IE’s Regulatory Reporter: April 2017

A note to our readers: This is the first installment of Regulatory Reporter, a new, online monthly feature from Investment Executive (IE) designed to help you stay up-to-date on key developments in the rapidly evolving regulatory and compliance landscape.

Regulatory Reporter will include upcoming deadlines; new and changing regulatory initiatives; notes on special events and developments; and notable changes among securities regulators’ staff.

For more details on particular entries, visit IE‘s Compliance Calendar.

KEY INITIATIVES

Banning embedded fees — and more?
After years of sharply intensifying regulation in the securities industry, the Canadian Securities Administrators (CSA) kept up the pace in January, releasing a consultation paper on Jan. 10 on the question of banning embedded fees. The announcement made waves upon its release and follows closely on a year in which regulators released a raft of proposals and received much pointed feedback. See: The end of embedded commissions: How we got here

Highlights from the past year include:

> Best interest standard & targeted reforms. The CSA’s consultation paper 33-404 landed in April and has provoked much comment from the investment industry and investor advocates. See: CSA proposes best interest standard

> The Ontario Securities Commission’s (OSC) roundtable on the best interest proposal. As a result of a heavily attended discussion held on Dec. 6, it was clear that the gap between the views of many in the investment industry and investor advocates on this proposal remains as wide as ever. See: Best interest standard takes centre stage at OSC roundtable session

> OSC annual summary report. Released in July, this report provides a valuable guide to the types of registrant conduct on the OSC’s radar. Flagging the OSC’s growing interest in digital advice, the report also noted that all regulatory requirements apply equally to the new kids on the block, including “online advisors, crowdfunding portals and lending platforms.” See: OSC to review compensation sales practices

> Cybersecurity guidelines and roundtable. The CSA published new guidelines on dealing with threats to cybersecurity in September. These followed guidelines from the Mutual Fund Dealers Association (MFDA), released in May. The CSA is holding a roundtable on the topic on Feb. 27 at the OSC’s offices in Toronto. See: CSA roundtable to focus on hypothetical cybersecurity incidents

> New financial regulator for Ontario. Ontario is replacing the Financial Services Commission of Ontario and the Deposit Insurance Corp. of Ontario with the new Financial Services Regulatory Authority (FSRA). The FSRA will oversee sectors in which the province believes there’s an accountability gap, such as credit unions, mortgage brokers, provincial pension plans and insurers registered in the province. See: Ontario to introduce new financial services regulator

> CRM2: The final deadlines for what felt like the interminable implementation of the second phase of the client relationship model (CRM2) passed in July. Many in the industry are now anticipating blowback from clients when they receive new statements that include the costs of their investments, stated in dollars, starting this month. See: CRM2 Guide 2016

KEY DEADLINES

Fund Facts, risk and ETF Facts:
After years of debate, the CSA has mandated the use of standard deviation methodology when rating the risk of a mutual fund on the Fund Facts documents. The new rules come into effect March 8, and must be in use by Sept. 1. In addition, ETF Facts will now be required for ETFs. As with Fund Facts, the first step will be posting ETF Facts to dealer websites: the deadline is Sept. 1. Further obligations will come into effect on Dec. 10, 2018, with delivery of ETF Facts to the client required within two days of a trade. Point-of-sale delivery for ETF Facts may be required, as is the case with Fund Facts, but only after further consultation. See: CSA decides on standard deviation to classify riskiness of funds

Canadian Anti-Spam Law (CASL):
Private individuals will be able to sue those who send electronic messages without consent, in violation of CASL, as of July 1. Deep-pocketed corporations may be especially vulnerable to these lawsuits and should ensure their consents and other compliance measures are in place.

Proficiency Standards:
The Investment Industry Regulatory Organization of Canada (IIROC) and the MFDA released proposals designed to improve professional standards and credentials in the industry after years of debate and calls for change. The MFDA issued a notice dealing with minimums for reps calling themselves “financial planners,” with comments due by Jan. 25. The MFDA also recently issued a call for comments on continuing education requirements for its members, due April 28. IIROC is also exploring proficiency standards as it’s seeking applicants for a new committee to advise the self-regulatory organization on licensing standards and continuing education requirements, among other issues. That application deadline is Feb. 2.

SPECIAL NOTES

Fintech:
The OSC has created OSC LaunchPad — a new unit that’s part innovation hub, part regulatory sandbox — to meet the specialized needs of financial technology (fintech) startups and innovators. A 10-member group of experts drawn from the fintech industry is being formed to advise OSC LaunchPad. The advisory group, which will be known as the Fintech Advisory Committee, will meet quarterly. In a related initiative, the OSC held its first hackathon contest for developers in late November. RegHackTO was designed to kickstart the creation of innovative technology tools to assist with regulatory issues, such as confirming client identity and developing financial literacy. Senior members of the OSC and Charles Sousa, Ontario’s minister of finance, attended the weekend event.

PEOPLE

Here are some recent appointments of note among Canadian securities regulators:

CMRA: The goal of a national securities regulator seemed a little closer with the appointment of Kevan Cowan to head the Capital Markets Regulatory Authority — if it launches as proposed in 2018. Cowan, a lawyer and former president of TMX Group Ltd.’s TSX Markets and TSX Venture Exchange, who has deep experience in Western Canada, has been leading the Capital Markets Authority Implementation Organization, which will be planning the shift to a national regulator, as of Nov. 21, 2016.

BCSC and OSC: There were also changes to senior staff at the B.C. Securities Commission (BCSC) and the OSC in the past six months. Securities lawyer and former enforcement director Peter Brady moved up to executive director of the BCSC while litigator Douglas Muir became its director of enforcement. At the OSC, lawyer Jeff Kehoe took over as director of enforcement in mid-October. Kehoe worked with OSC chairwoman Maureen Jensen while both were at IIROC. Jensen, who has a mining background, became the OSC’s chairwoman in February 2016.

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