Subsection 107(3) of the Regulation and section147 of the Act -- Adviser exempted from the requirement thatthe capital calculation required under subsection 107(3) ofthe Regulation, which is included with the audited financialstatements filed annually, shall include consolidated reportingof assets and liabilities of a trust company subsidiary, provided,among other conditions, that the annual filing be accompaniedby an unaudited balance sheet accounting for the subsidiaryusing the equity method of accounting.
Securities Act, R.S.O. 1990, c. S.5, as am.,s.147.
Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., s. 107(3).
Related Orders Cited
Re M.R.S. Trust Company, Order of the Commissiondated May 9, 2000;
Re Mackenzie Financial Corporation, Order ofthe Commission dated October 4, 2002; and
Re M.R.S. Trust Company, Order of the Commissiondated May 9, 2003.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S.5,AS AMENDED (THE ACT)
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION
(Section 147 of the Act)
UPON the application of Mackenzie FinancialCorporation (Mackenzie) to the Ontario Securities Commission(the Commission) pursuant to section 147 of the SecuritiesAct (Ontario) (the Act) for an order that Mackenzie be exemptfrom the requirement to consolidate the assets and liabilitiesof its wholly-owned subsidiary, M.R.S. Trust Company (M.R.S.Trust), which might otherwise be required under generally acceptedaccounting principles, as part of determining compliance withthe capital requirement set out in subsection 107(3) of theRegulation made under the Act (the Regulation).
AND UPON considering the applicationand the recommendation of the staff of the Commission;
AND UPON it being represented to theCommission that:
1. Mackenzie is registered with the Commissionas an adviser in the categories of investment counsel andportfolio manager, and therefore must comply with the subsection107(3) of the Regulation.
2. M.R.S. Trust is also registered with theCommission as an adviser in the categories of investment counseland portfolio manager.
3. Section 107 of the Regulation creates minimumcapital requirements for various categories of registrants.These are based on a working capital concept.
4. Minimum capital requirements are intendedto ensure that registrants maintain a minimum level of liquidityand solvency in their business.
5. The financial statements of Mackenzie mustbe prepared in accordance with generally accepted accountingprinciples (GAAP) and this requires the consolidation of M.R.S.Trust.
6. As a trust company, M.R.S. Trust does notclassify its balance sheet between current and non-currentassets and liabilities.
7. The Commission has previously recognizedthis issue and granted M.R.S. Trust relief from Subsection107(3) of the Regulation until May 9, 2003 provided it meetscertain financial tests imposed under applicable trust corporationlegislation. An order has been granted by the Commission extendingsuch relief.
8. Under applicable trust legislation, M.R.S.Trust must satisfy liquidity requirements determined by itsboard of directors in the normal course of managing the entityin a sound and prudent fashion.
9. Under applicable trust legislation, M.R.S.Trust is also subject to an assets-to-capital multiple limitof 17.5 times, as approved by the Office of the Superintendentof Financial Institutions.
10. Financial institutions, including M.R.S.Trust, do not generally separate assets and liabilities betweencurrent and long-term because this is not considered to bemeaningful disclosure. This is consistent with GAAP and isreferenced in section 1510.09 of the Canadian Institute ofChartered Accountants Handbook.
11. Complying with Subsection 107(3) of theRegulation, which requires the determination of working capitalfrom financial statements prepared in accordance with GAAPand which do not present current assets and liabilities, isnot possible without exemptive relief.
AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;
IT IS HEREBY ORDERED, pursuant to section147 of the Act, that Mackenzie shall not be required to consolidatethe assets and liabilities of M.R.S. Trust with those of Mackenziefor the purposes of determining Mackenzie's compliance withthe requirements set out under subsection 107(3) of the Regulationprovided that:
1. For purposes of determining Mackenzie'scompliance with the requirements set out in subsection 107(3)of the Regulation, Mackenzie shall file concurrently withits annual audited financial statements filed pursuant tosection 139 of the Regulation, an unaudited balance sheetfor Mackenzie accounting for M.R.S. Trust using the equitymethod of accounting;
2. M.R.S. Trust remains in compliance withthe provisions of the M.R.S. Order; and
3. This Order will terminate one year afterthe coming into force of any change in Ontario securitieslaws that would have the effect of removing the requirementthat an adviser consolidate the assets and liabilities ofa trust company subsidiary for purposes of determining compliancewith a working capital requirement, but does not include anyamendment, rule or regulation that is specifically identifiedby the Commission as not applicable for these purposes.
May 9, 2003.
"Robert L. Shirriff"
"Howard I. Wetston"