satisfaction-high-marks-review

01 MFDA’s CRM2 guide

The MFDA’s CRM2 implementation guide gets top marks from Rebecca Cowdery, a partner at BLG in Toronto. “It’s a really good, plain-language primer on all the requirements,” she says. “People should print it off and have it in front of them.”

Cowdery notes the 16-page guide doesn’t just repeat what the rules say. “They’ve added some additional information that you won’t find in the rules and guidance that’s been [issued] already.”

It clarifies what to do regarding various hot-button items. “Position cost has been a really big issue over the past little while. They’ve done a good job explaining it.” Cowdery also singles out the section on GICs and segregated funds, where MFDA says:

  • compensation from investments that are not securities (e.g., GICs, segregated funds) doesn’t have to be included in the report on charges and other compensation, but it’s “strongly encouraged;”
  • if it is impractical to establish reporting for these investments, the report must identify such position(s) and disclose that compensation was received on these investments, but not included in the report.

One of the most important sections covers transfer payments from affiliates, stating: “Certain MFDA Members are part of large integrated corporate groups. In certain circumstances, Members who are part of such corporate groups do not receive commission revenue. Instead, such dealers receive internal transfer payments from affiliates based upon a management agreement with the corporate group.”

“This is the strongest guidance we have ever received from any regulator,” says Cowdery. “They are encouraging mutual fund dealers in those situations to disclose the cost if they can. They do want an explanation about internal payment between the affiliate that goes to the dealer in respect of the client account.”

02 IIROC annual report

Right before Labour Day, IIROC released its annual report. Prema Thiele, a partner at Borden Ladner Gervais in Toronto, found no major surprises, though she’s concerned about the number of dealer firms slipping from 195 to 187. “It’s reflective of an industry that still seems to
be consolidating.”

Debt reporting

In November, firms classified as government securities dealers must report debt security transactions. “It’s a very common asset class, but […] the regulators view the debt markets as much more opaque and much less transparent than the equity markets,” says Thiele. “So, sweeping debt-reporting rules are being transitioned in.”

The first phase will start with certain government securities distributors only.

“The second phase,” Thiele explains, “will have reporting on every debt transaction, perhaps next year.” The new rules, she adds, will have “real impact on a lot of players. There are a lot of advisors in that debt space.”

Bernard Pinsky, a partner with Clark Wilson in Vancouver, sees a benefit for IIROC.

“This brings a huge market in Canada into their jurisdiction and oversight.”

Pinsky also highlights from the report that IIROC collected 13.3% of the fines it levied against individuals. That may sound meager, but IIROC says the number’s “dramatically higher in the two Canadian provinces” where IIROC is able to “pursue payments as if the fines were decisions of the court.”

In the year prior, IIROC collected 17.3%. “What happens with individuals,” Pinsky explains, “is that, once they are caught in wrongdoing, they typically run out of money either through mismanagement [or] legal fees in defense of the wrongdoing, or [they have] hidden it away. Firms, of course, will pay in order to stay in business.”

03 National regulator update

B.C., Ontario, Saskatchewan, New Brunswick, PEI and the Yukon are transitioning to the Cooperative Capital Markets Regulatory System. A draft of initial regulations was released August 25.

The new structure would mean one set of rules for these jurisdictions. “Right now, […] there are multi-lateral instruments and all sorts of local rules and orders,” says Kathleen Ritchie, a partner at Gowlings in Toronto. “The purpose of this initiative is to harmonize across the participating jurisdictions.” For instance, an advisor based in B.C. can currently serve five clients in, say, Ontario, but if she adds a sixth, she has to register in that province. That process will end under the harmonized system.

“It’s a benefit,” says Tal Cyngiser, an associate at Gowlings. “This means advisors would be operating in more than one province on a single registration.” Adds Ritchie: “This new system will be administered by a new regulatory authority, so you won’t deal with the Ontario or B.C. Securities Commission anymore. You’ll deal with the capital markets regulatory authority. It’ll be one-stop shopping. And there’ll be a single, unified fee structure.”

The comment period ends on December 23. The legislation is due to be passed by the end of June 2016, with the new regulator scheduled to begin operating in the fall.

“A lot needs to be accomplished to meet that kind of time frame,” Ritchie cautions, as harmonizing legislation will be complex and time-consuming. But Ritchie is confident they’ll get it done. “Progress is being made.”

by Allan Tong, a Toronto-based financial journalist.

Originally published in Advisor's Edge Report

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