CANADA Law and Practice Contributed by: Darin Renton, Jill Winton, Amy Chao and Irena Ninkovic, Stikeman Elliott LLP
• acting as an IFM. The regulatory regime applicable to alternative fund managers in Canada varies depending on the type of fund (investment fund or non-investment fund) and the residency of the fund and/or the manager (Canadian resident or non-resident). Managers that manage or advise non-investment funds do not have to be registered in Canada, regard - less of their residency. Managers that manage or advise investment funds that carry on business in Canada must be registered as an IFM and a portfolio manager (PM) under the securities laws of the relevant Jurisdiction. Non-resident IFMs that distribute securities of an investment fund to investors resident in the Exemp - tion Jurisdictions are required to register as an IFM, unless an exemption from such registration is avail - able. None of the other Jurisdictions (Policy Jurisdic - tions) requires a non-resident IFM to register on the basis of merely having resident investors or soliciting investors in such Jurisdictions. In the Policy Jurisdic - tions, a non-resident IFM is required to register only if it directs or manages the business, operations or affairs of an investment fund in that Jurisdiction. In the Exemption Jurisdictions, MI 32-102 provides an exemption from the IFM registration requirement for non-resident IFMs of one or more investment funds if all the securities of the investment funds distributed in the Exemption Jurisdictions are to permitted clients only. The following conditions must also be satisfied in order for non-resident IFMs to rely on the IFME: • the IFM does not have its head office or principal place of business in Canada; • the IFM is incorporated, formed or created under the laws of a foreign jurisdiction; • none of the investment funds managed by the IFM is a reporting issuer in any Jurisdiction; • the IFM submits a Form 32-102F1 Submission to Jurisdiction and Appointment of Agent for Service for International Investment Fund Manager; and • the IFM has provided a prescribed written notice to each permitted client.
An adviser managing the portfolio of a Canadian resi - dent alternative fund that is an investment fund must register as a PM. A non-resident investment adviser can act as a PM for a Canadian investment fund by act - ing as a sub-adviser to a Canadian registered adviser or by relying on the international adviser exemption (IAE), provided that advising on securities of Canadian issuers is incidental to its advice on foreign securities, and subject to satisfying all the conditions. Portfolio managers that advise alternative funds investing in commodity futures contracts or options and dealers engaged in trading on commodity futures contracts or options on behalf of alternative funds may need to register as advisers or dealers, as appli - cable, under applicable commodity futures legislation in certain Jurisdictions, unless their activity can be characterised as incidental. Exemptions similar to the IAE and IDE are available under commodity futures legislation in Ontario for PMs advising on and dealers trading in commodity futures contracts or options. In Quebec, a dealer engaged in trading in derivatives is required to be registered under the Derivatives Act (Quebec). A foreign derivatives dealer or adviser will be subject to the requirements of National Instrument 93-101 Derivatives: Business Conduct if it is “in the business” of trading or advising in OTC derivatives in one or more Jurisdictions, unless an exemption is available. These exemptions include “foreign deriva - tives dealer” and “foreign derivatives adviser” exemp - tions that are broadly similar to the IDE and IAE under NI 31-103. Fiduciary Duty Canadian securities laws impose a duty on regis - tered advisers and dealers to deal fairly, honestly and in good faith with their clients; there is debate as to whether this is a best interest standard. IFMs are subject to a general statutory best interest standard of conduct. Every IFM must: • exercise the powers and discharge the duties of their office honestly, in good faith and in the best interests of the investment fund; and • exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances; this may apply to exempt IFMs as well.
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