CSA plan is intended to provide for enhanced regulation of the investment industry while minimizing regulatory inefficiencies and reducing investor confusion
- The CSA have released a position paper outlining their intention to replace the Mutual Fund Dealers Association of Canada (MFDA) and Investment Regulatory Organization of Canada (IIROC) with a new self-regulatory organization (New SRO).
- The New SRO will initially regulate investment dealer and mutual fund dealer registration categories, as well as marketplace members, with other categories to be considered at a later stage.
- The New SRO will have an enhanced governance structure, and is intended to eliminate duplicative costs and minimize regulatory inefficiencies, while reducing investor confusion.
- The CSA are accepting stakeholder feedback until October 4, 2021.
Background
As we discussed last year, the CSA announced in December 2019 that they would be reviewing the current regulatory structure concerning the MFDA and IIROC in light of the increased innovation and evolution within the financial services industry. The CSA subsequently released a consultation paper in June 2020 that examined a number of issues identified by stakeholders in response to the December 2019 announcement, including with respect to the structural inefficiencies resulting from the existing framework and investor confusion caused by the current regulatory structure.
The CSA received 67 letters from stakeholders in response to the consultation paper, and a working group formed by the CSA also conducted research and analysis to identify solutions that would, among other things, enhance governance, improve public compliance in the regulatory framework and ensure responsiveness to the needs of evolving capital markets.
A New SRO
After considering a number of potential options, the CSA ultimately concluded that creating a New SRO that will consolidate the functions of the MFDA and IIROC will best achieve the goal of supporting a regulatory framework with a clear public interest mandate while fostering fair and efficient capital markets. This course of action will also see the consolidation of the Canadian Investor Protection Fund, which is sponsored by IIROC members, and the MFDA Investor Protection Corporation, into a single fund independent from the New SRO.
The New SRO will initially regulate investment dealer and mutual fund dealer registration categories, as well as marketplace members. Other registration categories currently overseen by regulators in the various provinces, such as portfolio managers and exempt market dealers, could potentially be added to the New SRO's regulatory mandate during a future phase of the initiative.
According to the CSA, establishing the New SRO will result in, among other things, fewer regulatory inefficiencies, a more streamlined complaint process, and enhanced market surveillance.
Next Steps
The CSA are establishing an integrated working committee (IWC) to oversee a strategy to integrate IIROC and the MFDA and consolidate the two existing investor protection funds. The IWC will also coordinate the harmonization of rules, policies, fee models and compliance and enforcement processes. Once this first transition phase is complete, the CSA intend to initiate a consultation process with stakeholders to consider incorporating other registration categories, including a review to assess the merits of proficiency-based registration categories.
In the meantime, the CSA are accepting submissions in response to the position paper until October 4, 2021. For more information, see CSA Position Paper 25-404 New Self-Regulatory Organization Framework.
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