment fund manager and/or portfolio manager of pooled funds that invest indirectly in real estate-related assets, including equity securities of private issuers that hold real estate, real estate investment trusts and debt securities issued in connection with mortgages secured by real estate (the BKC Pooled Funds). It acts as exempt market dealer to sell securities of the BKC Pooled Funds, and of private issuers that invest in a portfolio of real estate assets, to Canadian pension plans, other institutional investors and to certain high net worth clients that qualify as "accredited investors" as defined in National Instrument 45-106 Prospectus Exemptions in each of the Jurisdictions.
5. SLIIC acts as the investment fund manager, portfolio manager and exempt market dealer of pooled funds consisting of real estate assets, commercial mortgages, private fixed income assets and public bonds and derivatives, or a combination thereof, that are sold to institutional clients that qualify as "accredited investors" as defined in National Instrument 45-106 Prospectus Exemptions in each of the Jurisdictions (the SLIIC Pooled Funds).
6. The Representative is Senior Managing Director, Canadian Mortgages, Canadian Real Estate at SLIIC. The Representative is also Senior Managing Director, Canadian Mortgages, Canadian Real Estate at The Sun Life Assurance Company of Canada, another affiliate of the Filers. As part of the Representative's duties, he is responsible, under the supervision of an advisory representative, for the portfolio management and monitoring of investments in certain of the SLIIC Pooled Funds. Any Future Representatives would have similar duties at SLIIC in respect of the SLIIC Pooled Funds.
7. The Representative has been registered as an associate advising representative (portfolio manager) with SLIIC since April 24, 2017 in each of the Jurisdictions. The Representative's associate advising representative registration is restricted to (a) advising in respect of mortgages, mortgage-backed securities and securities that reflect an underlying investment in real property, and (b) advising in respect of investments in fixed income and money market assets that is incidental to portfolios consisting of securities referred to in paragraph (a). The Representative is currently in the process of completing the courses required to become a dealing representative (exempt market dealer) with SLIIC. Once the Representative becomes a dealing representative of SLIIC, BKC will apply to have him also registered as a dealing representative under BKC's exempt market dealer registration in order for him to trade (including acts in furtherance of a trade) in securities of certain of the BKC Pooled Funds.
8. The Representative will act as an associate advising representative (portfolio manager) under the supervision of a full advising representative to one or more of the BKC Pooled Funds. The Representative will also continue to act as an associate advising representative (portfolio manager) to certain of the SLIIC Pooled Funds. Any Future Representatives would have similar duties (i.e. as an advising representative or associate advising representative, as the case may be) at BKC in respect of the BKC Pooled Funds.
9. As such, dual registration as an associate advising representative (portfolio manager) of each of SLIIC and BKC would allow the Representative to continue to assist in advising the SLIIC Pooled Funds while also assisting in advising one or more BKC Pooled Funds. Registration as an advising or associate advising representative, as the case may be, for each of the Future Representatives would permit them to conduct similar activities in their applicable capacity. The BKC Pooled Funds and the SLIIC Pooled Funds that the Representative and any Future Representatives will be advising will not have similar investment strategies and/or are not expected to compete for the same investments, thus minimizing certain conflicts of interest. Other BKC Pooled Funds or SLIIC Pooled Funds may in the future be created that have similar investment strategies; however it is unlikely given the different investment objectives and strategies in the real estate universe that underlie the mandates of each of SLIIC and BKC.
10. Dual registration as a dealing representative (exempt market dealer) of each of SLIIC and BKC would allow the Representative, and the Future Representatives, to market and sell the relevant SLIIC Pooled Funds and/or BKC Pooled Funds.
11. The terms and conditions, if any, on the Representative's, and any Future Representative's, advising, associate advising and/or dealing representative registration with BKC, as the case may be, would be the same as under his or her registration with SLIIC.
12. The Representative, and the Future Representatives, will be subject to supervision by each of the Filers and come under the applicable compliance requirements of both Filers.
13. Each of the Filers' respective Ultimate Designated Persons will ensure that the Representative, and each Future Representative, has sufficient time and resources to adequately serve each Filer and its clients. Each of the Filers' respective Chief Compliance Officers will monitor and assess whether the Representative, and each Future Representative, has sufficient time and resources to adequately serve each Filer and its clients.
14. BKC is not in default of any requirement of securities legislation in any Jurisdiction. SLIIC is not in default of any requirement of securities, commodities or derivatives legislation in any Jurisdiction.
15. BKC and SLIIC are affiliates and accordingly the dual registration of the Representative and the Future 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 Representative and each Future Representatives, is or will be to support the business activities and interests of the Sun Life Financial group of companies (including BKC and SLIIC), the potential for conflicts of interest is remote.
16. The Filers each have 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 Representative, and the Future Representatives, and will be able to deal appropriately with any such conflicts. Further, it is expected that, if the Relief Sought is granted, the Representative, and each Future Representative, will be acting as an advising or associate advising representative, as applicable, in respect of pooled funds with different investment strategies. This will further mitigate the risks of conflicts of interest arising from the dual registration of the Representative and the Future Representatives.
17. The Filers do not expect that the dual registration of the Representative or any Future Representative, will create significant additional work for such individual and are confident that the Representative, and each Future Representative, will have sufficient time to adequately serve both firms.
18. The relationship between BKC and SLIIC, and the fact that the Representative, and each Future Representative, is dually registered with both BKC and SLIIC, will be fully disclosed to clients of each of BKC and SLIIC that deal with the Representative, and the Future Representatives. A disclosure document will be sent to existing SLIIC clients, and current prospective clients, of Representative, and each Future Representative, as applicable, to inform them of such person's new registration with BKC and of the new BKC Pooled Fund for which the Representative, and each Future Representative, as applicable, will be an advising or associate advising representative. This disclosure will be sent once the registration of the Representative, and each Future Representative, with BKC has been approved. Disclosure regarding the dual employment of the Representative, and each Future Representative, will also be disclosed in the offering documentation for each of the SLIIC Pooled Funds and BKC Pooled Funds for which the Representative, and each Future Representative, acts as an advising or associate advising representative, as applicable.
19. The Representative, and each Future Representative will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
20. In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representative, and each Future Representative, to be registered as an advising, associate advising and/or dealing representative of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with the advising, associate advising and/or dealing activities of the Representative, and each Future Representative.
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 Relief Sought is granted on the following conditions:
i. That at any point in time, no more than ten (10) representatives are dually registered with both Filers;
ii. The Representative, and each Future Representative, is subject to supervision by, and the applicable compliance requirements of, both Filers;
iii. The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representative, and each Future Representative, has sufficient time and resources to adequately serve each Filer and its respective clients;
iv. The Filers each have 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 Representative, and each Future Representative, and deal appropriately with any such conflicts; and
v. The relationship between the Filers and the fact that the Representative, and each Future Representative, is dually registered with both of them is fully disclosed in writing to clients of each of them that deal with such person.