Reform will remain at the forefront of the Canadian regulatory scene in 2015, both of the regulators themselves and the rules they enforce.
Perhaps the biggest question heading into the new year is what’s going to happen with the effort to create the cooperative capital markets regulator (CCMR). The participating jurisdictions are targeting a launch for the CCMR in the fall of 2015, but it’s a long way from here to there. The federal government and five provinces — British Columbia, Ontario, Saskatchewan, New Brunswick and Prince Edward Island — have signed a memorandum of agreement to participate in the CCMR.
The legal framework to enable the new authority still has to be finalized, and passed by the various legislatures. The accompanying rules that the new regulator would enforce are already late — they were supposed to be published in mid-December, but have been delayed to the spring of 2015. There are also numerous critical operational questions that have yet to be answered.
For example, it’s not clear how a cooperative regulator will work with the regulators in provinces that don’t participate, and with the self-regulatory organizations, or how the involvement of the federal government will affect long-standing provincial relationships. Moreover, the nuts and bolts of integrating the existing provincial regulators that do intend to form the new cooperative authority remains a substantial hurdle to be cleared before it can come into being. Resolving all of these challenges will be going concerns throughout the year ahead.
Regardless of what happens with the CCMR, there is plenty of policy work in progress that may well affect the financial services industry in 2015. The research commissioned by the Canadian Securities Administrators (CSA) to examine the impact of mutual fund trailer fees on fund sales and investor outcomes is slated to be completed in the first quarter of 2015. This, in turn, will help inform a decision from regulators about whether they should move to ban, or possibly just cap, trailer commissions. Similarly, the results of mystery shopping research that was carried out in 2014 is expected to help regulators decide whether to impose a best interests duty on investment advice.
It’s not certain that decisions on these critical policy issues will be reached in the year ahead, but the question of commission bans and tougher conduct standards are sure to remain hot topics in 2015.
At the same time, the implementation of the Client Relationship Model (CRM2) reforms will remain a going concern. Certain requirements are due to take effect in July, and the preparations for the final tranche (which are currently slated for implementation in mid-2016) will continue throughout the year.
However, heading into the new year, there are still a couple of details to be nailed down. The Investment Industry Regulatory Organization of Canada’s (IIROC) version of the rules has yet to be finalized, and the Investment Industry Association of Canada (IIAC) is seeking slightly later deadlines for several provisions. Once those final details are settled, the industry can complete their preparations for CRM2.
In the meantime, an overhaul of the industry’s approach to providing advisor education can also be expected in the year ahead. Last summer, IIROC launched a consultation on the question of how industry proficiency education should be delivered, with the current arrangement due to expire at the start of 2016. There’s a general consensus that there should be greater competition in the provision of industry education, and the year ahead should provide some clarity on how that area will evolve.
Market structure is also likely to remain a key topic in 2015. Last year, regulators proposed some fundamental changes to the existing market structure rules — which would reform the order protection regime and cap trading fees in Canada — and they pledged to study further reforms, such as outlawing maker-taker fee models and more closely regulating data fees. There’s no definitive deadline for decisions on these issues, but they will hopefully be addressed in the coming year.
Similarly, the exempt market is expected to receive further attention in the year ahead. In late 2014, the Ontario Securities Commission (OSC) announced that it’s adopting a new prospectus exemption (for existing shareholders), which is scheduled to take effect in February 2015. This represents one of four new prospectus exemptions proposed by the OSC last year. It has yet to deal with its proposals for an offering memorandum exemption, a friends & family exemption, and a new crowdfunding exemption. Several other regulators are also considering new exemptions too. It’s hoped that these rules will be finalized in the year ahead.
What’s more certain is that IIROC will be introducing a new debt transaction reporting regime in November 2015.
On the enforcement front, the OSC is expected to consider whether to introduce a U.S.-style whistleblower program in Canada.
At the best of times it’s difficult to predict just how much of their policy agenda the regulators will get to in a given year. This coming year, with the added spectre of the CCMR initiative, that uncertainty is likely to be greater than usual.