The Mutual Fund Dealers Association of Canada has withdrawn a proposal related to discretionary trading among mutual fund reps, as well as a five-year-old proposal related to misleading business titles.
The MFDA cited the forthcoming single self-regulatory organization, titles legislation and other regulatory work as reasons to withdraw the proposals.
In April 2019 the MFDA proposed a reform that would allow fund dealers to engage in a limited form of discretionary trading that would enable them to tweak model portfolios for clients more easily.
Currently, fund dealers that offer clients model portfolios must either engage an external portfolio manager to run the products or operate them in-house by getting clients to sign off on portfolio changes such as adjusting asset allocation in response to changing market conditions or replacing an underperforming fund.
The proposal drew near-universal support for its objective, but several comment letters raised concerns about standards for reps and implementation. Investor advocates argued that the reps engaging in discretionary trading should be explicitly subject to a fiduciary duty.
The MFDA has withdrawn this proposal, stating that the forthcoming single SRO will instead consider “rules that would allow mutual fund dealers to engage in limited discretionary trading in a manner consistent with current requirements applicable to investment dealers.”
The other withdrawn proposal relates to misleading business titles.
In October 2016 the MFDA proposed rule amendments that would set minimum proficiency requirements for mutual fund reps who want to identify themselves as financial planners.
Most comment letters supported the proposal’s objective, but the proposal was criticized for the fact that people outside the MFDA’s jurisdiction would still be allowed to call themselves financial planners. Some comments urged the MFDA to work with other bodies on a more comprehensive strategy.
Since then, Ontario, Saskatchewan and New Brunswick are at various stages of enacting title regulation legislation, and the Canadian Securities Administrators have established a working group to consider title use.
As a result, the MFDA has withdrawn its 2016 proposal, saying that doing so “will allow for regulatory initiatives already underway to proceed, and by deferring rulemaking until such initiatives have concluded, will avoid the need to further amend a rule already adopted in final form.”
The MFDA’s board approved both withdrawals at its meeting on Dec. 1.