Scotia Securities Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) -- relief from the requirement in section 11.2 of NI 31-103 to designate an individual to be the ultimate designated person (UDP), and instead be permitted to designate two individuals as UDPs in respect of two distinct operational divisions of the Filer.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.2 and 15.1.
June 7, 2023
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 SCOTIA SECURITIES INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from the requirement contained in section 11.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the Filer to designate and register two individuals as the ultimate designated persons (UDP) of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) 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 in each of the provinces and territories in Canada other than Ontario (the Other Jurisdictions and together with the Jurisdiction, the Filing Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and Multilateral Instrument 11-102 Passport System (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 Filer:
1. The Filer is a wholly-owned subsidiary of The Bank of Nova Scotia (the Bank).
2. The Filer is registered under the Legislation in the category of mutual fund dealer in each of the Filing Jurisdictions, is a member of Canadian Investment Regulatory Organization and has its head office in Toronto, Ontario.
3. The Filer is not in default of any requirements of securities legislation in any jurisdiction of Canada.
4. The Filer is the principal distributor of the ScotiaFunds, a family of open-end mutual funds.
5. The Filer's business structure is as follows:
(a) The Filer provides mutual fund trading services to its clients through two primary, but distinct, groups (each a Division) of registered dealing representatives (Approved Persons).
(b) One Division of Approved Persons (the Non-Bank Approved Persons) is part of the Bank's Global Wealth Management business line and provides mutual fund trading services to clients of the Filer and does not provide any banking services to clients of the Bank's retail branch distribution network or customer contact centre (the Non-Bank Services Division).
(c) The other Division of Approved Persons (the Bank Approved Persons) is part of the Bank's Canadian Banking business line and provides mutual fund trading services to clients of the Filer as an adjunct to their principal responsibilities of providing banking services to clients of the Bank, via the Bank's retail branch distribution network and customer contact centre (the Bank Services Division).
6. Although each Division is part of the same corporate entity (i.e. the Filer) and the Divisions are not treated as separate operating units of the Filer for legal, tax, accounting, securities law and other similar purposes, the separate and distinct groups of Approved Persons of each Division, the business plans and service offerings that are executed by each Division, the business lines, distribution lines, and the client segmentation of each Division, and the upstream organizational reporting structure of each Division, make each Division operate in a distinct manner from the other.
7. Although the Filer is a legal entity, it is operationally supported by three business lines within the Bank corporate organization: Canadian Banking, Global Wealth Management (GWM) and Global Operations.
8. The Filer has the following primary distribution channels:
a) Retail bank branches of the Canadian Banking business line. Some of the Bank Approved Persons operate through retail bank branches of the Canadian Banking business line and they provide banking services (through the Bank) and distribute mutual funds (through the Filer) to retail clients.
b) Investment Specialists who are a mobile sales force and are part of the GWM business line. The Non-Bank Approved Persons operate as Investment Specialists and they distribute mutual funds (through the Filer).
9. Additional distribution channels include:
a) Customer contact centres, which are part of the Global Operations business line. Some of the Bank Approved Persons operate through these call centres and they provide banking services (through the Bank) and distribute mutual funds (through the Filer).
b) Private Banking, which is part of the GWM business line. Some of the Non-Bank Approved Persons operate under Private Banking through private banking branches across Canada and they distribute mutual funds (through the Filer) to high net worth clients.
10. Each Division will have an internal corporate governance structure that is led by a single UDP who will be the head of each Division (each Division Head) -- one who comes from the Non-Bank Services Division (the Non-Bank UDP) and the other who comes from the Bank Services Division (the Bank UDP).
11. Each UDP will hold the functional title of "Co-Chief Executive Officer and Co-President" of the Filer (Co-CEO).
12. Neither of the Co-CEOs will report to the other, nor will one have authority to overrule a decision of the other or to control the other's access to the Board of Directors of the Filer. Rather, both will have direct access, and will report jointly, to the Board of Directors of the Filer (although the Bank UDP will also have a parallel reporting line up through the Bank in respect of relevant Bank distribution activities, which are not part of the Filer's activities).
13. Each Co-CEO will have the role that is equivalent to chief executive officer in respect of the Division for which they are responsible and will be the most senior and final decision maker for their Division, including as follows:
(a) Each Co-CEO will provide clear leadership and promote a culture of compliance, collaboration and responsibility at the top of the Filer in their Division;
(b) Each Co-CEO will be accountable and liable for the performance of their Division with the Filer, and will provide a report to the Filer's Board of Directors regarding the Filer's performance, at least annually;
(c) Each Co-CEO will have ultimate authority over compliance-related matters for their Division with the Filer. Although the Non-Bank UDP will have primary monitoring and supervision responsibility at first instance over the business of the Non-Bank Approved Persons, and the Bank UDP will similarly have primary monitoring and supervision responsibility at first instance over the Bank Approved Persons, each Co-CEO will have responsibility for the ultimate resolution of compliance-related issues in order to ensure their Division and the Filer's compliance with applicable securities legislation, and will be accountable and liable for such resolution;
(d) The Co-CEOs will meet regularly with the Filer's Chief Compliance Officer (CCO) regarding compliance issues. In addition, both Co-CEOs will receive updates from senior management of the Filer regarding compliance matters relating to the Filer. Compliance staff of the Filer will continue to report to the CCO, who in turn will keep the Co-CEOs informed of compliance matters, as required;
(e) Each Co-CEO, along with other members of the Filer's senior management, will be responsible for creating and developing the strategic plan for their Division and where applicable that of the Filer's; and
(f) Each Co-CEO will be responsible for the overall organizational structure and succession planning for their Division and where applicable at the Filer, and for leading and ensuring appropriate staffing and talent deployment at the Filer.
14. The Filer submits that the intended policy objectives that underlie the existence of the UDP requirement will not only be achieved in this dual UDP structure, but will be enhanced, because it will establish a decision-making framework that, through the focused expertise of the Bank UDP, will recognize, acknowledge and address the differences and unique challenges that arise in the Bank branch distribution network, therein driving accountability within the Bank Approved Persons universe, and enabling enhanced compliance capability overall within the Filer.
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:
(a) Each Division shall have its own UDP, who shall be the equivalent of the chief executive officer in respect of the Division for which they are the UDP;
(b) Only one individual shall be the UDP of each Division;
(c) Each UDP has direct access to the Board of Directors of the Filer; and
(d) Each UDP shall fulfill the responsibilities set out in section 5.1 of NI 31-103, and any successor provision thereto, in respect of the Division for which they are designated UDP.
"Elizabeth King"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission\
OSC File #: 2023/0040