The Investment Funds Institute of Canada (IFIC) is warning that possible rule changes the Investment Industry Regulatory Organization of Canada (IIROC) is considering to allow investment dealers to employ mutual fund representatives would throw the existing self-regulatory organization (SRO) structure into disarray and should not go ahead as a result.
Late last year, IIROC issued a white paper that contemplates allowing investment dealers to employ mutual fund reps by doing away with the requirement that fund reps upgrade to full investment rep status within 270 days; the white paper also proposes allowing all reps to use personal corporations, which is currently only available to mutual fund reps.
IFIC came out against the white paper proposals on Thursday, particularly the scrapping of the upgrade requirement, amid concerns about the impact on the existing SRO structure.
“It is clear that removing the 270-day rule would begin to unravel the current SRO system,” IFIC says in its submission on the paper, adding that it believes that this would not be in the public interest.
“The proposal might create efficiencies for some members of IIROC; however, it would destabilize the [Mutual Fund Dealers Association of Canada (MFDA)] and its membership, causing a disorderly and costly restructuring of the SRO regulatory system,” notes Joanne De Laurentiis, president and CEO of IFIC, in a statement accompanying the submission.
IFIC believes that the future of the SRO structure is a valid issue to consider, particularly amid plans for the development of a co-operative national regulator among a handful of provinces and territories, De Laurentiis says. However, she suggests that “such major structural change should occur through a deliberate, fulsome process rather than as a supplemental outcome of a specific rule change.”
Ultimately, IFIC concludes that IIROC should not scrap its existing upgrade requirement and that the prospect of allowing personal corporations should be studied further. In particular, IFIC recommends that IIROC study the tax impacts, securities law issues and possible implications under employment law of allowing reps to use personal corporations.
“Once this work is complete, we recommend that IIROC issue its findings and recommendations for further comment so the public interest question can be considered and an assessment made of the impact on all stakeholders, particularly investors,” IFIC’s submission says.
As for the future of the SRO structure, IFIC recommends that the provincial regulators should review it, but that this should wait until the new co-operative regulatory structure is in place.
When that review does take place, IFIC’s submissions says it should examine: the scope and functions of the SROs; identify emerging needs, such as the regulation of financial planning and exempt-market dealers; and how oversight of the SROs should be provided under the new structure that emerges, if and when, the new co-operative structure takes effect.
The deadline for comments on the IIROC white paper is April 29.
IIROC extends white paper comment deadline
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