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
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
The Divisional Court’s recent decision in Fiorillo, upholding the findings of the Ontario Securities Commission (the “Commission”) that three traders violated the insider trading provisions of the Ontario Securities Act, sustained rulings by the Commission on important evidentiary and procedural issues, and serves as a reminder that the Divisional Court generally defers to the Commission in securities enforcement cases.… Continue Reading
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 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
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
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 Ontario Securities Commission (OSC) released its draft Statement of Priorities for 2016-2017. The comment period ends May 9th.
Investor Protection Priorities
Advance Best Interest Standard – The OSC will recommend and conduct consultations on regulatory provisions to create a “best interest” standard for advisors. This standard is controversial for some industry participants but the OSC is committed to it. The OSC will also continue to focus on advisor compensation practices and identify those that are inconsistent with a “best interest” standard.
Compensation Arrangements in Mutual Funds – The OSC will regulate embedded commissions and … Continue Reading
The Investment Industry Regulatory Organization of Canada (“IIROC”) is Canada’s self-regulatory organization that overseas investment dealers and equity market places. In its 2016 statement of key compliance priorities, IIROC sets out its ongoing efforts to strengthen the culture of compliance among dealer members (“DMs”).
As in prior years, IIROC’s focus will be on taking action against DMs that fail to address significant compliance findings and/or fail to demonstrate a commitment to the development of a strong compliance culture. In addition, IIROC will, through its new Consolidated Enforcement Rules (expected to come into force in 2016), have the ability to … Continue Reading
On February 23, 2016, the Canadian Securities Administrators (CSA) released its annual report on the enforcement activities of its members. Enforcement and pre-enforcement activity has increased significantly in 2015. Monetary sanctions imposed by regulators more than doubled year-over-year and regulators concluded 38% more cases in 2015 even as the number of new proceedings increased slightly.
The 2015 Results
Monetary sanctions doubled: The regulators collectively imposed the highest amount of monetary sanctions on market participants since 2009, the year their investigation into the crash of the asset-backed commercial paper market was settled. In 2015, regulators imposed $138.3 … Continue Reading
The Canadian Securities Administrators (CSA) are proposing to introduce a mandatory standardized risk classification methodology for mutual funds and ETFs (the Proposed Methodology). 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
The OSC recently published its 2014 Summary Report for Investment Fund and Structured Product Issuers which includes, among other topics, a summary of key OSC policy initiatives affecting investment fund issuers and highlights of 2014 continuous disclosure and compliance reviews of investment funds The report also sets out OSC Staff observations on key emerging issues and trends for mutual funds.
OSC criticizes reinvestment of distributions by “default”
Some mutual funds offer a choice between making distributions to investors in cash, or in the form of reinvested units. OSC Staff is concerned about mutual funds that set the payment of distributions … Continue Reading
One of the items that frequently vexes registered firms is keeping their “outside business activities” (“OBA”) disclosure up to date. The Ontario Securities Commission (“OSC”) regards OBA disclosure as an important means for registrants to monitor for conflicts of interest. What constitutes OBA is very broad and includes volunteer unpaid board positions or other “positions of influence”. Some registered firms send out internal reminders to individuals asking them to keep the firm’s compliance department up to date on OBA disclosure. The OBA disclosure, however, must be updated within 10 days of a change and failure to … Continue Reading
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
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
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
Saskatchewan and New Brunswick yesterday joined Ontario, British Columbia and the federal government as parties to the national capital markets regulator (“CMR”) agreement in principle first signed in September 2013. As we discussed in a previous article, the proposed cooperative CMR will be responsible for policy development, regulation-making, regulatory operations and enforcement. On the same day, Alberta, Quebec and Manitoba publicly reiterated their opposition to the CMR.
CMR implementation milestones agreed have been pushed out by about six months. By August 2014, a memorandum of agreement will be entered into setting out the terms and conditions of … Continue Reading
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
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
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
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
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
British Columbia, Ontario and Canada announced yesterday their agreement to establish a national securities regulator through a cooperative model. The cooperative model is intended to facilitate the launch of a national securities regulator after a 2011 Supreme Court of Canada decision that the provinces enjoy much more constitutional authority to regulate securities law than the federal government… Continue Reading
In a recent Staff Notice, the Ontario Securities Commission clarified that a mortgage investment entity (MIE) is not a non-redeemable investment fund if it invests in mortgages in the following manner:
- the issuer proposes to invest all or substantially all of its assets in a pool of mortgages;
- the mortgages purchased by the MIE are originated and serviced by one or more mortgage originators (each, an Originator);
- the Originator may use the MIE as a source of funding for the Originator’s mortgage lending business.
According to OSC Staff, regardless of whether the Originator is the MIE’s manager, … Continue Reading