If you’re an MFDA advisor, your regulator might take a closer look at your book of business during examinations.
“The data contained for a client research project has given us a very granular insight into advisors’ books,” said Karen McGuinness, senior vice-president, member regulation — compliance, at the MFDA. She spoke in Toronto yesterday at IFIC’s annual leadership conference.
Based on that research, she said the SRO would “look at advisors as part of our dealer examinations.” Further, she said there will be “a sweep of advisors” whose books of business indicate a concentration of high-risk funds. Asset allocations for seniors will also be assessed. “We’ll be cross-referencing portfolios with client age,” she said.
McGuinness also revealed that a continuing education rule proposal for MFDA advisors will be published late this year or early next year. But it’s too early to discuss an implementation date, she said. “We’re not driving toward some arbitrary deadline. It will be in effect when it makes sense.”
When asked about regulatory initiatives, Janice Leung, manager, adviser/investment fund manager compliance, at the BCSC, said the regulator has been testing CRM reports in examinations and would continue to do so “in the near future.” The regulator will also discuss with firms the infrastructure they have in place to ensure accurate CRM2 reporting.
She revealed a BCSC study found that 52% of less confident investors reported a better understanding of fees after receiving CRM2 reports. Among confident investors, 11% changed advisors after receiving the reports, 16% engaged in new communication with their advisors, and 25% said they plan to make changes to their fees or investment products.
“At a very basic level, these are signs showing us CRM2 is working,” she said.
The BCSC study also found that, for investors who said they didn’t recall receiving CRM2 reports, there was a 15% drop in satisfaction with their advisor relationship, and a 20% drop in their satisfaction with advisor communication.
Firms should ensure the reports are clearly labelled, suggested Leung. She said the BCSC will continue its ad campaign to educate clients about CRM2, and CSA research on CRM2 will continue to 2021.
The OSC intends to do a sweep of CRM2 and will send a request for information to firms, said Felicia Tedesco, manager, compliance and registrant regulation, at the OSC.
Other regulatory highlights
Marsha Gerhart, vice-president, member regulation policy at IIROC, outlined IIROC’s compensation review. She said that the SRO has no interest in regulating compensation, but “compliance groups need to be involved in the development of compensation programs.”
If you’re waiting on alternative funds, expect to wait a while longer. The proposal has been “hamstrung by [CSA staff] capacity issues,” said John Mountain, director, investment funds and structured products, at the OSC. When published — possibly mid-2018 — he expects it will be a final rule.
The OSC also plans a sweep of the whistleblower program, with a focus on service agreements and employment contracts that could silence potential whistleblowers, said Felicia Tedesco, manager, compliance and registrant regulation, at the OSC. She calls the sweep a first step at information gathering.
Also on the OSC’s radar: funds with significant proportions of liquid investments. The regulator will assess such funds for things like valuation methodology and investment strategy.
Similarly, the AMF is studying the liquidity profile of fixed income mutual funds, as well as increased volatility profiles of standard portfolios and systemic effects of passive index investing, said Hugo Lacroix, senior director, investment funds, at the Autorité des marchés financiers.
Other items in the pipeline: the CSA plans to publish a notice on cybersecurity within two months or so, which will detail results from a registrant survey on cybersecurity practices. And IIROC, in conjunction with the CSA, is assessing series A funds offered on non-advice channels. An associated recommendation will be formulated.