An Overview of the Investment Fund Manager Registration Requirement

When National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”) came into force, it introduced a new category of registration for firms. NI 31-103 requires all managers, whether persons or companies, of investment funds to register as an Investment Fund Manager (“IFM”) unless an exemption is available.  IFMs direct the business, operations or affairs of an investment fund. The Companion Policy to NI 31-103 further indicates that IFMs organize the fund and are responsible for its management and administration.¹

An investment fund is a collective investment vehicle in which money is pooled together for the purpose of investing. The investment fund may invest in a portfolio of securities, but it is not restricted to investments in securities. Provided the collective investment vehicle meets the definition of an investment fund and a person or company directs its business, its manager must register as an IFM.

The definition of investment fund is found in National Instrument 81-106 – Investment Fund Continuous Disclosure, which defines it as a mutual fund or non-redeemable investment fund.² A mutual fund is a fund whose primary purpose is to invest money provided by its securityholders and offers securities that are redeemable on demand or within a specified period of time after demand at its net asset value per security. A non-redeemable investment fund is a fund (i) whose primary purpose is to invest money provided by its securityholders; (ii) that does not invest for the purpose of exercising or seeking to exercise control of an issuer, or for the purpose of being actively involved in the management of any issuer in which it invests (other than an issuer that is a mutual fund or a non-redeemable investment fund); and (iii) that is not a mutual fund.

It is apparent that the IFM registration requirement applies broadly and gives regulators much wider power to regulate this industry since it casts its net over mutual funds and non-redeemable investment funds. Although there are exceptions to this registration requirement, the regulators appear to accept very few. However, whether registration is required will depend on the facts and will differ from case to case. There are, for example, corporate structures that have non-redeemable securities, but those entities are not necessarily investment funds.

Consider the scenario where a group of closely-related investors pool their money for the purpose of forming a syndicate to purchase race horses. The investors contribute an equal amount of money and receive non-redeemable securities for their investment in return. The money is used to buy race horses as well as care for, train, and enter the horses in various races. The expectation is that any winnings will be shared equally among the investors. Although one investor may be tasked with managing the bank account, that investor is not directing the business, operations or affairs of the syndicate. The investors are collectively making decisions for the syndicate as well as exercising control over it. This is different from a situation where investors pool their money for the purpose of buying percentage interests in various race horses and someone is managing their money, making the purchase decisions as well as all decisions related to the horses. This latter example may have the attributes of a non-redeemable investment fund and the manager of this fund will more than likely require registration as an IFM.³

If the fund meets the definition of an investment fund, the manager must not only register but also comply with other requirements stipulated in NI 31-103. Some of the compliance requirements are as follows:

• The IFM must designate, and apply for registration of, a chief compliance officer (“CCO”) who satisfies proficiency requirements set out in NI 31-103 as well as an ultimate designated person (“UDP”). Depending on the size of the firm, the CCO and UDP may be the same person.  The IFM registration requirement does not apply to other individuals who are acting on behalf of a registered IFM.
• The IFM must comply with specific capital requirements, including maintaining a minimum capital of $100,000 and insurance requirements.
• The IFM must file annual and quarterly financial statements to the applicable securities regulator. The financial statements must include calculations of excess working capital and a description of any net asset value adjustments made during the financial year or quarter.
• The IFM is subject to conduct rules, which include maintaining and applying policies and procedures as well as rules related to client assets, record-keeping and retention, and referral agreements.

The priority of the securities regulators is to protect the public interest. As a result, it is more likely than not that a manager of a collective investment vehicle will require registration as an IFM if the investment vehicle meets the definition of an investment fund. The manager will then be subject to the compliance regime set out in NI 31-103. Therefore, think carefully about the structure of your investment vehicle and consider whether its manager is subject to the IFM registration requirement.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.

1. Specific examples of functions or activities that an IFM directs are listed in Multilateral Policy 31-202 – Registration Requirement for Investment Fund Managers (“MP 31-202”).  This policy applies in British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia, New Brunswick, Northwest Territories, Yukon and Nunavut.
2. The complete definition of investment fund in NI 81-106 is “investment fund” means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an EVCC (employee venture capital corporation) and a VCC (venture capital corporation).  For the purpose of this article, EVCCs or VCCs are not discussed.
3. The purpose of these examples is solely to show whether registration as an IFM is required.  They do not consider if registration in other categories is required.