Investment firms’ association comments on single self-regulator

The Investment Industry Association of Canada (IIAC) representing firms that manufacture and distribute securities and provide portfolio management, advisory and non-advisory services, added its voice to others in responding to the Canadian Securities Administrators’ (CSA) request for comment about the country’s new self-regulatory organization (SRO) and investor protection fund. 

The association also joined others in stating that the CSA’s comment period of just 45 days does not permit comprehensive analysis. 

In its submission, the IIAC says prompt harmonization within and for the province of Quebec is needed through a consolidation of functions currently conducted by Chambre de la Sécurité Financière and the Autorité des marchés financiers (AMF). It says the new SRO must remain informed by industry experience, and every effort should also be made to ensure that industry board members are a realistic reflection of the market. 

“With only six industry directors, it will not be possible for the board to have direct representation across business models, including scale of business operations. We suggest the articles and draft bylaws have further flexibility and refer to a minimum and maximum number of directors, rather than being fixed at 15.” 

They add that the meaning of independence should be expanded beyond individuals who have no material relationship to the SRO and include a requirement for individuals to have independence from securities regulators and advocacy associations, as well. 

With respect to the power previously exercised by district and regional councils, they say the particulars regarding how members may seek and obtain approvals from the SRO or senior staff, along with appropriate escalation and appeal procedures remain to be determined. These, they say, “need to be subject to fulsome member consultation. A clear advisory mandate for regional councils (also) needs to be formulated through further member consultation,” they add. 

Reasonable timelines for both implementation and member consultation should also be a priority, they say. 

The paper also addresses proposed proficiency requirements and their administrative challenges, the challenges the new SRO’s rules present to those interested in combining platforms, and investment dealer rules the association says should be scrapped. 

Finally, the association says proposed CSA oversight should be amended to allow the new SRO sufficient discretion, authority and deference to enact its mandate. “We believe the level of CSA oversight proposed is excessive and will hinder the new SROs’ necessary ability to function as a self-regulatory organization,” they write. 

“The non-objection process and criteria is unwarranted. The proposed overarching and prescriptive, non-objection framework functionally removes all decision-making autonomy from the new SRO,” they state. “The new SRO board is fettered by the level of CSA oversight, as all exemption requests, extensions or amendments granted by the new SRO board are subject to CSA non-objection. The board may not grant the exemption unless it has been vetted by the CSA in advance. Effectively, this means that all exemption request decisions are made by the CSA (or principal regulator) rather than the new SRO.” 

The commentary goes on to discuss consolidation costs, who should pay, and other transition considerations. “Reasonable timelines for implementation, related cost considerations and member consultation should be a priority.”