Canada’s reg reform project is on tap

OTTAWA — After much consultation, the Canadian Securities Administrators’ Regulation Reform Project is about to surface, though exactly when isn’t clear. “Several weeks from now,” said Frédéric Alberro, spokesman for the CSA, the Montreal-based council that comprises the securities regulators of Canada’s provinces and territories. “That is all I can say.” Tired of hunting the great whale of securities reform in the absence of a national regulator to guide its search, the CSA launched the project in 2005. Actually getting it off the ground might very well be worth the wait. The project contains omnibus-style proposals that will “affect all registrants in Canadian capital markets,” said Jean St-Gelais, chairman of the CSA and president and chief executive of the Quebec securities regulator, Autorité des marchés financiers. Speaking at a September conference held by the Toronto-based Investment Funds Institute of Canada, he said that the project will rationalize, harmonize and streamline regulation in accordance with three broad areas: national registration requirements; registration efficiency through a national database; and a focus on the relationship between adviser and client, in terms of accountability and increased transparency in cost and performance reporting. Although the project isn’t intended to work in “an intrusive and burdensome manner,” Mr. St-Gelais said, it addresses such far-reaching elements as a harmonized registration requirement for all those in the business of dealing in securities; the creation of a new category of registrant — fund managers — in an effort to minimize risk and to make their activities more transparent; the definition of those exempt from the obligation to register under the regulation; a supervisory structure model for both large and small firms, including provisions for compliance and clarification of client requirements, such as the know-your-client process and complaint resolution; the proficiency of registrants including exam-based requirements; conflict provisions harmonized and rationalized across all jurisdictions; a reduced number of categories of registrants; minimum insurance requirements for each type of registrant; the provision of a permanent registration regime; and provisions for termination, transfer and suspension of registration. Opinions differ In the face of such a sea change in rules and regulations, opinions differ on the project’s consequences. But oddly, for such a high-profile series of measures, the RRP has received little attention in the mainstream financial press. The project has a website, rrp-info.ca, which captures many of those differences. Other opinions are expressed at conferences, including the RRP Task Force Forum — to held by the IFIC on Friday in Toronto — at which the leaders of three of the institute’s task forces will give their assessment of the issues captured in the proposed changes. Already one speaker at the ICI’s September conference questioned the exact extent of mutual cost transparency. “One of my concerns is, how far are we going to talk about transparency of costs,” said Christopher Enright, executive vice president of Markham, Ontario-based FundEX Investments Inc. “Are we talking about complete unbundling of the [management expense ratio]?” he asked, referring to whether each component of costs would have to be enumerated in client materials. “These are very tough questions that we are going to have to ask.” Op-ed pieces are another forum for comment. “Once implemented, the RRP will have a profound impact on daily operations of the mutual fund industry — for fund managers, fund dealers and advisers,” Joanne De Laurentiis, the IFIC’s president and chief executive, wrote in January in Investment Executive, a Toronto-based trade paper. “Basically, this regulatory proposal seeks to streamline and harmonize the registration requirements applied by each of the 13 securities regulators in Canada. Indeed, it will change the very basis of such regulation from the current trade-based trigger to a business-based trigger,” Ms. De Laurentiis wrote. “This is significant because, although it may permit certain activities that today are considered ‘trades’ to be carried out without registration in the future, it opens the door for numerous other activities to be brought within the scope of securities regulators. Some changes may be more onerous than others,” Ms. De Laurentiis said. “Some may be a welcome relief,” she said. “But, overall, the RRP will mark a sea change in how advisers run their businesses and conduct client relationships.” Another op-ed piece questioned the effect on the CSA passport model, which many said ensured most of the benefits of a national regulator by promising that each registrant approved by one province would be approved by the others. “One of the more aggravating aspects of our multijurisdictional regulatory system is the cumbersome process for the interprovincial registration of brokers,” Ian Russell, president and chief executive of the Toronto-based Investment Industry Association of Canada, wrote in December in Investment Executive. The IIAC formerly was the industry association arm of the Investment Dealers Association of Canada, also in Toronto. “The complexities inherent in the passport model are significant and, for the most part, unavoidable,” Mr. Russell wrote. “But the registration project, proceeding concurrently, magnifies the management challenge and signals an even longer process, given the need for consensus on a number of significant issues … Large complex projects demand consensus building among CSA staff and ministerial officials, which may require considerable energy and resources to be spent on the process, and blur the focus on outcomes. “It doesn’t have to be like this. The CSA could focus on aspects of the passport model that will produce immediate benefits for the investing public, intermediaries and the marketplace. “From the perspective of registrants, the crown jewel in the passport system is the so-called mobility exemption. This exemption attempts to address clients moving from one jurisdiction to another. “The mobility exemption deserves a second look. What are we waiting for?” But changing the passport model also would take time and new consensus. In the meantime, Mr. St-Gelais said that Quebec fully intends to participate in the CSA’s reform initiatives. “In Quebec, we are prepared to make … a lot of compromises on many issues in order to make sure that at the end of the day, with common solutions, [there are] common rules that are simple and clear,” he said.