CSA Position Paper 25-404 - New Self-Regulatory Organization Framework (the ‘Position Paper’), released on August 3 was previously subject to extensive review by a broad range of stakeholders (67 respondents), see our previous article CSA Requests Feedback on SROs Framework. The Position Paper includes a proposal for a new regulatory framework that will be centered on investor protection to promote public confidence and accommodate innovation and change.
The CSA proposed the establishment of a new single enhanced Self Regulatory Organization (New SRO) and the consolidation of the two current investor protection funds (IPFs) into an independent single protection fund.
The New SRO framework will achieve the objective of the CSA to address 7 identified-issues namely, duplicative operating costs for dual platform dealers, product-based regulation, regulatory inefficiencies, structural inflexibility, investor confusion, public confidence in the regulatory framework and market surveillance.
To address the issues, CSA’s proposed solutions to support the New SRO include:
Improving Governance: Clear communication of public interest mandate. New SRO board composition. Independence criteria for independent directors. Formal investor advocacy mechanisms. CSA involvement in New SRO corporate governance. CSA oversight.
Strengthening Proficiency: More nuanced proficiency-based registration categories to ensure consistent quality of standards for clients. Promote the merits of additional credentials for individual registrants. Implement a streamlined Continuing Education program that is fair, consistent and proportionate
Enhancing Investor Education: Establishment of a separate investor office within the New SRO.
Increasing Access to Advice: Allowing introducing / carrying broker arrangements between mutual fund dealers. Enable a dual platform dealer to include its mutual fund dealer and investment dealer businesses within one legal entity. Rule or explicit guidance enabling more part-time advisors in all dealer platforms.
Reducing Industry Costs: Chief Financial Officers (CFOs), Chief Compliance Officers (CCOs) to serve multiple firms simultaneously. Review of the current SRO fee models used to set fees paid by members. Enable members to develop and employ the use of technological advancements.
Fostering Harmonization / Efficiencies: New SRO to solicit CSA comment and input on annual priorities and business plan.
Harmonizing Directed Commissions: Formation of a CSA working group to continue working on this analysis to provide definitive conclusions.
Maintaining Strong Market Surveillance: Establishment of a new CSA working group - CSA Market Information Coordinating Working Group.
Leveraging Ongoing Related Projects: Complaint resolution ongoing work with Ombudsman for Banking Services and Investments (OBSI). CSA SEDAR+ project. SRO enforcement practices. Registration.
The initial scope will include investment dealer, mutual fund dealer registration categories as well as marketplace members.
The CSA is proposing a phased-in approach for the establishment and operationalization of the New SRO. Phase 1 focusing on the design of the New SRO and the New IPF, the integration of the existing SROs and IPFs under the new framework and the adoption of the issue-specific solutions. Phase 2 will focus on a potential scope extension and potential changes to the New IPF.
Comments are to be submitted on or before October 4, 2021.
The Position Paper was highly welcomed by the Investment Industry Regulatory Organization of Canada (IIROC), the Investment Funds Institute of Canada (IFIC), the Portfolio Management Association of Canada (PMAC) and the Investment Industry Association of Canada (IIAC) who are all looking forward to collaborate closely with the CSA to achieve the goal of making the self-regulatory framework more efficient and effective.