National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- 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 -- individuals will engage in the same activities with the same clients but only through a different entity for a limited period of time to facilitate the transition of client accounts -- policies in place to handle potential conflicts of interest -- Filer exempted from prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
August 9, 2011
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
HSBC SECURITIES (CANADA) INC.
HSBC GLOBAL ASSET MANAGEMENT
(AMCA, and together with HCSC, 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 of the principal regulator (the Legislation) for relief from the requirement under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the individuals identified in Schedule "A" (collectively, the Representatives) to each be registered as both a dealing representative of HCSC and an advising representative or associate advising representative and/or dealing representative of AMCA (the Dual Registration) for a limited period of time to facilitate the transfer of certain discretionary investment management business of AMCA to HCSC (the Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has 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 British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador (collectively with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. HCSC is registered under NI 31-103 in each of the jurisdictions of Canada in the category of investment dealer, is a member of Investment Industry Regulatory Organization of Canada (IIROC) and has its head office in Ontario.
2. AMCA is registered under NI 31-103 in each of the provinces of Canada, except Prince Edward Island, as an adviser in the category of portfolio manager and a dealer in the category of exempt market dealer, and in British Columbia as an investment fund manager, and has its head office in British Columbia.
3. Each of the Filers is a direct or indirect wholly-owned subsidiary of HSBC Bank Canada.
4. Neither of the Filers is in default of any requirements of securities legislation in any jurisdiction of Canada.
5. Each of the Representatives is registered as an advising representative or associate advising representative and/or a dealing representative of AMCA in one or more of the Jurisdictions and is resident in a Jurisdiction.
6. AMCA currently offers a discretionary portfolio management service referred to as "HSBC Private Investment Management" (the PIM Business) to high net worth retail clients. As part of the restructuring of the Wealth Management businesses within HSBC Bank Canada, the parent entity of the Filers, a decision has been made to transfer the PIM Business from AMCA to HCSC. The transfer of the PIM Business will be completed by having each client sign a new client agreement with HCSC. The Filers intend to implement this transfer in phases commencing on or about August 15, 2011, and anticipate that the transfer of all clients will be completed by no later than June 30, 2012.
7. In connection with the proposed transfer of the PIM Business from AMCA to HCSC, the Filers are proposing to move the Representatives currently registered through AMCA to HCSC. To facilitate the transfer of the PIM Business, the intention is that the Representatives will be registered through both entities for a limited period of time while they are involved in the transition of clients from AMCA to HCSC. The Dual Registration is required to allow the Representatives to continue to service clients while their accounts transition from AMCA to HCSC as well as clients who have signed a new client agreement with HCSC.
8. The PIM Business will be carried on through HCSC in a manner that is similar in all material respects to the manner it is currently carried on through AMCA. While registered through both HCSC and AMCA, the Representatives will be engaging in the same types of activities that they currently carry on solely through AMCA and will do so with the same clients that they currently work with through AMCA. Accordingly, the Filers do not expect that the Dual Registration will create any additional work for the Representatives other than the work associated with the transition of clients to HCSC, and are comfortable that the Representatives will continue to have sufficient time to adequately serve both firms.
9. Each client will receive correspondence within a reasonable period of time prior to the proposed transfer (a) describing the proposed transfer and the manner in which the transfer of the client's account(s) will be completed, (b) advising the client of its rights under section 14.11 of NI 31-103, (c) enclosing the documentation required to complete the transfer of the client's account, and (d) explaining that the Representatives will be registered through both HCSC and AMCA to facilitate the proposed transfer during the transition period. In addition, when the transfer of a client's account(s) have been completed, the client will be notified that the transfer has been completed and that they are now a client of HCSC.
10. During the transition period, the Representatives will be subject to supervision by, and the applicable compliance requirements of, both firms. Existing compliance and supervisory structures will apply depending on which regulatory entity the client assets are held with.
11. The Filers are each direct or indirect wholly-owned subsidiaries of HSBC Bank Canada and accordingly, the Dual Registration will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm's length firms.
12. The Filers have in place policies and procedures to address conflicts of interest that may arise as a result of the Dual Registration, and believe that they will be able to appropriately deal with these conflicts.
13. In the absence of the Requested Relief, the Filers would be prohibited from permitting a Representative to act as a dealing representative of HCSC while the individual is an advising representative or associate advising representative and/or dealing representative of AMCA even though AMCA is an affiliate of HCSC.
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 Relief Sought is granted provided that the Relief Sought expires on June 30, 2012.
List of Representatives