June 30, 2021
First Republic Capital Corporation
Conflict of Interest Disclosure Document
- The Purpose of this Document
In 2019, the Canadian Securities Administrators and its member organizations including the Ontario Securities Commission designated a series of Client Focused Reforms (CFR’s) to increase protection of the interests of clients. These changes are being introduced in a phased manner, beginning on June 30, 2021 with the delivery of detailed Conflict of Interest disclosures which must be made available by all registered firms to new and existing investor clients.
This document is meant to fulfill the Conflict of Interest disclosure requirement. It defines and expands upon the specialized role of First Republic Capital Corporation as a securities registrant firm, and identifies and discusses sources of Conflict of Interest that could impact our clients. This document is being posted effective June 30, 2021 on our website at www.firstrepubliccapital.com. It will also be reviewed with new clients and past clients on a periodic basis as appropriate.
- First Republic Capital Corporation: an Exempt Market Dealer
First Republic Capital Corporation is registered as an Exempt Market Dealer (“EMD”) in the provinces of Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Nova Scotia, Saskatchewan, Ontario and Quebec. Exempt Market Dealers have a very specific role in the securities industry, underwriting and dealing in securities offerings which are exempt from prospectus requirements. EMD’s can represent both issuers, the companies raising funds, and investors seeking to invest their funds.
- First Republic Capital Corporation and the Scope of our Services
Our issuer clients in many cases are new or startup companies and are not publicly traded, although they may have plans to become publicly listed and traded. Our firm works closely with issuers to help them raise funds in private placements, developing strong relationships and sometimes acting in an advisory or consulting capacity. Since our founding, areas of expertise have been developed in a small number of industries, on occasion attracting business with multiple issuer clients in these industries.
Investor clients who invest in our market offerings are almost exclusively Accredited Investors or Eligible Investors as dictated by securities regulations, due to the higher risk and more illiquid nature of prospectus-exempt market securities. It is our legislated responsibility as an EMD to evaluate on an ongoing basis the financial status of all investors- both individuals and entities- to determine whether or not they qualify to invest either as an Accredited or Eligible Investor, or through another exemption. This “Know Your Client” process is required before recommending or approving participation in any exempt deal. We are also required to ensure that the size of investment is suitable relative to the overall holdings of the investor.
It is important to define the scope of our activities with investor clients. Our firm facilitates purchases of prospectus-exempt securities by qualified investors. We work with our clients on a transactional basis dependent on the specific deals they invest in or consider. All securities we sell to clients are time-limited offerings or “deals”, and there is never more than a small number of securities available for purchase from our firm at any given time. We do not hold or handle funds tied to transactions, and we do not hold securities or manage accounts for clients. We do not provide investment advice or overall portfolio management services of any kind. In addition, our firm does not provide an overview or analysis for investing clients of other securities offerings, including other Exempt Market offerings.
- Conflict of Interest – what it is, and our responsibility to our clients
The Customer Focused Reforms mandate that the interests of the client must always come first in any dealings with registrant firms or individuals. It is the responsibility of all Registrants to identify, assess and appropriately address conflicts of interest that exist or could exist which could jeopardize the interests of our clients.
A conflict of interest can occur if the interests of a client are in conflict with those of our firm or an employee of our firm. On some occasions there can be a conflict in representing the interests of two clients. Conflict of interest has the potential to bias decisions, actions and recommendations so that they are not in the best interest of the client.
Some conflicts of interest occur during the course of day-to-day business activities, while other conflicts may arise as the result of a specific business transaction or situation. If conflicts of interest are identified as material- meaning they could affect either client decisions or the recommendations or decisions made by our firm or our registered Dealer Representatives- they must be addressed appropriately using one of the following responses:
- Control. Procedures to separate business activities within the firm and restrict internal exchange of proprietary information so that conflicts of interest will not affect the best interests of the client.
- Disclosure. Clear disclosure of identified conflicts of interest so that the client can make a fully informed decision to best meet their interests.
- Avoidance. Removal altogether of the source of the conflict if controls and disclosure are not adequate, possibly resulting in adverse effects for the registrant, such as loss of revenue.
Our firm and our personnel adhere to a Policies and Procedures document which outlines our response to conflicts of interest.
- Managing Existing Conflicts of Interest in our Daily Activities
Please review Appendix A where we have listed the most common conflicts of interest we encounter or could encounter on a daily basis in our business, and how we manage these conflicts to protect the interests of our clients.
- Where to Find More Information
As the Client Focused Reforms are being put in place by the Canadian Securities Administrators and its member organizations they will be incorporated into National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations and Companion Policy 31-103 CP, Registration Requirements, Exemptions and Ongoing Registrant Obligations.
The document containing the proposed amendments to National Instrument 31-103 and 31-103 CP can be accessed at the following URL: https://www.osc.ca/sites/default/files/pdfs/irps/ni_20191003_31-103_reforms-enhance-client-registrant-relationship.pdf
|Conflict of Interest (COI)||Potential Risk Presented by the COI||Action to Address and Manage COI||Details
|A. We earn compensation on all securities sold to investors. Compensation is paid by the issuers and can take the form of fees, cash commission or other compensation such as broker warrants.||Motivation to generate revenues could lead to selling or promoting securities to ineligible investors or selling of inappropriately large quantities to eligible investors.||Disclosure||We inform investors fully of all fees, commission and other compensation we earn in advance of any purchase they may make.|
|Controls||All proposed purchases must be reviewed and approved by our compliance personnel. Our compliance policies and procedures prevent us from selling a security to an investor who is ineligible, or selling more than is suitable for the investor based on their financial profile.|
|B. We may act as underwriter or advisor for an issuer of a securities offering, as well as for investors wishing to participate as a purchaser.||Our firm might have difficulty meeting the conflicting needs of both sets of clients: the issuer and the investors. An issuer would approach a financing seeking to get the highest possible price to increase their funds raised, while investors would be seeking to pay the lowest possible price in the same transaction.||Controls||Pricing and other marketing decisions for the issuer are completed separately from and prior to the offering being made available for sale to any investors.|
|C. We may act as dealer or advisor for companies that are related or connected issuers (companies sharing a significant ownership stake or having a relationship with our firm, or with an individual registered with our firm).||These unique relationships could influence our ability to deliver unbiassed recommendations in the best interest of our investors.||Disclosure||Deal- specific Disclosure. All materials pertaining to a current deal for a related or connected issuer- including the subscription agreements signed by the investor- include prominent and detailed disclosure of this information.
Historical Disclosure. We will maintain a rolling list of all related or connected issuers with whom we have closed deals or conducted other business transactions over the most recent 24-month period. This list will be updated quarterly and posted on our website, and will also be provided to clients upon request.
|Controls||Dealing representatives or other selling parties receive no added internal incentives when promoting or selling securities for a related or connected issuer.|
|D. Individuals at our firm may become aware of confidential information about an issuer as a result of business relations or an advisory role.||Possession of confidential information could influence the ability to deliver unbiassed recommendations to investors, especially if the information would materially change the investor’s opinion of an investment opportunity.||Controls||Individuals with access to confidential information about an issuer must take active steps to contain this information so that it does not in any way impact recommendations made to investors or investor decisions regarding an investment. This information must not be disclosed to anyone including directors, officers or employees of our firm and our clients.|
|E. Members of our firm acting as director or advisor to a reporting (publicly traded) issuer, or having a significant ownership interest in a reporting issuer, may have access to sensitive insider information about the issuer.||Possession of confidential information could influence the ability to deliver unbiassed recommendations to investors, especially if the information would materially change the investor’s opinion of an investment opportunity.||Controls||Individuals with access to confidential information about an issuer must take active steps to contain this information so that it does not in any way impact recommendations made to investors or investor decisions regarding an investment. This information must not be disclosed to anyone including directors, officers or employees of our firm and our clients.|
|Avoidance||In the event that measures of control are not adequate to manage potential conflict of interest, our firm would decline to provide a service to the issuer.|
|F. A registrant with our firm may have outside business activities, with or without compensation.||Access to confidential information could influence the ability of a registrant to deliver unbiassed recommendations to investors.
In addition, outside business activities could have an impact on the registrant’s ability to provide complete customer service to clients.
|Disclosure||Disclosure within our firm. Any outside business activities must be identified by registrants with our firm, and assessed by the Chief Compliance Officer as a potential source of conflict of interest. Depending on this assessment, further measures of disclosure, control or avoidance may be required. Disclosure to our clients. As appropriate, clients materially affected by the registrant’s outside business activities will receive disclosure of these activities.|
|Avoidance||As required, if disclosure and controls are not adequate to contain and manage the conflict of interest.|
|G. Employees at our firm are compensated partly based on the revenue performance of the firm, including those employees with compliance responsibilities.||The integrity of compliance decisions could be compromised in the interest of generating revenue, by approving investments that are not in the best interest of clients.||Controls||A strict process is in place for all registrants and employees to ensure that all proposed investments for all clients are reviewed in accordance with compliance guidelines before being approved|
June 30, 2021