On August 3, 2021, the Canadian Securities Administrators (CSA) announced that it intends to consolidate the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) into a new single enhanced Self Regulatory Organization (New SRO). The CSA will also consolidate the Canadian Investor Protection Fund and the MFDA Investor Protection Corporation into an integrated fund (New IPF), independent of the New SRO. The CSA’s primary aims are to enhance governance, foster harmonization and efficiencies, reduce industry costs and strengthen proficiency.
The CSA implementation process will begin immediately and will be conducted in two phases. Phase one begins with the formation of an Integrated Working Committee (IWC). The IWC will design the corporate structure of the New SRO and consolidate the New IPF. They will also review current IIROC and MFDA rules and propose changes to harmonize the respective rules, policies and processes. Additionally, many of the proposed governance enhancements for the New SRO and New IPF will require new Recognition Orders and a new Memorandum of Understanding, which must be approved by each statutory regulator. The IWC will also be establishing other sub-committees and specialized working groups that will address areas such as OBSI, Investor Education, SEDAR+ Project and Market Surveillance.
In Phase two, the CSA will form a working group to engage with stakeholders and consider incorporating other registration categories into the New SRO, such as Portfolio Managers, Exempt Market Dealers and Scholarship Plan Dealers. Additionally, a Joint Forum of Financial Market Regulators will be tasked with harmonizing select securities regulation with that of insurance regulators.
As part of the announcement, the CSA outlined several solutions intended to support the New SRO. Some of the key solutions that have been proposed include:
- New measures to improve governance, including a requirement that the majority of the New SRO’s directors be independent;
- Enhancing investor education, including a review of the New SRO sanction guidelines/policies for the consideration of compensation to clients harmed by misconduct in assessing appropriate sanctions;
- Enabling the New SRO to permit chief financial officers, chief compliance officers, and other compliance staff to serve several firms simultaneously, subject to risk controls and regulatory approvals;
- Permitting dual platform dealers to include their mutual fund dealer and investment dealer businesses within one legal entity, and allowing carrying broker arrangements between investment dealers and mutual fund dealers to avoid the workarounds currently required for mutual fund dealers to access certain products;
- Implementing a CSA Market Information Coordinating Working Group (Working Group) to improve the sharing of information between the CSA and New SRO. The Working Group will review differences in jurisdictional enforcement processes and collaborate with the New SRO on areas such as market surveillance and inefficiencies in monitoring systemic risk.
The announced merger represents a significant shift in the regulation of the investment industry. While there will likely be some speed bumps as the implementation process unfolds, the CSA's announcement represents a welcome change to the current regulatory regime. It is expected that the New SRO will allow for greater innovation, efficiencies and cost savings in the investment industry.
The CSA is accepting comments about the proposed changes until October 4, 2021.
For further information, please contact:
Renee Reichelt 403-260-9698
Allyson Hopkins 403-260-9789
or any other member our Securities Litigation group.
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