Kevin Landry

On August 3, 2021 the Canadian Securities Administrators (“CSA”) announced plans to combine the Investment Industry Regulation Organization of Canada (“IIROC”) with the Mutual Fund Dealers Association of Canada (“MFDA”). This move will create one self-regulated organization (“SRO”) to oversee both investment and mutual fund dealers. The move will also combine the Canadian Investor Protection Fund and the MFDA Investor Corporation into one integrated fund separate from the new SRO.

Why is the change being made?

This merger of the two organizations comes on the heels of numerous calls within the securities industry to review the regulatory framework of IIROC and the MFDA given their considerable areas of overlap.

In the CSA’s newly published Position Paper 25-404 New Self-Regulatory Organization Framework, (“the Position Paper”) the CSA lists various objectives that have motivated them to move forward with combining the two entities, with some of the primary goals being to enhance investor protection, increase efficiency and reduce industry costs.

What will the SRO look like and how will CSA implement the change?

According to the Position Paper, the CSA will implement “governance enhancements” to the new SRO, such as ensuring that the majority of board members, as well as the Chair, are independent. The definition of “independent” has yet to be finalized, however the CSA states in the Position Paper that the new SRO will create the criteria for independence in collaboration with the CSA, and will ensure that these requirements are at the least comparable to the requirements for directors of public companies (as set out in NI 52-110 Audit Committees). The CSA also plans to maintain some level of oversight over the new SRO, requiring them to seek CSA “comment and input on its annual priorities, business plan and budget, and to seek approval for significant publications” as well as to create an investor advisory panel.

To implement the new SRO, the CSA has further outlined in the Position Paper that they will create an “Integrated Working Committee” (“the Committee”). The Committee will decide the corporate structure of the new SRO as well as oversee the incorporation of the new governance structure and the integration of the existing SROs. The Committee will also work to integrate the two already existing investor protection funds.

What will the new SRO do?

As per the Position Paper, the new SRO will act as the watchdog organization over both mutual funds dealers as well as investment dealers. To do so, the CSA plans on harmonizing the rules between the two sectors where appropriate as well as centralizing the complaint process by creating a single portal for filing complaints for the SRO. The CSA also hopes to allow increased collaboration between mutual funds and investment dealers and to facilitate access to a broader range of investments products and services to the public. For example, the new SRO will now allow carrying broker arrangements between mutual fund and investment dealers. These agreements will permit mutual fund dealers to contract out part of their operations to investment dealers broadening the range of permissible products accessible to clients through their mutual fund dealers, such as ETFs and permissible bonds.

The CSA has also expressed a commitment to investor outreach and education within the Position Paper, and has proposed the establishment of a separate investor office within the new SRO to help deal with investor confusion. This new investor office will work to raise public awareness of the new regulatory framework as well as perform outreach on the ins and outs of the complaint process.

Although the new SRO will begin solely regulating investment and mutual fund dealers, the CSA notes in their press release that they are open to incorporating additional registration categories that are currently directly regulated by the CSA into the jurisdiction of the new SRO. As time goes on, there is a possibility that the new SRO will act as a securities watchdog for industries beyond the scope of investment and mutual fund dealers.

This update is intended for general information only. If you have questions about the above, please contact the author to discuss your needs for specific legal advice relating to the particular circumstances of your situation.

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