Securities Regulators Revoke Northwest Exemption

On August 15, 2018, certain members of the Canadian Securities Administrators (CSA) issued Multilateral CSA Notice 32-302 (the Notice) in which they announced the following:

  • Revocation in all participating jurisdictions other than Alberta and Saskatchewan of the local orders commonly referred to as the "Northwest Exemption" or the "Northwestern Exemption"; and

  • Non-renewal of BC Instrument 32-517 Exemption from Dealer Registration Requirement for Trades in Securities of Mortgage Investment Entities (BCI 32-517).

The Notice reflects the view of CSA members that those purchasing securities in the private placement market require enhanced investor protections - in particular, the protections that are afforded by dealing with a registrant. The regulators' view is that after removal of the Northwest Exemption and BCI 32-517 (the Exemptions), these investors will benefit from the additional protections of the registration regime. It was also stated that revocation of the Exemptions will help harmonize securities laws across Canada. 

We note that these changes should not come as a surprise to market participants. The British Columbia Securities Commission (BCSC) first communincated its intent to revoke the Exemptions in early 2013. 

Having said that, the formal revocation of these Exemptions will impact a number of market participants. Those who have been relying on the Northwest Exemption and are considered in the business of trading securities will need to become registered in order to continue acting as finders. Mortgage Investment Entities (MIEs) who have been relying on BCI 32-517 will either need to register or engage a third party registrant. 

Revocation of the Northwest Exemption

The Northwest Exemption exempts unregistered persons from the registration requirements when selling or trading in securities distributed under certain common prospectus exemptions in British Columbia, Alberta, Saskatchewan, Manitoba, the Northwest Territories, Nunavut, and the Yukon. It has been commonly relied on by unregistered persons to earn finder's fees. 

The Notice confirms that the securities regulators in British Columbia, Manitoba, Nunavut, the Northwest Territories, and Yukon will revoke the Northwest Exemption effective on April 30, 2019.

Alberta announced in the Notice that it is consulting on revoking the Northwest Exemption. Saskatchewan is considering whether to revoke the Northwest Exemption and will advise of its approach in due course.

Non-Renewal of the Mortgage Investment Entities Exemption

The BCSC announced in the Notice that it will not be renewing BC 32-517. This instrument, which provides conditional registration relief in British Columbia for MIEs, will cease to be effective February 15, 2019.

Transition Provisions

The CSA members anticipate receiving a significant number of registration applications, which may delay their processing by the expiry date. To ensure market participants are not prejudiced by possible delays, the regulators have implemented transition provisions which will allow parties currently relying on the Exemptions to continue relying on them if:

  • The relevant securities regulatory authority has received a substantially complete 33-109F6 Firm Registration by the expiry date and paid the related fees, and

  • The filer is in compliance with the terms of the Exemption on the expiry date and on an ongoing basis.

Recognizing that some individuals will no doubt have difficulty meeting the registration proficiency requirements by the respective expiry date, the regulators have stated that they will consider appropriate interim relief on a case-by-case basis.

You can view the Notice here

DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.