Scotia Asset Management L.P.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Large portfolio manager, exempt market dealer and commodity trading manager (applicant for investment fund manager) with separate investment fund manager and portfolio manager operating divisions exempted from the requirement to register an individual as a chief compliance officer (CCO) -- permitted to register two CCOs, one for each operating division.

Statutes Cited

National Instrument 31-103 Registration Requirements and Exemptions, s. 11.3.

March 21, 2011

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

SCOTIA ASSET MANAGEMENT L.P.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement contained in section 11.3 of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) that the Filer designate an individual to be the chief compliance officer (CCO) and instead be permitted to designate and register two individuals as CCO in respect of two distinct lines of securities business of the Filer (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 the purpose of this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada outside of Ontario except the Northwest Territories and Nunavut (the Non-principal Jurisdictions and together with the Jurisdiction, the Filing Jurisdictions).

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.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a limited partnership formed under the laws of the Province of Ontario and its head office is located in Toronto, Ontario.

2. The Filer is registered under the Legislation in the category of portfolio manager, commodity trading manager and exempt market dealer. The Filer has applied for registration under the Legislation in the category of investment fund manager.

3. The Filer is also registered as a portfolio manager in each of the Non-principal Jurisdictions and as an exempt market dealer in each province of Canada other than Saskatchewan and Prince Edward Island.

4. The Filer is not, to the best of its knowledge, in default of securities requirements in any of the Filing Jurisdictions.

5. The Filer has two distinct lines of securities business (each, a Division) based on the nature of its clients:

(a) The investment fund manager division (the IFM Division) provides investment fund management services to two fund families: the ScotiaFunds and the Pinnacle Funds.

(b) The portfolio manager division (the PM Division) provides discretionary portfolio management services to private client and institutional clients including short-term, fixed income, equity, and derivative investments through individual securities and investment funds and provides discretionary portfolio management with pooled funds to accredited investors.

6. The IFM Division and the PM Division each have a well-established, separate and distinct supervisory structure. Each Division has its own compliance unit within the Filer's compliance department and each Division has its own CCO (or individual acting in a capacity similar to a CCO).

7. Given the specialized and diversified business operations within the PM Division of the Filer, the CCO of the PM Division requires a different set of skills, experience and focus than that of the CCO of the Filer's IFM Division.

8. The CCO of the IFM Division oversees compliance systems that are reasonably designed to ensure that the investment fund manager and each person acting on its behalf complies with securities legislation and manages the risks associated with the investment fund management business in accordance with prudent business practices. To this end, the CCO of the IFM Division ensures that appropriate policies and procedures are in place, has them updated as requirements change and oversees a supervisory structure that monitors compliance. In addition, the CCO's responsibilities include overseeing compliance with the requirements governing; (i) public offering and continuous disclosure of mutual funds; (ii) sales practices and sales communications; (iii) fiduciary obligations for management functions that are outsourced; (iv) conflict identification and management; and (v) self dealing.

9. The CCO of the PM Division fulfils a different mandate than the CCO of the IFM Division. The CCO of the PM Division focuses on specific assigned responsibilities to ensure that the Filer and its representatives comply with applicable government laws, rules, regulations, policies and codes of conduct which govern the portfolio management and exempt market dealer activities of the Filer in the jurisdictions in which it operates. To this end, the CCO of the PM Division maintains a compliance process and infrastructure throughout the portfolio management business so as to enable the Filer's management to fulfill their compliance responsibilities. This includes monitoring of portfolio management activities, employee trading, conflicts of interest and the limited exempt market dealer activities.

10. NI 31-103 was implemented on September 28, 2009 (the Implementation Date). Under section 11.3 of NI 31-103, a registered firm is required to designate an individual to be the CCO (the CCO Requirement).

11. Prior to the Implementation Date, the Filer had one "compliance officer" for the PM Division as required by applicable law and had another compliance professional acting in a capacity similar to a CCO for the IFM Division. As a result, the Filer has had one CCO and one person acting in a capacity similar to a CCO for the PM Division and for the IFM Division, respectively, for a number of years.

12. Given the size, diversity and increasing complexity of the Filer's PM Division and the IFM Division, it is (i) unreasonable for one individual to effectively carry out all of the responsibilities of the CCO for both the PM Division and the IFM Division, (ii) difficult for one CCO to effectively identify and stay abreast of the different issues and risks applicable to both the PM Division and IFM Division, and (iii) difficult to escalate all such issues and risks to the ultimate designated person and the general partner of the Filer in a timely and effective manner. If the Exemption Sought is granted, each CCO will have direct access to the Filer's ultimate designated person, will provide reports to the general partner of the Filer and will comply in all other respects with applicable securities requirements, including the requirements set out in NI 31-103.

13. Without the Exemption Sought, the filer would have to change its supervisory and its compliance structure to meet the CCO Requirement. Alternatively, the Filer would have to separate the PM Division and the IFM Division into two separate registered firms. Either option would be burdensome for the Filer. There would be significant costs associated with the restructuring resulting from a loss of certain operational and technological efficiencies that currently exist as a result of operating as a single registrant.

14. In section 5.2 of Companion Policy 31-103CP, Registration Requirements and Exemptions, the Canadian Securities Administrators indicate that:

"Firms must designate one CCO. However, in large firms, the scale and kind of activities carried out by different operating divisions may warrant the designation of more than one CCO. We will consider applications, on a case-by-case basis, for different individuals to act as the CCO of a firm's operating divisions."

15. Designating only one CCO for the purposes of satisfying the CCO Requirement in the Legislation would not be consistent with the policy objectives the Legislation is intended to achieve because the PM Division and the IFM Division are independent operations that are distinct from one another in kind and conducted on a large scale.

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 the Filer designate:

1. only one individual to be CCO of the PM Division; and

2. only one individual to be CCO of the IFM Division.