Header graphic for print
Canadian Securities Regulatory Monitor News and Insight

Author Archives / Michael Nicholas

Subscribe to posts by Michael Nicholas

Targeted Reforms Update – Most regulators abandon the “Best Interest Standard” but propose to proceed with refined “Targeted Reforms”

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, OSC, Registrants

The Canadian Securities Administrators (CSA) issued CSA Staff Notice 33-319 (the Notice) to provide an update on the “Best Interest Standard” and “Targeted Reforms” proposed last year in an important CSA Consultation Paper that we discussed in a previous post.

Most regulators have decided to abandon the Best Interest Standard which would have introduced a “client best interest” standard against which all registrant-client obligations would be interpreted.

The CSA will still proceed with a refined set of Targeted Reforms. Even in the absence of a Best Interest Standard in most jurisdictions, the Targeted Reforms would nonetheless … Continue Reading

The Finish Line: CSA Publishes Proposed Amendments in Final Phase of Modernization of Investment Fund Product Regulation

Posted in Amendments, Closed-End Funds, CSA, Investment Funds, Mutual Funds

On September 22, 2016, the Canadian Securities Administrators (the “CSA”) published CSA Notice and Request for Comment – Modernization of Investment Fund Product Regulation – Alternative Funds (the “Proposed Amendments”).  The Proposed Amendments represent the final phase of the CSA’s ongoing policy work to modernize investment fund product regulation in Canada (the “Modernization Project”).  While primarily aimed at the development of a more comprehensive regulatory framework for commodity pool mutual funds that are currently governed by National Instrument 81-104 – Commodity Pools (“NI 81-104”), if adopted, the Proposed Amendments will also have a meaningful impact on other types of mutual … Continue Reading

IIROC issues cybersecurity report cards to dealer firms

Posted in Broker-Dealers, CSA, IIROC

IIROC is providing all dealer member firms it regulates (Firms) with a confidential cybersecurity “report card” that will include:

  • an individual assessment of the Firm’s cybersecurity preparedness program
  • a comparison of the Firm’s cybersecurity practices against the industry and other Firms of similar size and business model
  • a list of cybersecurity areas to which the Firm should be giving priority attention.

The report cards were generated based on the results of an extensive assessment survey that Firms completed in June 2016. The survey responses were benchmarked against a National Institute of Standards and Technology cybersecurity framework that … Continue Reading

Les propositions des ACVM concernant les personnes inscrites ont des effets très importants sur les courtiers et les conseillers au Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment

Les Autorités canadiennes en valeurs mobilières (les ACVM) ont publié un important document de consultation dans lequel il est proposé de rehausser considérablement les obligations de tous les conseillers, courtiers et représentants, y compris les membres de l’OCRCVM et de l’ACFM (les personnes inscrites). Les commentaires sur ce document de consultation peuvent être présentés jusqu’au 26 août.… Continue Reading

Tomorrow, May 18, Registrants Will Receive the OSC’s 2016 Risk Assessment Questionnaire – What Will Your Firm’s Risk Rating Be?

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants

For the first time since 2014, the Ontario Securities Commission (OSC) will send Ontario registrants a risk assessment questionnaire (RAQ) that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. Registrants will receive the 2016 RAQ tomorrow, May 18.

The OSC uses data gathered through the RAQ to apply a risk ranking to firms. Firms with higher risk rankings are more likely to be targeted by the OSC for compliance reviews. As a result, it is important that the RAQ answers be considered … Continue Reading

CSA Registrant Proposals Have Far-Reaching Effects on Dealers and Advisers in Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment

Recently, the Canadian Securities Administrators (CSA) released an important Consultation Paper that proposes to significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants). Comments on the Consultation Paper can be made until August 26.

The CSA is proposing two distinct categories of changes that, if adopted, will significantly impact the economics of existing Registrant business models and Registrant compliance costs:

1. Best Interest Standard: A “client best interest” standard against which all Registrant-client obligations would be interpreted.

2. “Targeted Reforms”: A comprehensive set of so-called “targeted reforms” will affect … Continue Reading

The CSA Proposes Mandatory Standardized Risk Classification Methodology for Mutual Funds and ETFs

Posted in Amendments, Continuous and Timely Disclosure, CSA, Investment Funds, Mutual Funds, Portfolio Managers

The Canadian Securities Administrators (CSA) are proposing to introduce a mandatory standardized risk classification methodology for mutual funds and ETFs (the Proposed Methodology).[1] Fund managers would be required to use the Proposed Methodology to determine the investment risk level of conventional mutual funds (which must be disclosed in the Fund Facts document) and exchange-traded mutual funds (ETFs) (to be disclosed in the proposed ETF Facts document). Currently, fund managers may determine the risk level of a mutual fund using a methodology of their choosing, though the methodology developed by the Investment Funds Institute of … Continue Reading

OSC mulling ban on mutual fund trailing commissions for fee-based accounts

Posted in Continuous and Timely Disclosure, Industry News, Investment Funds, Mutual Funds, OSC

The OSC Staff has announced steps it will take to eliminate trailing commissions for fee-based mutual fund series when they file their next annual renewal prospectuses. In the latest edition of the OSC’s Investment Funds Practitioner, OSC Staff expressed the view that a mutual fund series intended for fee-based accounts should not also have a trailing commission embedded in the ongoing cost of the fund series. In Staff’s view, this compensation structure is inconsistent with fee-based mutual fund series because of the extra trailing charge on top of the fee. The OSC Staff maintains this result may be contrary … Continue Reading

Canadian Public Company Disclosure Deficiency Rate Nearly Doubled in 2014

Posted in Continuous and Timely Disclosure, CSA, Enforcement, Industry News

The Canadian Securities Administrators (CSA) recently released CSA Staff Notice 51-341 setting out the results of their Continuous Disclosure Review Program for fiscal 2014.

The Program is used to evaluate compliance of reporting issuers (RIs) with continuous disclosure obligations and how regulators reacted in the year to deficiencies including referrals of RIs to enforcement, commencement of cease-trading proceedings, placing RIs on the default list, forcing refilings, and requiring changes in future RI filings.

The CSA conducted fewer reviews in fiscal 2014 (a 26% year-over-year decrease), but these reviews led to more serious consequences for issuers.

Almost … Continue Reading

Investment Fund Managers – A Regulatory Check-up

Posted in Compliance and Supervision, Continuous and Timely Disclosure, Investment Funds, Mutual Funds, OSC

The Ontario Securities Commission (“OSC”) has recently released two notices providing helpful guidance on the compliance operations of investment fund managers (“IFMs”). This guidance is contained in the 2013 annual review summary report for dealers, advisers and investment fund managers (the “Annual Report”) and a June, 2014 notice reporting on the targeted review of investment fund managers (the “June Report”).

In this post, we summarize OSC findings in its compliance reviews of IFMs as discussed in the Annual Report and June Report.

Issues respecting UDPs and CCOs

IFMs are required to maintain a control and supervisory … Continue Reading

The OSC’s 2014 Risk Assessment Questionnaire Exposes Registrants to Risk of Self-Incrimination

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants

For the first time in three years, the Ontario Securities Commission (OSC) has sent Ontario registrants a risk assessment questionnaire that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. The OSC intends to use the data gathered through the questionnaire to inform its decisions about “which firms require further attention and oversight”.

In some cases, the questionnaire may put recipient registrants at risk of admitting working capital deficiencies, inappropriate marketing practices and other potential violations. As a result, it is important that answers be considered carefully. The … Continue Reading

IIROC Survey Shows Diverse “Best Execution” Practices

Posted in Broker-Dealers, Compliance and Supervision, IIROC, Industry News, Marketplaces

Recently, the Investment Industry Regulatory Organization of Canada (IIROC) released the results of a best execution survey it conducted of all its dealer members that execute secondary market trades in listed securities. There is great variability in the best execution practices followed by participants. In this post we comment on some of the survey results.

Compliance and Supervision Practices

Compliance Procedures

Nearly three quarters of respondents have procedures specifically in place to supervise compliance with best execution. Only two thirds of the participants that are members of some marketplaces and always use an executing participant to enter orders … Continue Reading

Portfolio Managers – A Regulatory Check-up

Posted in Compliance and Supervision, Continuous and Timely Disclosure, OSC, Portfolio Managers

In its latest annual review summary report for dealers, advisers and investment fund managers (the “Report”), the Ontario Securities Commission (“OSC”) provides some helpful guidance for registrants.

The OSC regulates or oversees through recognized self regulatory organizations the activities of approximately 1300 registered firms and 66,000 individuals in Ontario.  The Report largely focuses on registrants directly regulated by the OSC: exempt market dealers, portfolio managers (“PMs”) and investment fund managers.… Continue Reading

Exempt Market Dealers – A Regulatory Check-up

Posted in Compliance and Supervision, Continuous and Timely Disclosure, Exempt Market Dealers, OSC

The Ontario Securities Commission (“OSC”) recently released its 2013 annual review summary report for dealers, advisers and investment fund managers (the “Report“).

The OSC regulates or oversees through recognized self regulatory organizations the activities of approximately 1300 registered firms and 66,000 individuals in Ontario.  The Report largely focuses on registrants directly regulated by the OSC: exempt market dealers (“EMD”) portfolio managers and investment fund managers.

In this post, we summarize OSC findings in its compliance reviews of EMDs.… Continue Reading

OSC Issues Report on Continuous Disclosure Review of Investment Fund Sales Communications

Posted in Continuous and Timely Disclosure, Investment Funds, OSC

Last week, the OSC published Staff Notice 81-720 – Report on Staff’s Continuous Disclosure Review of Sales Communications by Investment Funds.

The notice summarizes the findings of an OSC targeted continuous disclosure (CD) review of the advertising and marketing materials of publicly offered investment funds and provides related OSC guidance.… Continue Reading

CSA Issues Guidance on Relationship Disclosure Practices for Portfolio Managers and Exempt Market Dealers

Posted in Broker-Dealers, Compliance and Supervision, Continuous and Timely Disclosure, CSA, Investment Funds, Portfolio Managers

Last week, the CSA published Staff Notice 31-334 – CSA Review of Relationship Disclosure Practices. The notice summarizes findings of a recent CSA compliance review of registered portfolio managers (PMs) and exempt market dealers (EMDs) and provides guidance on relationship disclosure information (RDI) practices.… Continue Reading

Fiduciary Duty for Dealers: Upcoming CSA Panel Discussion

Posted in Advisors, Broker-Dealers, Compliance and Supervision, CSA

The CSA announced on Monday the discussion topics for its panel session on July 23, 2013 from 10:00 a.m. to 12:00 p.m. on the 22nd floor of the OSC’s offices, located at 20 Queen Street West, Toronto, Ontario. The session will be moderated by James E.A. Turner, Vice-Chair of the OSC.

The panel discussion will focus on the following two topics:

  1. Should dealers (and their representatives) be subject to a best interest standard when providing advice to retail clients? What would the consequences be of introducing such a standard?
  2. What other policy options could securities regulators consider in addition, or
Continue Reading

Canadian Securities Regulators Release Three-Year Business Plan

Posted in CSA, Industry News

Last week, the CSA released its three-year business plan for the period April 1, 2013 through to March 31, 2016.

The plan is designed to reflect CSA members’ commitment towards enhancement of the Canadian regulatory framework, with particular emphasis on the implementation of investor protection initiatives. The key CSA priorities include:

  • retail investor protection;
  • capital raising by small and medium sized enterprises and review of available prospectus exemptions;
  • shareholder democracy and protection;
  • market regulation; and
  • enforcement effectiveness.
Continue Reading

IIROC Issues Final Guidance on Stop Loss Orders

Posted in IIROC, Marketplaces

IIROC issued final guidance late last week on the use and management of stop loss orders. The guidance comes in the wake of certain anomalous trades last month which prompted IIROC to take regulatory action when automatic triggering of stop loss orders apparently resulted in pricing distortions of Inter Pipeline Fund stock.

A stop loss order is a standing order to sell a security when the price of that security reaches a certain minimum level. Stop loss orders are a method of risk management and are frequently handled by way of automated technology solutions.

IIROC regulated dealers have “best execution” … Continue Reading

Canadian Securities Regulatory Requirements Applicable to Non-Resident Broker-Dealers, Advisers and Investment Fund Managers

Posted in Advisors, Broker-Dealers, CSA, Enforcement, Exempt Market Dealers, Investment Funds, Portfolio Managers, Registrants, Registration

The purpose of this paper is to provide a non-resident of Canada with an overview of the dealer registration, adviser registration, investment fund manager registration and prospectus requirements that should be considered and addressed by the non-resident before it begins to trade securities with, or provide investment advice to, any person or company located in Canada, or to act as an investment fund manager in Canada. All currency amounts that are referred to in this paper are denominated in Canadian dollars.

The Canadian Securities Regulatory Framework

Like the United States, Canada has a federal system of government whereby the authority … Continue Reading