We note that AIs can currently request a
client directed trade (“CDT”) under
applicable securities law, however, that is
based on a registrant undertaking a full
suitability analysis at first instance and
finding the investment unsuitable. Only
after a registrant has determined that a
trade is unsuitable can an investor
direct/instruct a registrant to complete a
trade. Therefore, the benefits of a
suitability waiver, in contrast to a CDT,
is that no suitability determination
would be required of a registrant at all.
The option would remain open to any
AIs that they are not required to waive
suitability rather it is their choice.
However, for those Accredited Investors
that desire to make their own investment decisions, a suitability waiver
would enable them to take control of
their own investment decisions and
disclosure.
The PCMA does not believe the ASC
needs to link any AI waiver of suitability
to investment experience since that is
highly subjective and would complicate
the process. Furthermore, we are of the
view that the AI Exemption in NI
45-106 has already purported to
establish deemed sophistication for this
class of investor and investment experience is unnecessary and inconsistent
with established principles.
The ASC has requested comments on
whether it would be appropriate to
impose some limit on the amount that
could be invested, e.g., the greater of
$30,000 and 5% of an AI’s net worth.
The PCMA does not objection to impos-
ing a form of Investment Limit, and
recognizes that this may be an effective
means of differentiating between the
obvious differences between an AI and a
Permitted Client. However, we strongly
recommend that the ASC undertake
further research and consultation on
whether such limit is high enough given
that the investor is an AI. The PCMA
notes that the ASC does not include any
“net income test” for an Investment
Limit. We believe that including a net
income test to determine any Invest-
ment Limit is consistent with the
definition of accredited investor.
The ASC’s desire to energize the Alberta
capital markets is a laudable objective.
Allowing for Accredited Investors to
waive their registrant’s suitability
obligations is a fundamental step
towards allowing the marketplace to
organically drive this objective because
of the options it creates.
g) Other registered dealer compliance
burdens
We appreciate the discussion about the
compliance challenges/burdens of
EMDs, particularly smaller EMDs. This
is a topic that we believe requires
further examination to improve the
balance between fair and efficient capital
markets (e.g., the compliance burden)
with investor protection. The PCMA
believes the compliance burden is
currently out of balance for EMDs,
particularly smaller EMDs.
Outsourced Chief Compliance
Officers
There is a shortage of qualified CCOs in
the Canadian capital markets, including
Alberta. The biggest issue is finding
someone who has the requisite industry
experience, while at the same time,
being able to adequately compensate
such individual for their knowledge and
experience. A smaller EMD may not be
able to afford the services of the type of
CCO they would like to hire since they
are too small and have insufficient
capital.
However, if a CCO could provide its
services to more than one EMD (i.e., act
as part-time CCO for more than one
EMD), then efficiencies and economies
could arguably be achieved. This would
be consistent with the US which allows
CCOs to be independent contractors and
work for more than one investment firm.
The idea of having an individual act in
part-time capacity for a registrant is not
new in Canada.
IIROC allows part-time Chief Financial
Officers for an investment dealer as an
example of part-time services being
provided by a registered individual to
multiple registrants.
It would be the responsibility of each
EMD and CCO to determine how much
time the CCO should be working on-site
(and, if applicable, at what intervals
on-site work should be scheduled) in
order for the EMD and CCO to comply
with their regulatory obligations and
meet the needs of the business. A CCO
who routinely works off-site or with
multiple EMDs needs to be prepared to
devote more time to a particular EMD or
spend more time on-site as needs and
situations arise.
Whether regularly working on-site or
not, the CCO would, amongst other of
his/her supervisory responsibilities,
participate in executive management
meetings and inquire about and review
relevant contracts, ongoing liabilities,
future commitments and operational
matters that may impact the EMD’s
business balance sheet and capital
position. An EMD would need to provide
a part-time CCO with unrestricted
access to its books and records.
The part-time CCO is to be apprised of
all relevant commitments under consideration by the EMD, including but not
limited to, contracts under negotiation,
corporate finance transactions in
progress, etc. If the CCO is working
off-site, it is expected that he/she is in
regular communication with the EMD,
remaining current on management and
financial matters.
An EMD engaging a part-time CCO
(including a CCO who routinely works
off-site or with another EMD) should
continually evaluate the growth and
development of the business and
consider whether a part-time CCO
continues to be appropriate for the scale
and scope of the business activities
being undertaken. We note that the
regulatory obligations of a part-time
