The position paper sets out the CSA’s vision for creating a new SRO to replace IIROC and the MFDA, and a new, separate investor protection fund to replace both the CIPF and the IPC. In forming its proposal, the CSA outlined a number of concerns expressed by industry and concluded that the proposed new SRO offered solutions to those issues, including enhanced governance, consistent regulatory requirements, investor education, robust enforcement mechanisms, appropriate oversight, and a reduction in regulatory redundancies. The first phase of the project will focus on the design of the new SRO and IPF and integration of the existing entities into the new framework, including a new governance structure and harmonization of rules, compliance, enforcement processes and fee models. The second phase of the proposal would consider adding in registration categories in addition to investment dealers and mutual fund dealers that could be subject to the new SRO’s oversight in future. As part of the project the CSA is also forming or meeting with existing working groups to consider other issues, such as those that are Quebec specific, the ability to have directed commissions / incorporated salespersons, and whether OBSI should have binding decision making authority.
Overview of the Council’s Comments:
The CAC fully supports efforts to create a new SRO framework that has a clear public interest mandate and focuses on investor protection and the promotion of public confidence in capital markets. It is important that the governance structure, avenues for investor input, professionalism and investor redress mechanisms for the new SRO all have at their core the common goals of accountability and the public interest. Our comments relate to areas within the Position Paper where the CAC is keen to engage and provide further input on governance matters, investor interests and representation, proficiency requirements and conduct and enforcement matters.
- Governance – Throughout the design of the governance structure for the New SRO, it is imperative that the public interest be the primary focus of the core design principle.
- Investor Representation and Integration of Investor Interests – The CAC is supportive of the proposed formal investor advocacy mechanisms for the New SRO. The New SRO should be subject to similar transparency and public reporting principles imposed on statutory regulators, and complaints and concerns about the New SRO should be handled within the CSA framework.
- Proficiency – As the CAC first raised in our 2020 letter, it remains critical for the New SRO to be a driver of professionalism in the investment industry and robust continuing education standards. Individuals registered with members of the New SRO should be subject to meaningful (and uniform) continuing education requirements that focus on the skills needed to deliver professional, competent, ethical and effective investment and financial advice to all Canadians.
- Conduct and Enforcement – The new Recognition Order proposes transparency in enforcement notices with respect to the processes for assessing firm supervision and reasons for disciplinary decisions. The CAC has previously suggested additional transparency with respect to enforcement proceedings is sorely needed, particularly with respect to the impact of past decisions (i.e., precedential value) and mitigating circumstances.
With respect to the market surveillance mandate of the new SRO, the CAC believes the current functions performed by IIROC work well, and that the transition of this team and its expertise to the new SRO should yield a positive regulatory outcome. We continue to encourage strategic and operational cooperation and integration (ostensibly led by and operationalized by the new SRO) between the current market surveillance regulatory functions and related functions at the CSA, particularly to address systemic risk concerns.