The Canadian Securities Administrators (“CSA”) have released a few updates this summer regarding National Instrument 93-101 Derivatives: Business Conduct and its companion policy (collectively, the “Business Conduct Rule”). These included the British Columbia Securities Commission (“BCSC”) publishing an advanced notice of adoption of the Business Conduct Rule and the CSA announcing certain temporary relief to facilitate transition to the new regime. Subject to ministerial approval in British Columbia, the Business Conduct Rule and the temporary relief will take effect in all Canadian jurisdictions on September 28, 2024.

British Columbia Adopts the Business Conduct Rule

As we discussed in a previous post, the securities regulators in all Canadian jurisdictions other than British Columbia had published, in September 2023, Multilateral Instrument 93-101 Derivatives: Business Conduct (“MI 93-101”) and its companion policy, which would establish business conduct standards applicable to over-the-counter (“OTC”) derivatives markets in Canada. The BCSC intended to adopt substantially similar rules on a later date, at which time MI 93-101 would be converted into a national instrument. On July 11, 2024, the BCSC announced its adoption of the Business Conduct Rule and introduced a number of new provisions specific to British Columbia.

British Columbia-specific provisions

While the BCSC’s modifications to the Business Conduct Rule stem from legislative differences in British Columbia, they are stated to be intended to achieve a regulatory outcome that is consistent with that of the other Canadian jurisdictions. The new provisions include:

• Definition of “derivatives sub-adviser” (section 1): In British Columbia, this definition includes a reference to specific provisions of the Canadian Investment Regulatory Organization’s (“CIRO’s”) Investment Dealer and Partially Consolidated Rules;
• Exemption for qualifying clearing agencies (section 6): In British Columbia, this exemption from the Business Conduct Rule will apply to a clearing agency that is recognized or exempted from recognition as a clearing agency in British Columbia. Clearing agencies that are subject to the Business Conduct Rule but not recognized or exempted from recognition may apply to the BCSC for exemptive relief;
• Prohibition of tied selling (section 13): This prohibition is stated not to be required in British Columbia, because the contemplated tied-selling activities are subject to local securities legislation and regulatory requirements;
• Exemption for certain derivatives firms relating to derivatives party assets (section 24): Instead of imposing a condition that a derivatives firm in British Columbia comply with the guidelines of either the Office of the Superintendent of Financial Institutions or the Québec Autorité des marchés financiers to be exempt from certain provisions of the Business Conduct Rule, the BCSC has adopted conditions that are based on those guidelines and set out in Appendices A.0.1 and A.0.2 to the Business Conduct Rule;
• Responsibilities of senior derivatives managers (section 32): Instead of requiring senior derivatives managers to address “any material non-compliance” with the Business Conduct Rule, applicable securities legislation or certain policies and procedures, in British Columbia, this provision establishes specific criteria for non-compliance that must be addressed;
• Exemption for foreign liquidity providers (section 37): In British Columbia, there will be no condition that a derivatives dealer be registered, licensed or authorized, or otherwise operate under an exemption or exclusion from a requirement to be registered, licensed or authorized, under the legislation of the foreign jurisdiction in which its head office or principal place of business is located to qualify for this exemption from the Business Conduct Rule in respect of a transaction;
• Exemption for certain derivatives end-users (section 38): In British Columbia, a person or company that meets the conditions of this exemption would not generally be considered to be engaging in or holding itself out as engaging in the business of trading or advising in derivatives and would therefore not be subject to the provisions of the Business Conduct Rule relating to derivatives dealers or derivatives advisers;
• Exemptions for foreign derivatives dealers and foreign derivatives advisers (sections 39 and 46): In British Columbia, these exemptions from certain parts of the Business Conduct Rule will require that a derivatives dealer or derivatives adviser comply with the laws, codes, standards, bylaws, rules or other regulatory instruments of the specified foreign jurisdiction in which its head office or principal place of business is located, as set out in Appendices A.1 and D.1, as applicable, to the Business Conduct Rule. There is no condition that the derivatives dealer or derivatives adviser be registered, licensed or authorized, or otherwise operate under an exemption from registration, under the legislation of a specified foreign jurisdiction to qualify for these exemptions;
• Exemption for investment dealer members of CIRO (section 41): In British Columbia, the condition for this exemption from certain provisions of the Business Conduct Rule will require that a derivatives dealer be an investment dealer member of CIRO that complies with the CIRO rules specified in Appendix B.1 to the Business Conduct Rule; and
• Responsibilities of exempted investment dealer members of CIRO and Canadian financial institutions (sections 41 and 42): Instead of requiring derivatives dealers to report “each instance of material non-compliance” with certain provisions of the Business Conduct Rule, in British Columbia, these provisions establish specific criteria for non-compliance that must be reported.

Administrative changes were also made to transition MI 93-101 into a national instrument.

CSA Provide Certain Temporary Relief

On July 25, 2024, the CSA published temporary exemptions from certain requirements of the Business Conduct Rule relating to: (i) derivatives firms that deal with or advise investment funds advised or managed by registered or authorized foreign advisers or investment fund managers; and (ii) reporting requirements for senior derivatives managers. This relief has been granted through local blanket orders that are substantively harmonized across Canada, in the form of Coordinated Blanket Order 93-930 Re Temporary exemptions for derivatives firms from certain obligations when transacting with certain investment funds and for senior derivatives managers from certain reporting obligations (the “Blanket Orders”).

While the Blanket Orders have, at present, been issued in all Canadian jurisdictions other than British Columbia, the CSA anticipate that the BCSC will issue a substantially similar order if the Business Conduct Rule receives ministerial approval. The Blanket Orders take effect on September 28, 2024, and expire in Ontario on March 28, 2026.

Exemption relating to foreign-advised or managed investment funds

In response to concerns that the Business Conduct Rule might not apply uniformly to certain investment funds, depending on whether they qualify to be an “eligible derivatives party” (“EDP”), the Blanket Orders provide a temporary exemption from specified provisions for derivatives firms that transact with investment funds advised or managed by a foreign equivalent to a Canadian registered or authorized adviser or investment fund manager. This relief is intended to create a level playing field for domestic- and foreign-advised or managed investment funds that seek EDP status.

Exemption relating to senior derivatives managers’ reports

The Blanket Orders also extend the deadline by which senior derivatives managers must submit their first compliance report to the derivatives dealer’s board of directors. While the CSA have exempted senior derivatives managers from submitting a report by the current year-end deadline, the period from September 28, 2024, to the end of 2024 must be addressed in their 2025 report.

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