Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption granted to mutual fund organizations from prohibition contained in subsection 5.4(1) of National Instrument 81-105 Mutual Fund Sales Practices permitting mutual fund organizations to pay a portion of the direct costs incurred by the Federation of Mutual Fund Dealers and the Association of Canadian Compliance Professions in organizing conferences, seminars, courses and other educational events, provided certain conditions are met – National Instrument 81-105 Mutual Fund Sales Practices.
Applicable Legislative Provisions
National Instrument 81-105 Mutual Fund Sales Practices, subsection 5.4(1) and section 9.1.
April 20, 2012
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
FIDELITY INVESTMENTS CANADA ULC (Fidelity)
and
in the matter of
THE FEDERATION OF MUTUAL FUND DEALERS (the Federation)
AND
IN THE MATTER OF
THE ASSOCIATION OF CANADIAN COMPLIANCE PROFESSIONALS (the ACCP)
decision
Background
The principal regulator in the Jurisdiction has received an application from Fidelity, the Federation and the ACCP (collectively, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision under section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105) exempting the Mutual Fund Organizations (as defined herein) from the prohibition in subsection 5.4(1) of NI 81-105 to permit them to pay the direct costs (as such term is defined in NI 81-105) incurred by each of the Federation and the ACCP relating to a conference, seminar, course or other education event (collectively, the Events) that is organized and presented by either the Federation or the ACCP (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) 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 Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Nunavut, Northwest Territories, Prince Edward Island, Quebec, Saskatchewan, and Yukon.
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.
“Mutual Fund Organizations” means the member of the organization of a mutual fund (as defined in NI 81-105) that wishes to pay the direct costs relating to an Event organized and presented by the Federation (a Federation Event) or the ACCP (an ACCP Event) and includes Fidelity.
Representations
This decision is based on the following facts represented by the Federation:
The Federation is a not-for-profit industry association for mutual fund dealers who are registered under the Securities Act (Ontario) and/or securities legislation in one or more other Canadian jurisdictions, who may also be registered as exempt market dealers and/or restricted market dealers and/or portfolio manager and may sell life insurance, other financial products and services, and other financial products and services which are closely associated with the mutual fund dealer distribution channel. Mutual fund dealer members of the Federation number approximately 30 at this time. Affiliate members of the Federation, who number approximately 14 at this time, are chiefly comprised of industry service providers who have manifested their keen and continuing interest in supporting the mutual fund dealer distribution channel by becoming members, and contributing to the success and activities, of the Federation. The head office of the Federation is located in Toronto, Ontario. The Federation serves its members primarily by organizing and conducting meetings of its members, education days and conferences focused on specialized and comprehensive programs of professional development and industry awareness in financial services. In addition, the Federation acts as an advocate for changes in policy, regulation and legislation before governments and regulators at all levels, and collaborates with other trade and industry associations in Canada. The Federation also seeks out the views of regulators with regard to certain matters and advises its members of such views.
Dealer members of the Federation are required to be registered in the category of mutual fund dealer. They may also be registered as an exempt market dealer and/or a restricted dealer.
The ACCP is a not-for-profit association for individuals who are registered as compliance officers under securities legislation in one or more provinces or are otherwise interested in the provision of compliance-related services and products. There are approximately 100 members of the ACCP at this time. The ACCP provides a central forum for its members to discuss compliance issues, determine best practices and provide comments to regulators with reference to proposed laws, regulations, rules, etc. Assuming the Exemption Sought is granted, the ACCP will establish a new class of membership being “Affiliate Members”. Affiliate Members of the ACCP will be chiefly comprised of industry service providers who have expressed an interest in supporting the efforts and activities of the ACCP and wish to become members of the ACCP and contributing to the success of the ACCP. The head office of the ACCP is located in Toronto, Ontario.
Fidelity is a corporation existing under the laws of Ontario, with its head office being located in Toronto, Ontario. Fidelity is the manager of a number of mutual funds that are qualified for distribution in the Jurisdiction and the other provinces and territories of Canada. Accordingly, Fidelity is a member of the organization of a mutual fund family within the meaning of NI 81-105.
As part of their services, both the Federation and the ACCP annually arrange and hold education days/seminars and one or more Events for their mutual fund dealer and affiliate members. Events have been held in Toronto, Ontario in the past, but may be held elsewhere in Canada or in the continental United States of America in the future. The Federation and the ACCP will be applying to have Events count as continuing education credits for Event participants. For past ACCP Events, a ratio of one continuing education credit per conference hour has applied.
The primary purpose of the Events is to provide educational information about the mutual fund dealer channel of distribution and related matters, including but not limited to the regulation of mutual funds, financial planning, compliance, investing in mutual funds and securities, mutual fund industry matters, and mutual fund issues generally, and therefore is consistent with the requirements of paragraph 5.4(2)(a) of NI 81-105.
Fidelity wishes to sponsor certain or all of the Events. However, subsection 5.4(1) of NI 81-105 prohibits Mutual Fund Organizations from sponsoring the costs or expenses relating to a conference, seminar or course that is organized and presented by The Investment Funds Institute of Canada (IFIC), the Investment Dealers Association of Canada (the IDA) or another trade or industry association. The Federation and the ACCP can each be considered “another trade or industry association”. Subsection 5.4(2) of NI 81-105 provides an exemption to permit members of the organization of a mutual fund to sponsor conferences, seminars or courses organized and presented by IFIC, the IDA or their respective affiliates in accordance with the conditions set out therein. No exemption is granted to trade or industry associations such as the Federation or the ACCP.
Fidelity proposes to sponsor the Events in accordance with the conditions set out in subsection 5.4(2) of NI 81-105.
The Federation and the ACCP anticipate that other Mutual Fund Organizations will similarly wish to sponsor a portion of the costs of different Events and agree to pay such costs for such Events in accordance with subsection 5.4(2) of NI 81-105, from time to time. If the Requested Relief is granted, the Federation and the ACCP will ensure that any sponsorship of an Event by Fidelity and other Mutual Fund Organizations shall comply with the following conditions, which track the conditions set out in paragraph 5.4(2) of NI 81-105:
(a) the primary purpose of an Event will be the provision of educational information about financial planning, investing in securities, mutual fund industry matters or mutual fund issues generally;
(b) none of the Mutual Fund Organizations will pay in aggregate more than ten percent of the total direct costs incurred by the Federation or the ACCP for the organization and presentation of an Event;
(c) the selection of a representative of a participating dealer to attend an Event will be made exclusively by the participating dealer, uninfluenced by the Mutual Fund Organizations; and
(d) all Events will be held in Canada or the continental United States of America.
(collectively, the Conditions).
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:
(i) the Mutual Fund Organizations, the Federation and the ACCP comply with the Conditions;
(ii) the Federation, on behalf of each Mutual Fund Organization (other than Fidelity) whose mutual funds are reporting issuers in Ontario and who wishes to sponsor a Federation Event in reliance on this decision, file an advance written notice with the Director of the Investment Funds Branch of the Ontario Securities Commission that:
a. names the Mutual Fund Organization that intends to sponsor the Federation Event in reliance on this decision; and
b. confirms that the Mutual Fund Organization has agreed to sponsor the Federation Event in accordance with the Conditions;
(iii) the ACCP, on behalf of each Mutual Fund Organization (other than Fidelity) whose mutual funds are reporting issuers in Ontario and who wishes to sponsor an ACCP Event in reliance on this decision, file an advance written notice with the Director of the Investment Funds Branch of the Ontario Securities Commission that:
a. names the Mutual Fund Organization that intends to sponsor the ACCP Event in reliance on this decision; and
b. confirms that the Mutual Fund Organization has agreed to sponsor the ACCP Event in accordance with the Conditions; and
(iv) this decision will terminate one year after the publication in final form of any legislation or rule which modifies the provisions of section 5.4 of NI 81-105 in a manner which makes the Exemption Sought unnecessary or provides similar relief on a different basis or subject to different conditions.
“Paulette Kennedy” “Mary Condon”
Name: Paulette L. Kennedy Name: Mary G. Condon
Title: Commissioner Title: Vice-Chair
Ontario Securities Commission Ontario Securities Commission
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption granted to mutual fund organizations from prohibition contained in subsection 5.4(1) of National Instrument 81-105 Mutual Fund Sales Practices permitting mutual fund organizations to pay a portion of the direct costs incurred by the Federation of Mutual Fund Dealers and the Association of Canadian Compliance Professions in organizing conferences, seminars, courses and other educational events, provided certain conditions are met – National Instrument 81-105 Mutual Fund Sales Practices.
Applicable Legislative Provisions
National Instrument 81-105 Mutual Fund Sales Practices, subsection 5.4(1) and section 9.1.