The Mutual Fund Dealers Association of Canada (MFDA) has published a series of reform proposals that would implement the second phase of the Client Relationship Model (CRM2) reforms for fund dealers.
The MFDA Thursday proposed amendments to various rules that aim to bring its rules in line with the final version of the so-called CRM2 rules adopted by the Canadian Securities Administrators back in 2013.
The MFDA is taking a staged approach to the initiative by publishing the less significant changes first; and now, it is proposing the more substantial amendments to adopt the new investment cost and performance reporting rules.
The CSA's rules came into force on July 15, 2013, and various aspects of the rules are being implemented over the next couple of years. For example, client statement requirements will take effect on July 15, 2015. And, requirements for annual compensation disclosure and performance reporting will kick in on July 15, 2016.
"The objective of the proposed amendments is to adopt MFDA rule requirements that are substantially similar to the requirements established under the CMR2 amendments," it says in the proposal, noting that if the CSA determines that the proposed amendments are "materially harmonized" with its own requirements, MFDA members will be exempted from the CSA rules in this area. The question of what constitutes material harmonization, and how much customization can the self regulatory organizations do, compared with the CSA rules, has been a key one, as the industry awaits the final requirements.
For example, the MFDA's proposal indicates that the requirements in terms of charges and compensation disclosure "has been limited to transactions in securities as a result of concerns expressed to MFDA staff during the development of the proposed amendments." It says that obtaining reliable data from product issuers for all investment products (such as GICs, PPNs, and segregated funds) "might present challenges".
However, the performance reporting requirements will apply to all securities and other investment products. The proposal also notes that the proposed requirements represent a minimum standard, and that dealers may wish to provide cost and compensation disclosure for all investment products transacted through, or transferred into, the dealer, "where reliable data is available."
The proposal acknowledges that "there will be significant cost and systems impacts for [dealers] resulting from the new reporting requirements"; but, it says that the costs aren't expected to be any higher than firms would face under the CSA rule.
The proposed amendments will be effective on a date to be subsequently determined by the MFDA, the proposal indicates; although it's expected that the deadlines will follow the CSA's deadlines. In the meantime, the proposals are out for comment until September 10.