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 the individuals to be registered with both firms. The Filers have agreed that up to a maximum of ten individuals will be dually registered under the exemption at any point in time. 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.
October 20, 2020
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 BAILLIE GIFFORD INTERNATIONAL LLC (BGI) AND BAILLIE GIFFORD OVERSEAS LIMITED (BGO, and together with BGI, 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 restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (such restriction, the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Mr. Anthony Spagnolo -- and future individuals (such individuals, the Future Representatives and together with Mr. Spagnolo, theRepresentatives) -- to be registered as an advising representative, associate advising representative, and/or dealing representative of BGO, as the case may be, and as a dealing representative of BGI (the Relief Sought). For clarity, the Relief Sought will apply to up to ten representatives at any one time, including Mr. Spagnolo and any Future Representatives.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
a) the Ontario Securities Commission is the principal regulator for this application; and
b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and Yukon (collectively with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 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. BGI is registered as an exempt market dealer in each of Ontario, Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Northwest Territories, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon and has an office in Ontario. The head office of BGI is in New York, New York, USA. BGI is registered as an investment adviser with the U.S. Securities and Exchange Commission (the SEC).
2. BGO is registered as an exempt market dealer and portfolio manager in each of Ontario, Alberta, Manitoba, Newfoundland, Québec and Saskatchewan and as an exempt market dealer in each of British Columbia, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island and Yukon. The head office of BGO is in Edinburgh, Scotland. BGO is registered as an investment adviser with the SEC and is also authorized in the United Kingdom by the Financial Conduct Authority (the FCA) to, among other things, advise on investments, arrange deals in investments, arrange safeguarding and administration of assets, deal in investments as agent, make arrangements with a view to transactions in investments and manage investments.
3. BGI and BGO are wholly-owned subsidiaries of the same ultimate parent entity, Baillie Gifford & Co, a Scottish partnership, and are therefore affiliates.
4. Baillie Gifford & Co. Ltd (BG&Co Ltd) is another affiliate of BGI and BGO and is also a wholly-owned subsidiary of Baillie Gifford & Co. BG&Co Ltd is registered as a portfolio manager in Ontario and relies on the exemption from the investment fund manager registration requirement set out in section 4 of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers (MI 32-102) in Ontario, Newfoundland and Québec. In the United Kingdom, BG&Co Ltd is authorized by the FCA to, among other things, manage alternative investments funds.
5. BG&Co Ltd currently acts as the investment fund manager for certain Baillie Gifford funds. Pursuant to an intra-group agreement dated September 14, 2014, as amended from time to time, BG&Co Ltd has appointed BGO as investment manager to provide advisory and other services in respect of a number of segregated and pooled funds under the Baillie Gifford name domiciled outside of the United Kingdom, including Baillie Gifford investment funds based in Ontario (BG Funds Canada). BG Funds Canada consist of international portfolios of equities and fixed income securities, the units of which are sold to institutional investors.
6. BGO also manages segregated international portfolios for institutional investors and may act as a sub-advisor for investment funds managed by third parties. In addition to these adviser activities, BGO acts as an exempt market dealer primarily to distribute BG Funds Canada to institutional investors and other high net worth clients that qualify as "permitted clients" as defined in MI 32-102.
7. BGI acts as agent for BG&Co Ltd for the provision of client service and marketing support in Canada for the investment funds managed by BG&Co Ltd. BGI does not act as dealer of record for any clients in Canada, but rather, acts in a marketing and business development role to build the Baillie Gifford brand at a strategy level. All clients, including any investors in the BG Funds Canada, are clients of BGO, which acts as dealer of record. BGI has no clients and is solely the marketing entity. All clients are contracted with BGO. This arrangement is consistent with Baillie Gifford's organizational structure outside of Canada. BGI also acts as agent for BGO, in its capacity as sub-advisor for investment funds managed by third parties, for the provision of certain marketing services in Canada.
8. BGI dealing representatives are permitted to trade in securities of BG Funds Canada on an exempt basis, subject to BGI procedures for permitted products.
9. Mr. Spagnolo is currently the Business Development Director with BGI and is registered as an advising representative with BGO.
10. As an advising representative of BGO, Mr. Spagnolo principally carries out advisory client relationship management services with institutional clients of BGO by managing previously established client relationships as well as creating and fostering new business relationships. Once Mr. Spagnolo becomes registered as a dealing representative of BGI, he will also provide marketing services in respect of BG Funds Canada to institutional clients resident in various provinces of Canada.
11. It is anticipated that any Future Representatives would have similar duties at BGO and BGI to those described above for Mr. Spagnolo.
12. Because each of BGO and BGI are affiliates, and because the Representatives will be advising, associate advising and/or dealing representatives of BGO and dealing representatives of BGI, the Representatives will be intimately familiar with all of the investment products offered by BGO and will be in the best position to act in the proposed dual roles with BGO and BGI.
13. The dual registration of the Representatives will help optimize the Filers' resources and increase their operational efficiency. In addition, the dual registration approach is consistent with the global organizational structure of the Baillie Gifford group of companies.
14. The terms and conditions, if any, on a Representative's advising, associate advising and/or dealing representative registration with BGO, as the case may be, would be the same as under his or her dealing representative registration with BGI.
15. Each Representative will be subject to supervision by each of the Filers and come under the applicable compliance requirements of both Filers.
16. The Filers each have compliance and supervisory policies and procedures in place to monitor the conduct of the Representatives and to ensure that they can deal appropriately with any conflict of interest that may arise as a result of the dual registration and each Representative will be subject to these policies and procedures.
17. BGI and BGO are affiliates and accordingly the dual registration of a Representative will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm's-length firms.
18. BGO has been appointed as the investment manager of BG Funds Canada, and BGI acts as agent for BGO, in its capacity as sub-advisor for various investment funds managed by third parties for the provision of certain marketing services in Canada. The interests of the Filers are aligned, and because the role of a Representative is to support the business activities and interests of the Baillie Gifford group of companies (including BGI and BGO), the potential for conflicts of interest is remote.
19. There is adequate supervision of any identified conflicts of interest to ensure that each Representative, and each of the Filers, can deal appropriately with any conflict of interest that may arise. Each Representative will be under the supervision of both Filers.
20. Neither BGI nor BGO is in default of any requirement of securities legislation in any of the Jurisdictions.
21. The Filers are confident that each Representative will have sufficient time to adequately serve both firms.
22. Each of the Filers' respective Ultimate Designated Persons will ensure that a Representative has sufficient time and resources to adequately serve each Filer. Each of the Filers' respective Chief Compliance Officers will monitor and assess whether a Representative has sufficient time and resources to adequately serve each Filer and its clients.
23. Disclosure regarding the dual employment of a Representative will be disclosed in writing to clients of both BGO and BGI, as applicable, including in applicable client account opening documentation of BGO and marketing materials (such as information factsheets and client pitch presentations) provided by BGI.
24. Each Representative will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
25. In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting a Representative to be registered as an advising representative, associate advising representative, and/or dealing representative, as the case may be, of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with such advising, associate advising and/or 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 Relief Sought is granted on the following conditions:
i. That at any point in time, no more than ten (10) representatives are dually registered with both Filers;
ii. The Representatives are subject to supervision by, and the applicable compliance requirements of, both Filers;
iii. The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representatives have sufficient time and resources to adequately serve each Filer and its respective clients;
iv. The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representatives and deal appropriately with any such conflicts; and
v. The relationship between the Filers and the fact that the Representatives are dually registered with both of them, is fully disclosed in writing to clients of each of them that deal with such person.