Multilateral Instrument 11-102 -- Passport System -- Relief from requirement that registrant appoint its CEO as UDP to allow filer to appoint its President as UDP -- CEO oversees only certain activities within the firm -- President has ultimate authority for compliance related activity throughout the firm -- President has equal decision making authority in the management of the firm as the CEO -- President reports directly and only to the firm's Board of Directors -- Other than the firm's Board of Directors, there is no one with effective authority over the President -- section 11.2 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 11.2.
May 1, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CONNOR, CLARK & LUNN PRIVATE CAPITAL LTD. (the Filer)
1 The securities regulatory authority or regulator in each of the Jurisdictions (each, a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the requirement contained in section 11.2 of National Instrument Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the Filer to designate its president (the President), instead of its chief executive officer (CEO), as the ultimate designated person (UDP) of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application;
(b) 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 in Yukon and all of the provinces of Canada, other than the Jurisdictions (the Non-Principal Passport Jurisdictions); and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
2 Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.
3 This decision is based on the following facts represented by the Filer:
1. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer in each of the Jurisdictions and Non-Principal Passport Jurisdictions. The Filer is also registered as an investment fund manager in British Columbia, Ontario, Quebec, Newfoundland and Labrador.
2. The Filer is a corporation incorporated under the laws of British Columbia, with its head office located in Vancouver, British Columbia.
3. The Filer is not in default of securities legislation in any of the Jurisdictions and Non-Principal Passport Jurisdictions.
4. The current UDP of the Filer is the former CEO of the Filer. Historically, the Board of Directors of the Filer gave the person with the title CEO ultimate responsibility and oversight of the following three key functions of the business of the Filer (the Key Business Functions):
(i) Client Relationship Management and Sales;
(ii) Financial Investment Decision-making; and
(iii) Business Management and Operations.
5. The Board of Directors of the Filer is transitioning the responsibility and oversight of the Key Business Functions from the former CEO to a three-person management team in order to position the Filer to handle its business and to address succession planning. Under the three-person management team, a separate individual executive officer of the Filer will undertake responsibility and oversight for each Key Business Function, as follows:
(i) the CEO, to supervise and oversee the Client Relationship Management and Sales function;
(ii) the Chief Investment Officer (CIO), to supervise and oversee the Financial Investment Decision-making function; and
(iii) the President, to supervise and oversee the Business Management and Operations function.
6. The former CEO will remain as Chairman of the Filer, with a diminishing day-to-day commitment going forward. When the Board of Directors of the Filer appointed the new CEO, it did not extend his duties to oversight of all of the Key Business Functions. The Board limited his duties to oversight of the Client Relationship Management and Sales function.
7. The CEO, CIO and the President have different titles that respect the seniority of their positions. They operate as a management team of equals and each is directly responsible only to the Board of Directors. Each individual has distinct authority, responsibility and reporting obligations for the Key Business Function under his control.
8. The President is also the Chief Compliance Officer of the Filer.
9. Business Management and Operations is the function area responsible for oversight of the Filer and its employees' compliance with securities legislation and other regulation. As head of this function area, the President has ultimate authority over compliance related matters for the entire firm. The President supervises, monitors and resolves all compliance related issues within the Filer. If there is a disagreement between the President and either of the other two executives on the Filer's senior management team about a compliance related matter, the President has the authority to make the final decision.
10. The compliance team of the Filer's parent company, Connor, Clark & Lunn Financial Group Ltd., (the CCLFG Compliance Team) is sometimes involved in compliance related matters involving the Filer or the Filer's employees. Usually, the CCLFG Compliance Team defers final compliance related decisions to the President. If there is a significant disagreement over a compliance related matter between the President and the CCLFG Compliance Team, the President escalates the issue to the Filer's Board of Directors for resolution.
11. Under section 11.2 of NI 31-103, a registered firm is required to designate an individual to be the UDP of the firm and the individual must be the CEO of the registered firm or, if the firm does not have a CEO, an individual acting in a capacity similar to a CEO.
12. Under section 5.1 of NI 31-103, the UDP is responsible for (i) supervising the activities of the firm that are directed towards ensuring compliance with securities legislation by the firm and each individual acting on the firm's behalf; and (ii) promoting compliance by the firm, and individuals acting on its behalf, with securities legislation.
13. The Filer's management structure means that none of the three executives on the senior management team have authority over the firm as a whole. Absent receipt of the Exemption Sought, the person with the title of CEO of the Filer must be designated as UDP of the Filer, pursuant to section 11.2 of NI 31-103.
14. The Filer's CEO does not have authority over the firm as a whole or all of the individuals acting on its behalf.
15. The President has authority for compliance related activity throughout the firm, in his capacity as head of the Business Management and Operations function and as CCO.
16. For these reasons, of the three people on the Filer's management team, the President, is more appropriately placed to fulfill the obligations of UDP than the CEO.
4 Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
(a) The President and CEO continue to have equal decision making authority in the management of the Filer;
(b) The President continues to report directly and only to the Filer's Board of Directors;
(c) Other than the Board of Directors, there is no one with effective authority over the President;
(d) The President continues to have ultimate authority for all compliance related matters for the Filer and all of its employees; and
(e) The UDP provides reports to the Filer's Board of Directors as necessary or advisable in view of his or her responsibilities, including notice of any concerns the UDP has raised with the senior management team that could not be effectively resolved.