The Ontario Securities Commission has rejected a fund dealer’s application for an exemption from joining the Mutual Fund Dealer’s Association.

The firm, Open Access Ltd. (OAL), had sought a hearing to review the OSC director’s decision refusing an exemption from the requirement to become a member of the MFDA. OAL argued it was not a typical mutual find dealer in that its mutual fund dealer registration is incidental to its core service, which is that of group retirement plan administrator.

The MFDA had refused membership to OAL because it offers portfolio management activities with discretionary trading as part of its business model. The MFDA indicated that its sole purpose is to regulate the distribution of mutual funds and a MFDA member may not engage in portfolio management activities with discretionary trading services.

The OSC panel declined to grant the exemption, saying that the MFDA offers a more rigorous oversight and client protection regime for mutual fund dealers compared to that currently provided. It said that OAL cannot be distinguished from any of the other investment companies that voluntarily bifurcated their business, and who were granted exemptions on a transitional basis only.

It also noted that roughly 8,000 investors in OAL have requested self-directed accounts that would put them outside the investor protection scheme offered by the MFDA.

“The long history and policy behind the establishment of the MFDA as the national regulator of the mutual fund industry leads to a conclusion that it is in the public interest that the holders of OAL’s self-directed accounts have the benefits flowing from MFDA membership,” the OSC says.