Generation IACP Inc. and Generation PMCA Corp.
Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for one individual to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
May 31, 2021
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 GENERATION IACP INC. (GIACP) AND GENERATION PMCA CORP. (GPMCA and, together with GIACP, the Filers)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief from the restriction in paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103)(the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Michelle Tatham (the Representative) to be registered as both an associate advising representative of GPMCA and as a dealing representative of GIACP (the Dual Registration) in order to provide advisory services to clients of both Filers (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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Saskatchewan, and Quebec.
Terms defined in MI 11-102, NI 31-103 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. GPMCA is registered under NI 31-103 as a portfolio manager, exempt market dealer and investment fund manager in Ontario and Quebec, and as a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, and Saskatchewan. GPMCA is also registered as an investment adviser with the United States Securities and Exchange Commission. GPMCA's head office is located in Toronto, Ontario. GPMCA provides portfolio management services primarily to high net worth individuals and families through separately managed accounts and pooled funds.
2. GIACP is registered under NI 31-103 as an investment dealer in Ontario, Alberta, Quebec and British Columbia and is a member of the Investment Industry Regulatory Organization of Canada. It is also a participating organization or member of the Toronto Stock Exchange, TSX Venture Exchange and Canadian Securities Exchange. GIACP's head office is in Toronto, Ontario, and shares premises with GPMCA. GIACP provides portfolio management services primarily to high net worth individuals and families through separately managed accounts. GIACP also provides other services customarily provided by investment dealers, including securities trading and brokerage activities.
3. The principal regulator of both Filers is the OSC.
4. The Filers are affiliates, as they are both wholly-owned subsidiaries of 1346049 Ontario Limited.
5. The Filers are not in default of any requirements of securities legislation in any jurisdiction of Canada where they are operating. GPMCA is in compliance in all material respects with United States securities laws.
6. The Filers have different client bases (except that clients of GPMCA hold accounts at GIACP, which executes securities trades and provides other brokerage services as investment dealer on behalf of accounts of GPMCA).
7. Both Filers provide discretionary investment management services. The same model portfolios are offered by both Filers to their respective clients.
8. The operations of the Filers are co-located and they share a significant level of common facilities and back office functions. Since there are already a number of existing dually registered individuals, the business has been structured around this model to maximize efficiency while maintaining adequate control over potential conflicts of interests.
9. There are currently three individuals who are dually registered as advising and/or dealing representatives of both Filers, each of whom obtained dual registration before paragraph 4.1(1)(b) of NI 31-103 came into force. Both of the Filers also have the same registered Ultimate Designated Person and Chief Compliance Officer. The Filers have represented that these employees have been able to serve clients of both Filers satisfactorily and that there is no reason to believe that the Representative cannot perform to the same standard as these other dually registered employees of the Filers.
10. Dual registration permits portfolio managers to order the trades for managed accounts of both Filers following a model, and allocate the trades at an average price, regardless of whether the account holder is a client of GPMCA or GIACP. The Filers maintain a common allocation policy, to ensure that investment opportunities are allocated fairly among clients of both Filers.
11. The Representative will provide service to clients of GIACP primarily in a capacity of client relationship management (i.e., responsible for liaising with clients, including collection of "know your client" information, ongoing suitability obligations, selection of investment mandates), while investment trading decisions for the client accounts are conducted by another dealing representative acting as investment manager. Accordingly, clients of GIACP will benefit from the Dual Registration of the Representative as it will result in more effective and better client servicing from multiple qualified registrants at GIACP. This is the same approach in effect at GPMCA, where the Representative acts in a capacity of client relationship management, while investment trading decisions for the client accounts are conducted by another advising representative acting as investment manager.
12. The Representative has the appropriate proficiency requirements for both the category of dealing representative of GIACP and for an associate advising representative of GPMCA.
13. The Representative has many years of investment industry and comprehensive wealth planning experience, including over four years in which she has been registered for discretionary portfolio management. The Representative is currently registered in Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, and Saskatchewan as an associate advising representative with GPMCA. The Representative is seeking application for registration as a dealing representative of GIACP in Ontario, Alberta, Quebec and British Columbia.
14. The role of the Representative will be to support the business activities and interests of both Filers. The Filers do not expect that the Representative's Dual Registration will create significant additional work for the Representative and are confident that the Representative will have sufficient time to adequately meet obligations to serve clients at both Filers.
15. The Representative will be subject to supervision by, and the applicable compliance requirements of, both Filers.
16. The Chief Compliance Officer and Ultimate Designated Person of each Filer will ensure that the Representative has sufficient time and resources to adequately serve each Filer and its clients.
17. The Filers each have adequate policies and procedures in place to address potential conflicts of interest that may arise as a result of the Dual Registration and will be able to deal appropriately with such conflicts, should they arise.
18. The relationship between the Filers and the fact that the Representative is dually registered with both of the Filers will be fully disclosed in writing to clients of each of them that deal with the Representative.
19. The Filers are affiliated and accordingly, the Dual Registration will not give rise to the conflicts of interest that may be present in a similar arrangement involving unrelated, arm's length firms. The interests of the Filers are aligned and both Filers wish to leverage the Representative's knowledge, expertise and experience for the benefit of their clients and funds. Therefore, the potential for conflicts of interest are remote.
20. In the absence of the Exemption Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representative to act as a dealing representative of GIACP and as an associate advising representative of GPMCA, even though the Filers are affiliates and have controls and compliance procedures in place to deal with the Representative's advising and dealing activities.
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 on the following conditions:
i. The Representative is subject to supervision by, and the applicable compliance requirements of, both Filers;
ii. The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representative has sufficient time and resources to adequately serve each Filer and its respective clients;
iii. Each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise from the dual registration of the Representative, and to deal appropriately with any such conflicts; and
iv. The relationship between the Filers and the fact that the Representative is dually registered with both of the Filers is fully disclosed in writing to clients of each of them that deal with the Representative.
OSC File #: 2019/0499