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What’s new with the CAC?
Over the summer, the Canadian Advocacy Council (CAC) held one-on-one meetings between the executive and CAC members. The CAC strives to continually improve while keeping its members engaged. These meetings followed internal survey results detailing CAC member feedback on ways to improve and better tackle advocacy initiatives.
The CAC pursued a series of proactive advocacy initiatives throughout the last quarter. We continue to adapt to new circumstances and find innovative ways to fulfil our mission of advancing market integrity, transparency, and investor protection—even though it’s hard to see our smiles through our masks, we’re still smiling.
Finally, the CAC would also like to welcome its newest junior member: Mia Noor Nasseri, daughter of CAC chair Parham Nasseri, CFA, and his wife, Mel. Everyone is safe and healthy.
PUBLISHED COMMENT LETTERS
CAC responds to TSX sustainable bonds proposal
The CAC is generally in favour of the proposed amendments, chiefly if the posting of the bonds results in greater pricing transparency for retail investors. We also support the TSX’s plans to keep retail investors educated through a section of its website devoted to information about the sustainable bonds and their issuers, as well as by ensuring an explanation of the difference between listing and posting securities is displayed prominently. We are also in favour of enforcing tighter bid/ask tick limits to protect orders from adverse pricing.
In general, a more robust framework for the posting of sustainable bonds could help achieve the proposed objectives of accessibility and transparency for Canadian retail investors.
We understand that the Luxembourg Stock Exchange (LuxSE) has developed extensive rules surrounding sustainable bonds, and we recommend that similar requirements be considered.
We believe, should the proposed amendments take effect, that the posting of sustainable bonds issued by a wider array of issuers, such as corporations, should be considered after a reasonable observation period.
CAC responds to CSA National Instrument 31-103 vulnerable clients proposal
We think the proposed amendments made by the Canadian Securities Administrators (CSA) in National Instrument 31-103 are a solid first step to help ensure that registrants keep vulnerable client issues top of mind. However, the CSA must take a more holistic view to effectively address potential elder and vulnerable client financial exploitation by continuing to develop and consider new approaches to these challenges. We recognize that registrants with investment expertise may not be best suited to identify psychological symptoms of cognitive impairment; it is important, then, for registrants to have support from as many resources as possible to help protect vulnerable clients. We thus urge the CSA to consider expanding the proposed amendments following their implementation.
With respect to the trusted contact person requirements, we believe the proposed amendments will start a conversation between registrants and their clients. The proposed guidance where a trusted contact person (TCP) does not have the authority to transact on the client’s account or make decisions on behalf of the client by virtue solely of being named a trusted contact person is an important safeguard that should be maintained.
The temporary hold requirements should apply where there exists a reasonable belief that the client does not have the mental capacity to make financial decisions, rather than just limited to cases of financial exploitation of vulnerable clients, and be expanded to cover transactions and transfers. If a belief of diminished capacity exists, the temporary hold period allows a registrant the opportunity to investigate, contact the TCP, or escalate to an appropriate authority. This should reduce the opportunity for the mishandling or dissipation of assets. Additional rules and guidance with respect to what follows the placing of a hold, and the expectations of this “internal investigation,” would be welcome.
CAC responds to Ontario Ministry of Finance Capital Markets Modernization Taskforce
The CAC and CFA Societies Canada submitted an extensive response to the taskforce’s 47 initial recommendations and look forward to continued engagement with the taskforce and the Ministry of Finance. In our initial consultation response and this comment letter, we were generally supportive of sensible easing of regulation for certain registrants, seeking to focus regulatory attention on business models and registrants that are most risky, while easing burden for those for whom lesser risk exists. We encouraged the taskforce to further cultivate Ontario as an attractive environment for investment funds and their managers. We also encouraged the taskforce to enhance investor protection through specific policy action on problematic issues such as persistent conflicts of interest, and protections for vulnerable and older clients.
With respect to many of the taskforce’s specific recommendations, we were cautiously supportive of expanding the Ontario Security Commission’s mandate, and generally in favour of recommendations generating regulatory efficiency. We were also in favour of proposals on additional sustainability disclosures, and recommendations to foster further diversity in our capital markets ecosystem. We were not in favour of recommendations we thought would degrade the quality of financial information available to investors, such as the proposal to consider less frequent issuer reporting. We were also strongly not in favour of proposals that in isolation or, particularly, in aggregate would degrade the powers of shareholders in holding issuer boards and management accountable. This was highlighted by our strong opposition to the taskforce’s proposal for the regulation of proxy advisors.
This draft approach guidance from the Financial Services Regulatory Authority of Ontario (FSRA) describes how they will supervise the activities of mortgage brokers and administrators dealing in certain syndicated mortgage investments post-March 2021. After the amendments, FSRA will remain responsible for supervising those who trade in mortgages, qualified syndicated mortgages, and non-qualified syndicated mortgages where the investor/lender is a permitted client. The objectives of FSRA’s supervisory approach are to monitor and evaluate non-qualified syndicated mortgages with permitted clients through regular data collection and analysis, and to ensure compliance with applicable brokerage legislation.
We support FSRA’s principles-based approach to utilize data to target supervision of higher-risk brokerages and administrators. It is important to harmonize the definition of “permitted client” across the various regulations dealing with syndicated mortgages and to ensure ongoing alignment to securities regulation. Also, the definition of “qualified syndicated mortgage” is key, as it is intended to be limited to lower-risk mortgages primarily on residential properties. This definition should be standardized across all CSA jurisdictions relating to prospectus and registration exemptions. We are of the opinion that all the proposed loan-to-value (LTV) thresholds are too high, and should be reduced to 75 percent: because of the decline of the value of mortgaged property when a default occurs on a mortgage loan, and of the various costs associated with a foreclosure.
As noted in our prior comment letters to the CSA, we support the broader changes made to the prospectus and registration exemptions for syndicated mortgages because of the inherent risks associated with the distribution of such products to retail investors. We are supportive of harmonizing the removal of these exemptions amongst Canadian provinces. As indicated in our comment regarding FSRA’s proposal on syndicated mortgages, the maximum LTV threshold to determine a “qualified syndicated mortgage” should be set at 75 percent across all jurisdictions. Finally, we support the proposal to use the definition of “permitted client” currently found in NI 31-103 so the eligibility for a waiver of suitability can be standardized across products.
Our positions have also been communicated in two other comment letters posted concurrently in response to the proposed New Brunswick amendments to Commission Rule 45-501 Prospectus and Registration Exemptions relating to Syndicated Mortgage and the proposed Regulation respecting the distribution of qualified syndicated mortgages from the Autorité des marchés financiers (Québec).
CAC responds to the MFDA Consultation Paper on Account Transfers
Current Mutual Fund Dealers Association of Canada (MFDA) rules require MFDA dealers to act diligently and promptly to facilitate the transfer of accounts in an orderly and timely manner. The consultation paper seeks comments on recommendations regarding account transfer rules, as those that involve non-MFDA members or certain assets can become complicated.
In our letter, we note that there are technology solutions to assist dealers with the account/securities transfer process, and that while a universal-access electronic public utility system would be an ideal industry solution, there are a limited number of existing solutions offered.
We suggest that any universal-access solution would require a pricing mechanism that could facilitate wide availability and accessibility of some subset of limited-use basic “utility” functions, and would have to be easy to use. As a future step, the MFDA, potentially together with other relevant regulators, could work with credit default swap (CDS) and others on a utility pricing model accessible to small firms.
Notice 31-358 introduces three new models for registrants and their chief compliance officers (CCOs). The first model would permit smaller registrants to share a CCO, the second would allow larger firms with different business lines to have more than one CCO, and the third model would allow staff to consider an individual’s industry-specific experience when determining proficiency as CCO for a non-traditional or specialized firm.
We stated the shared CCO model may be effective, particularly for smaller registrants in the categories of Investment Fund Manager, Exempt Market Dealer and/or Portfolio Manager. The model would also be helpful for certain larger firms, such as private equity firms, that may require securities registration for dealing activities but whose registrable activities are limited. The model can replicate the situation where a firm hires a CFO that also performs that function for one or more other firms and result in additional professional CCOs being available to more firms. We also commented that to attract professional CCOs to participate in a shared model, it may be prudent to revisit the restrictions on conducting activities through a professional holding corporation, particularly for individuals who are not registered in any other category.
To read any of the above-mentioned letters please visit us online. https://www.cfasociety.org/canada/Pages/Canadian%20Advocacy%20Council.aspx)
Have your say
If you would like to participate regarding these letters, provide comments to ongoing initiatives, or are interested in learning more either about volunteer opportunities in advocacy or as a part of the CAC, please contact cac@cfacanada.org
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What is the Canadian Advocacy Council?
The Canadian Advocacy Council (CAC) is a volunteer advocacy council for CFA Societies Canada, representing the 12 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.
