How do the registration requirements apply to investment funds?
In Canada, registration refers to a form of licensing with securities regulators. Generally, any firm or individual:
- In the business of advising in securities or derivatives must be registered as an adviser.
- In the business of trading in securities or derivatives must be registered as a dealer.
- That manages an investment fund must be registered as an investment fund manager.
Registration will typically be required with the securities regulator in each jurisdiction in which the person or company does business. This is the case unless a codified registration exemption is available or discretionary exemptive relief is sought and granted.
The registration requirement is separate from the prospectus requirement, which is discussed in more detail here. This means that even if a firm or individual is exempt from the requirement to file a prospectus (because they are distributing securities only to accredited investors, for example), they may still have to register with the ASC and other provincial securities regulators.
Most of the requirements of securities legislation governing registration in Canada are contained in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). Additionally, the Canadian Investment Regulatory Organization, a self-regulatory organization that governs Canadian investment dealers and mutual fund dealers, has its own rules that supplement and enhance the minimum standards prescribed by NI 31-103.
Additional information to help you assess whether a person or company is required to be registered can be found in NI 31-103 and its companion policy (31-103CP).
There are different categories of registration for persons and companies involved in the operation of an investment fund:
Investment fund manager registration
The Securities Act (Alberta) defines an investment fund manager (IFM) as “a person or company who has the power to direct and exercises the responsibility of directing the affairs of an investment fund.” Refer to Multilateral Policy 31-202 Registration Requirement for Investment Fund Managers (MI 31-202) for a list of some of the functions and activities that may be directed, managed or performed by an IFM. To determine whether a fund is an “investment fund” (and thus whether the manager is an “investment fund manager” requiring registration), see here.
Registration as an IFM may be necessary in more than one jurisdiction. To determine the jurisdictions of Canada in which registration as an IFM might be required, consult Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers and MI 31-202.
Portfolio manager registration
The person or company making the portfolio investment decisions for the fund will generally need to be registered as an adviser, typically in the “portfolio manager” adviser category.
Dealer registration
A person or company who is in the business of offering or distributing the securities of an investment fund will need to be registered as a dealer. Unless the investment fund manager distributes the securities of the investment fund entirely through third party registered dealers, registration in a dealer category (such as investment dealer or, if selling only certain types of investment funds, mutual fund dealer, scholarship plan dealer, exempt market dealer or restricted dealer) will generally be required.
A single party may serve in all capacities (i.e., IFM, adviser and dealer) and would be required to be registered in multiple categories.
Note that in addition to the firm being required to be registered, certain individuals working on behalf of a registered firm are also required to be registered. Depending on their role, they will be registered in one or more of the following categories: dealing representative, advising representative, associate advising representative, ultimate designated person and chief compliance officer. A single individual may be required to register in multiple categories. A sole proprietor would require registration in both a firm and an individual capacity.
See also section 7.3 of 31-103CP for more information on the investment fund manager registration category, and the section entitled Venture capital and private equity in section 1.3 of 31-103CP for a discussion of venture capital and private equity “funds.” In particular, note that venture capital and private equity management companies (VCs) often play an active role in the management of the companies in which they invest. If the VC is actively involved in the management of the companies it invests in, the investment portfolio would generally not be considered an investment fund under securities laws. As a result, the VC would not need to register as an investment fund manager.