Canadian Securities Administrators (CSA) issue a request for comments on draft documents related to the proposed amalgamation of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) into a single self-regulatory organization (New SRO), and of the Canadian Investor Protection Fund (CIPF) and the MFDA Investor Protection Corporation (MFDA IPC) into an independent single investor protection fund (New IPF).

Following the recommendations of the CSA published in CSA Position Paper 25-404 - New Self-Regulatory Organization Framework (CSA Position Paper), which we previously wrote about, IIROC, the MFDA, CIPF and MFDA IPC have been working together on the process of amalgamating their operations into the New SRO and New IPF. The CSA are currently seeking comments on the documentation supporting the application for recognition of the New SRO, and the approval and acceptance of the New IPF.

Key Features

According to the CSA, the purpose of the New SRO is to provide a framework for efficient and effective regulation in the public interest. The documents published for comment form the basis for an enhanced regulatory framework, and include the following:

  • Clarification and reinforcement of the New SRO's public interest mandate;
  • An enhanced governance structure for the New SRO that ensures the board of directors and board committees are composed of a majority of independent directors and independent chairs, and the governance committee is composed of all independent directors;
  • Clear criteria outlined for independent directors;
  • Cooperation with the securities regulators through the alignment of strategic business plans, annual statements of priorities and budgets;
  • The replacement of current IIROC District Councils with Regional Councils tasked with advising the New SRO about regional regulatory policy matters; and
  • Improved access to advice through introducing/carrying broker arrangements between mutual fund dealers and investment dealers.

Of note is the establishment of an investor advisory panel (IAP) and investor office to ensure that investors are formally represented on advisory committees. The concept of an IAP was created in response to issues raised by stakeholders in their comments on CSA Consultation Paper 25-402 - Consultation on the Self-Regulatory Organization Framework, which was published on June 25, 2020. The IAP will consist of five to eleven experienced and independent members with the intention that they will support the New SRO staff during the early stages of development of regulatory policies, strategic plans, annual priorities and other investor-related initiatives. Further details about the IAP can be found on IIROC's website or MFDA's website.

Interim Rules

The New SRO intends to adopt and administer interim rules incorporating the pre-amalgamation regulatory requirements contained in the rules and policies of IIROC and the by-laws, rules and policies of the MFDA (Interim Rules). The Interim Rules will be subject to public consultation. Some key changes proposed in the Interim Rules include:

  • proposals to permit mutual fund dealers to introduce business to investment dealers through an introducing/carrying broker arrangement, resulting in greater access to exchange traded funds for mutual fund clients, and
  • an amendment to current IIROC proficiency requirements to permit firms with dual registration as both an investment dealer and a mutual fund dealer to employ mutual funds only licensed individuals.

Further details can be found by referring to New SRO Interim Rules - Frequently Asked Questions published on both the IIROC website and MFDA website.

New IPF

Upon amalgamation, the New IPF plans to maintain two segregated funds available to eligible customers of investment dealers or mutual fund dealers until it is determined that segregation of funds is no longer necessary from a risk perspective. Documents related to the New IPF have been prepared taking into consideration the new dual investment dealer and mutual fund dealer registration category. Where a single legal entity operates as both a registered investment dealer and registered mutual fund dealer, insurance coverage would be available for both of the categories.

Québec Based Mutual Fund Dealers

The Autorité des marchés financiers is also publishing for comment a proposed transition plan for mutual fund dealers in Québec and their registered individuals, which will be incorporated into the Interim Rules of the New SRO following the comment period and will be effective upon amalgamation. Québec mutual fund dealers will continue to contribute to the Québec financial services compensation fund and will not be required to contribute the New IPF in respect of customer accounts located in Québec, nor will those accounts be eligible for coverage by the New IPF.

Comments on the draft documents are being accepted until June 27, 2022.

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