Sweeping legislative reform in Quebec promises to touch on all aspects of the province’s financial services sector. That includes the securities and derivatives markets, in which a fundamental shift in the regulatory structure would occur, along with changes to enforcement provisions, complaint-handling standards and whistleblower protection.

In early October, Quebec Finance Minister Carlos Leitão unveiled proposed legislation (Bill 141: An act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions) that would revise large swaths of the province’s regulations regarding the financial services sector. Although much of the bill focuses on the insurance side of the industry (see Loosening the rules), it also would introduce significant changes that would affect the investment industry.

Notably, the proposed bill would do away with the Chambre de la sécurité financière (CSF), the self-regulatory organization (SRO) that oversees financial planners, insurance advisors and scholarship plan brokers in the province.

The existence of the CSF as an SRO has meant that the Mutual Fund Dealers Association of Canada (MFDA) is not recognized as an SRO in Quebec, although it’s recognized as such in the rest of Canada. Instead, the MFDA has operated under a co-operation agreement with the CSF and the Autorité des marchés financiers (AMF) to provide oversight in Quebec.

With the proposed elimination of the CSF, the AMF would take over direct supervision of financial planners and others who currently are regulated by the CSF in Quebec. The MFDA is not likely to step into an SRO role in that province.

“We expect our status in Quebec would remain the same,” says Karen McGuinness, senior vice president of member regulation, compliance, with the MFDA.

Assuming that the bill is passed more or less intact – and the AMF begins direct regulation of financial planners – McGuinness anticipates “the MFDA would continue working collaboratively with the AMF.”

Bill 141 would not affect self-regulation by investment dealers. Unlike the MFDA, the Investment Industry Regulatory Organization of Canada (IIROC) is recognized as an SRO in Quebec, and that recognition would not change under the new framework contemplated by the bill. IIROC states that it’s reviewing the details of the bill, but doesn’t foresee any change to its role in the province.

Of course, whether the bill passes in its current form remains to be seen. The CSF has expressed dismay over the government’s plan to do away with its role. And the CSF has signalled that it intends to be involved with the consultations that have been promised as part of this far-reaching legislative effort, in the hope of changing some minds and thus saving itself from the chopping block.

In the meantime, Bill 141 proposes an array of changes that could impact both investors and the investment industry. For example, the bill would introduce new provisions to protect investment industry whistleblowers.

Last year, the AMF announced plans for a new whistleblower program designed to bolster enforcement by encouraging industry insiders to report misconduct that the regulator might not discover on its own.

Although the AMF’s program doesn’t propose paying financial rewards for tips that lead to major enforcement action (unlike the Ontario Securities Commission’s new program), it does promise to protect prospective tipsters from retaliation by their firm.

These anti-retaliation measures are part of the proposed bill, which also would explicitly release industry personnel from any obligations to maintain confidentiality in order to allow them to provide tips to the AMF (except for lawyers and notaries, who still would be subject to confidentiality requirements).

At the same time, the bill aims to bolster consumers’ voices within the new regulatory framework by establishing a new committee – to be known as the Comité consultatif des consommateurs de produits et utilisateurs de services financiers – that would be charged with representing consumer interests to the AMF. That committee would provide feedback on regulatory policy from retail clients’ perspective and raise other consumer issues with the regulator, much in the same manner as the OSC’s Investor Advisory Panel (IAP) does.

Unlike IAP members, the members of Bill 141’s proposed consumer committee would not be paid for their participation, but the AMF would provide administrative support to the committee. Expenses would be covered and members would have access to the research and other information that the AMF uses to develop policy.

With the planned abolition of the CSF, Bill 141 also would bolster the role of a regulatory tribunal known as the Tribunal administratif des marchés financiers, which holds hearings on matters pertaining to securities and derivatives law, along with other elements of financial services sector legislation.

The proposed legislation would require that the tribunal approve any plans by the AMF to return money to harmed investors in cases in which the AMF seeks to provide restitution.

Bill 141 also would change regulatory enforcement. For example, the bill proposes that freeze orders imposed by the AMF would remain in effect for up to one year rather than the 120-day limit that currently applies.

The proposed bill also would introduce requirements under securities and derivatives law for complaint handling, such as requiring firms to have policies for dealing with client complaints, and would set minimum standards for addressing these issues.

On the securities side, the bill proposes measures that would impose restrictions on the commission-sharing arrangements that certain advisors could enter into. For example, mutual fund dealers and scholarship plan dealers would share commissions only with firms and advisors who also are regulated. Such referral arrangements would be prescribed by regulation and would have to be documented. The bill also would explicitly require that derivatives-trading platforms and exchange-traded derivatives be regulated.

As with any legislative initiative, nothing is final until the bill is passed and implemented – which is likely to happen in late 2018 – and the regulations are adopted.

Nonetheless, the industry in Quebec should be prepared for a seismic shakeup over the next couple of years as these proposed changes take hold.

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