The head of Canada’s umbrella group for securities regulators says the decision by several banks to stop sales of third-party investment products from their financial planning arms was not appropriate, and regulators will continue to “dig” into the issue.
“Hopefully when we get to the bottom of this, that will not be the reality,” Louis Morisset, chair of the Canadian Securities Administrators, said at an annual industry conference. “This is not what the client-focused reforms are meant to do.”
Earlier this year, Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce notified clients in their financial planning businesses that advisers will no longer sell third-party funds for investment portfolios. (The changes do not apply to the banks’ full-service brokerage accounts or do-it-yourself investing clients.)
The changes came after securities regulators announced plans to roll out new client-focused reform rules, including new “know-your-product” rules that will take effect at the end of 2021. The banks notified clients the changes were to “reduce the risk” related to following rules that require advisers to have a greater knowledge of the products they are selling.
“I can assure you that this is not an appropriate result and we will make sure that things unfold in the right way,” Mr. Morisset told the virtual audience during a question period at the Investment Funds Institute of Canada’s annual conference. “The reforms are there to increase professionalism in registrants and give them more in terms of tools to do a better job with their clients. If that boils down to reducing what they can sell, then we have a big problem.”
Shortly after The Globe reported the banks’ decision, the Ontario Securities Commission asked Canada’s big banks for more information about their plans to stop selling other companies’ investment funds in favour of narrowing their focus to their own proprietary funds, telling the banks the new rule changes should not have prompted them to halt the sale of third-party funds.
“This is obviously not a consequence that was expected,” said Mr. Morisset, who is also president and CEO of the Autorité des marchés financiers, which regulates Quebec’s financial markets. “If there are more of those unintended consequences, we will definitely look into them.”
During the conference, Mr. Morisset also announced that plans for a new single self-regulatory organization for Canada’s investment industry are on track for a launch in the second half of 2022.
“A lot of work needs to be done by then, but it should be achievable,” he said.
The CSA announced plans for the new SRO in August. It will consolidate the functions of two existing entities: the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).
The CSA also announced it will also combine two investor protection funds – the Canadian Investor Protection Fund and the MFDA Investor Protection Corporation – into a single fund that will be independent from the new SRO.
The first phase of implementation is already underway, said Mr. Morisset, with two teams set up to begin the planning phase. An executive working group, led by Stan Magidson, chair of the Alberta Securities Commission, has started to organize a committee that will focus on selecting the new SRO’s CEO and the composition of its board.
A second team, an operational working group, is being co-led by the OSC and the B.C. Securities Commission. The group includes regulatory staff from across the country, and it is looking at the harmonization of SRO rules, policies, fee models, and compliance and enforcement processes.
Mr. Morisset said the CSA will release details on its implementation plan and the time frame later this fall.
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