CSA to Create Unique New Self-Regulatory Organization
The new SRO “will consolidate the functions” of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA), the statement said. The CSA will also consolidate the existing investor protection funds of the two SROs – the Canadian Investor Protection Fund and the MFDA Investor Protection Society – into an integrated fund independent of the new SRO.
In a document accompanying the announcement, the CSA said this structure was “the best solution” to deal with PBO reform following a consultation last year that identified shortcomings in the current regime, such as that regulatory duplication, inefficiencies and investor confusion.
“The new self-regulatory framework is the result of extensive research, consultation and analysis that informed the creation of a framework designed to protect Canadian investors and build public confidence, embrace innovation, operate operations. fair and efficient markets and navigate constantly changing industry conditions, ”said Louis Morisset, CEO of the CSA and CEO of the Autorité des marchés financiers, in the press release.
Prior to last year’s consultation, IIROC and MFDA each presented a vision for SRO reform. IIROC supported a merger with MFDA and suggested that broader reform be considered later. The ACFM called for a reformed SRO that would oversee all listed companies, with market regulation left to provincial regulators.
In the final analysis, the CSA have stated that the new SRO will initially include the registration categories of investment dealers and mutual fund dealers. During a second phase of the implementation of the new SRO, the CSA have stated that they will consider including additional registration categories – portfolio managers, exempt market dealers and plan dealers. scholarships, which are currently overseen by provincial regulatory bodies.
The current market oversight of IIROC will remain the responsibility of the new SRO, and the CSA will consider ways to improve the sharing of trade data information between the new SRO and the CSA.
In a separate press release, IIROC and MFDA said they supported the new framework.
To develop the new SRO rulebook, the current IIROC and MFDA rules will be reviewed to identify differences and propose any changes required for harmonization, the document said.
One of the ongoing issues for the harmonization of rules will be managed commission agreements. While MFDA advisers (except in Alberta) may charge their commissions or fees to a personal firm, IIROC rules do not allow such arrangements.
How directed commissions will be handled in the new SRO model requires more work, according to the document, and will be completed as part of the rulemaking process. A working group dedicated solely to this issue will be formed and will examine the tax status of advisers who use these devices, consult with stakeholders and possibly propose a rule to provide the necessary protections.
Such a rule would allow directed commission agreements “for registrants sponsored by any type of broker who is a member of the new SRO,” the newspaper said. The task force could also consider other options, such as adopting an embedded vendor scheme as a longer-term solution, if warranted, the document said.
To improve client access to products and advice – and in some cases reduce brokerage costs – the document presented various solutions such as: allowing the introduction of arrangements between mutual fund dealers and investment dealers means of accessing back-office and clearing systems; enable dual platform resellers to include both types of businesses within a single legal entity and to integrate back office functions; propose rules for the centralized collection of customer data; and enable more part-time advisors across all dealer platforms.
Another cost-saving solution outlined in the document was to allow CFOs, Compliance Directors, and other compliance staff to serve multiple companies.
To address investor concerns, improvements in governance to support the public interest will be an important part of the new SRO framework. Last year’s consultation included comments that the boards of directors of existing SROs were weighted in favor of industry participants at the expense of investors.
Accordingly, the CSA will ensure that the majority of the board members of the new SRO and its chair are independent and oversee the approval of board members, among other related measures, according to the document. In addition, the compensation structure of the new SRO leader will be linked to the performance of the public interest mandate of the new SRO.
The CSA will also consider an appropriate governance structure for the new investor protection fund, according to the document.
In order to serve the public interest, the new SRO will also create an investor advisory committee, which would potentially finance its activities from a fund of collected fines.
The complaint process for investors will be simplified. One option is to create a single complaints portal for the new SRO, which would filter complaints and route them where appropriate – to the company, the new SRO or regulators.
The CSA will also streamline continuing education (CE) for counselors, creating a “fair, consistent and proportionate” curriculum, the document says. The new ORS will build on existing CE programs and initiatives as a starting point for the new program.
As part of the first phase of the implementation of the new SRO, the CSA will create an “integrated working committee” to determine the organizational structure of the new SRO. This CSA-led committee will also oversee the integration of the new governance structure and the integration of existing IIROC and MFDA functions, as well as the functions of the two existing investor protection funds.
This work will involve consultations with staff of existing SROs and investor protection funds, among others.
“The CSA recognize the high level of skill, dedication and experience that staff at IIROC, MFDA and existing investor protection funds have consistently brought to their work,” Morisset said in the release. . “The combined strengths of these teams will be essential in establishing the new self-regulatory body and investor protection fund, and will be critical to their future success.”
Once the organizational structure of the new SRO is finalized, the CSA have announced that they will issue a public press release that will include an implementation schedule.
In the second phase, the inclusion of other registration categories will be considered in a formal consultation. In last year’s consultation, the Canadian Portfolio Management Association and the Private Capital Markets Association opposed the SRO model, citing concerns such as conflicts of interest.
Also in the second phase, harmonization efforts with insurance regulators will be considered, building on ongoing joint projects such as total cost reporting, the document said.
The CSA have said they will review “written representations” on the new SRO framework until October 4. At the same time, they will begin to implement the new SRO by establishing and leading the integrated working committee.