What’s new with the CAC?

Advancing investor protection, industry professionalism, and market integrity across Canada, the CAC works to focus attention on pressing advocacy files dominating the regulatory agenda. Ensuring fair, equitable, and sustainable outcomes for stakeholders is more important than ever, and through our growing relationships with policymakers and regulators, we are working on several important initiatives. Below is a summary of three areas where we have recently provided comment letters to consultation processes. To see the comprehensive catalogue of our commentary letters, visit us online.

Published Canadian Advocacy Council of CFA Societies Canada (the “CAC”) comment letters

IIROC Proposed Amendments – Reporting, Internal Investigation, and Client Complaint Requirements

The Proposed Amendments provide a rigorous analysis of the existing reporting requirements and set out changes to eliminate duplicative reporting while focusing on potentially harmful matters.

Our key comments are summarized below:

• We support the requirement to report (and investigate) serious misconduct through the Complaints and Settlement Reporting System (ComSet).
• Guidance will be crucial for dealers in helping to identify “serious misconduct,” given the subjective nature of the current definition.
• A materiality qualifier is not appropriate for breaches of securities or other laws. Violations of laws (securities or otherwise) should draw major conduct questions and will need to be reported and investigated in all cases.
• The framework for Canada’s complaint handling system across financial services should be significantly simplified.
• We support the requirements for gatekeeper reports to be made in ComSet.
• It would be helpful if any one set regulator had the authority and ability to effectively shift a complaint to the appropriate forum if it is initially filed with the incorrect regulatory body or complaints resolution authority.

We continue to urge the Investment Industry Regulatory Organization of Canada (IIROC) and other regulatory bodies that deal with consumer complaints to look at additional ways to share and analyze data to identify systemic market and investor issues. 

IIROC Proposed Derivatives Rule Modernization, Stage 1

The CAC supports the revised proposals, which will harmonize the application of IIROC rules to securities and derivatives-related activities.

We appreciate that many of the proposals’ revisions reflect prior CAC comments. These include:

• The removal of the requirement for hedging positions to have a high degree of negative correlation with the underlying interest or position (as noted in our previous comments, correlations are unstable over time).
• New guidance confirming that it is possible to hedge only part of an underlying interest or position and still have the transaction regarded as a hedge.

We are particularly supportive of IIROC’s proposed definition of a “hedger,” including limiting this potential classification to non-individuals, which will address potential mis-selling and suitability concerns. IIROC should, however, consider making technical revisions to clarify that the definition includes non-individuals that engage in qualifying hedging activities concerning some, but not necessarily all, of the risks to which they are exposed. Guidance would also be appreciated on what it means for a hedger to “materially” offset market value changes in the interest or position being hedged.

We suggest IIROC undertake further policy research to assess whether options or similar derivative contracts ought to be made subject to the current derivatives-specific business conduct requirements (under the revised proposals, they are excluded from these requirements). It would be helpful for the proposed Derivatives Risk Disclosure Statement to specifically inform derivatives clients about the concept of counterparty risk and clients’ potential exposure to the creditworthiness of their dealer and any OTC counterparties. 

CSA Staff Notice and Request for Comment 25-304 – Application for Recognition of New Self-Regulatory Organization

The CAC supports the creation of the New Self-Regulatory Organization (SRO). We were pleased to see that many of our comments have been considered and believe that the proposed structure, mandate, and processes for the New SRO will represent a positive step toward increased investor protection, accountability to the public interest, and transparency in Canadian securities regulation.

Our key comments are summarized below:

• We applaud the new governance structure requiring a clear majority of independent directors and independent chairs of both the Board and primary committees.
• We commend the new measures to provide transparency throughout the New SRO’s decision-making processes, particularly in removing of the regulatory decision-making mandate of regional councils and replacing it with an advisory-only role.
• We endorse the proposed creation of a strong investor advisory panel and investor office.
• It will be critical early work of the Board (working with staff) to identify guiding principles and key performance indicators by which successful execution against mandates can be monitored and regularly reported for transparency.
• Registrants should be strongly encouraged (and potentially mandated if or when properly grounded in related research and policy development) to pursue a higher standard of minimum competency, continuing skills development, professionalism, and delivery of ethically-centred advice to clients.
• It is in the public interest to maintain responsibility for the market surveillance function with the New SRO.

If you would like to participate in advocacy activity related to these letters or future policy and regulatory initiatives, provide comments on ongoing initiatives, or learn more about volunteer opportunities in advocacy or as a part of the CAC, please contact cac@cfacanada.org.

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Who is the Canadian Advocacy Council?

The Canadian Advocacy Council (CAC) is a volunteer advocacy council for CFA Societies Canada, representing the twelve Canadian CFA Institute Member Societies and, ultimately, Canadian CFA charterholders. The council includes investment professionals from across the country who review regulatory, legislative, and standard-setting developments affecting investors, investment professionals, and Canadian capital markets. The CAC strives to advance market integrity, transparency, and investor protection, and actively engages Canada’s securities regulators, self-regulatory organizations, industry associations, legislators, and other stakeholders through thoughtful leadership, direct engagement, and the publication of comment letters.