CIRO takes over registration for firms, mutual fund reps in Ontario

The Ontario Securities Commission (OSC) recently said it will delegate to CIRO the registration function for investment dealers, mutual fund dealers and futures commission merchants, and for individuals at mutual fund dealers, including dealing representatives. CIRO already has responsibility for registration of fund dealers and their reps in Quebec.

Currently in Ontario, only the registration function for individuals, and the review of permitted individuals at investment dealers and futures commission merchants is delegated to CIRO.

The new delegation “includes the review and approval of both initial applications for registration and ongoing changes to registration information,” the OSC says on its website.

“The transfer of registration responsibility to CIRO is consistent with the OSC’s other delegations to CIRO,” said John Fabello, a partner with Torys LLP in Toronto, in an email. “It’s a logical thing to do, since CIRO does the lion’s share of dealer regulation.”

Ellen Bessner, a litigator with Babin Bessner Spry LLP in Toronto, said the change has positive implications for mutual fund reps under investigation. She described a scenario in which a dealer terminates a rep who is under investigation — by the former Mutual Fund Dealers Association (MFDA) — for a relatively minor infraction, such as presigned forms. (Bessner made clear she wasn’t talking about a serious infraction such as fraud.)

If another dealer wanted to sponsor the rep’s registration, it had to go to the OSC until now.

“What the OSC would say is, ‘We’re not prepared to register you. We need to see [the enforcement matter] concluded first, either with a warning letter, or a settlement or the final contested hearing decision. We’re not registering you in the interim,'” she said.

Bessner observed a different approach on the investment dealer side: CIRO’s predecessor, the Investment Industry Regulatory Organization of Canada, would generally register such a rep on terms, such as close supervision, she said.

On the mutual fund dealer side, “that poor advisor was out of work; they were out of the financial services industry,” Bessner said. “And it could take two years for the MFDA enforcement group to get the matter resolved.” Once the matter was resolved, the OSC would begin its own investigation to assess whether the advisor was fit for registration, which would take more time, she said.

Also, if an MFDA enforcement case concluded with a temporary suspension, that period would further delay the registration process.

Even when a case concluded without a suspension, a mutual fund rep “would effectively still be out of the industry for another many months until the OSC was satisfied that the rep was fit for registration with or without terms such as close supervision,” she said.

The advisor’s prolonged time not working would also serve as a penalty to clients, Bessner said, noting that clients typically aren’t concerned about an infraction such as presigned forms. Advisors would need to be careful that they weren’t involved with clients during this time, she added: “Don’t even go golfing with your client. … If you bump into your clients at the grocery store, make a note after as to what you discussed, because I don’t want you to be accused of stealth advising by the MFDA.”

The OSC’s delegation of registration to CIRO is “so much better for advisors and for clients, because enforcement and registration functions are under the same roof,” Bessner said.

The OSC’s website says other provincial securities regulators are working to delegate certain registration functions to CIRO. “We encourage registrants to contact their principal regulator or CIRO staff with any questions,” it says.

In an emailed statement, Arnie Hochman, senior vice-president and general counsel with the Investment Funds Institute of Canada said, “Given the benefits that a pan-Canadian registration regime would provide to investment and mutual fund dealers and futures commission merchants and their registered personnel, particularly for firms that operate on a national or multi-jurisdictional basis, we urge all provincial and territorial securities regulatory authorities to take the steps necessary to delegate the same registration powers to CIRO in a timely manner.”

The OSC’s website says CIRO will grant relief from proficiency requirements for dealing representatives and chief compliance officers of mutual fund dealers (and for individuals registered with futures commission merchants).