MFDA begins sketching map to new SRO

150 150 Enoch Wealth Management

MFDA begins sketching map to new SRO

February 4th 2021

MFDA begins sketching map to new SRO

The MFDA is working on an “implementation roadmap” for its vision for the future of self-regulation

The ongoing battle over the future of self-regulation escalated on Tuesday when the Mutual Fund Dealers Association of Canada (MFDA) announced that it is developing a plan for implementing its proposed vision for a new SRO.

Last year, the MFDA published a paper setting out its proposed model for a new SRO that would oversee all registered firms, including exempt market dealers (EMDs) and portfolio managers, alongside fund dealers and investment dealers, while hiving off the responsibility of market regulation to the provincial securities regulators.

The MFDA proposal came amid a review of the SRO structure that’s being undertaken by the Canadian Securities Administrators (CSA). Ontario’s Capital Markets Modernization Taskforce has also recommended reforming self-regulation by merging the MFDA with the Investment Industry Regulatory Organization of Canada (IIROC) in the short-term, with the ultimate goal of expanding oversight to other registration categories over time.

The MFDA is now pushing ahead with the development of an “implementation roadmap” for its preferred model, which, it argued, is closely aligned with the recommendations of the Ontario task force.

“The task force’s recommendations to create a new single SRO to oversee all advisory firms, with a strengthened accountability framework, including its governance recommendation to include CSA nominees on the new SRO board, are very much aligned with the MFDA’s proposals,” the MFDA said in a notice.

In the meantime, the CSA is continuing to review the comments it received on its consultation on SRO reform, and has indicated that it will publish its conclusions later this year.

“The roadmap is intended to support the ongoing consultations on fundamental reform of securities industry self-regulation currently being conducted under the leadership and direction of the CSA,” the MFDA said in a release.

“Our goal is to empower and assist all stakeholders — investors, industry, regulators and governments — in envisioning a clear path toward a new SRO driven first and foremost by the public interest, and underpinned by sound governance, industry expertise and responsiveness to investor and market needs,” said Mark Gordon, president and CEO of the MFDA. “A clear implementation roadmap, which enables everyone to visualize how such change can be achieved, is a critical step in this effort.”

Notwithstanding the MFDA’s efforts, IIROC has advocated for a straightforward merger of the two existing SROs. Trade groups for the EMD sector and portfolio managers have opposed being drawn into an SRO altogether.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.

MFDA begins sketching map to new SRO

February 4th 2021

MFDA begins sketching map to new SRO

The MFDA is working on an “implementation roadmap” for its vision for the future of self-regulation

The ongoing battle over the future of self-regulation escalated on Tuesday when the Mutual Fund Dealers Association of Canada (MFDA) announced that it is developing a plan for implementing its proposed vision for a new SRO.

Last year, the MFDA published a paper setting out its proposed model for a new SRO that would oversee all registered firms, including exempt market dealers (EMDs) and portfolio managers, alongside fund dealers and investment dealers, while hiving off the responsibility of market regulation to the provincial securities regulators.

The MFDA proposal came amid a review of the SRO structure that’s being undertaken by the Canadian Securities Administrators (CSA). Ontario’s Capital Markets Modernization Taskforce has also recommended reforming self-regulation by merging the MFDA with the Investment Industry Regulatory Organization of Canada (IIROC) in the short-term, with the ultimate goal of expanding oversight to other registration categories over time.

The MFDA is now pushing ahead with the development of an “implementation roadmap” for its preferred model, which, it argued, is closely aligned with the recommendations of the Ontario task force.

“The task force’s recommendations to create a new single SRO to oversee all advisory firms, with a strengthened accountability framework, including its governance recommendation to include CSA nominees on the new SRO board, are very much aligned with the MFDA’s proposals,” the MFDA said in a notice.

In the meantime, the CSA is continuing to review the comments it received on its consultation on SRO reform, and has indicated that it will publish its conclusions later this year.

“The roadmap is intended to support the ongoing consultations on fundamental reform of securities industry self-regulation currently being conducted under the leadership and direction of the CSA,” the MFDA said in a release.

“Our goal is to empower and assist all stakeholders — investors, industry, regulators and governments — in envisioning a clear path toward a new SRO driven first and foremost by the public interest, and underpinned by sound governance, industry expertise and responsiveness to investor and market needs,” said Mark Gordon, president and CEO of the MFDA. “A clear implementation roadmap, which enables everyone to visualize how such change can be achieved, is a critical step in this effort.”

Notwithstanding the MFDA’s efforts, IIROC has advocated for a straightforward merger of the two existing SROs. Trade groups for the EMD sector and portfolio managers have opposed being drawn into an SRO altogether.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.

MFDA begins sketching map to new SRO

February 4th 2021

MFDA begins sketching map to new SRO

The MFDA is working on an “implementation roadmap” for its vision for the future of self-regulation

The ongoing battle over the future of self-regulation escalated on Tuesday when the Mutual Fund Dealers Association of Canada (MFDA) announced that it is developing a plan for implementing its proposed vision for a new SRO.

Last year, the MFDA published a paper setting out its proposed model for a new SRO that would oversee all registered firms, including exempt market dealers (EMDs) and portfolio managers, alongside fund dealers and investment dealers, while hiving off the responsibility of market regulation to the provincial securities regulators.

The MFDA proposal came amid a review of the SRO structure that’s being undertaken by the Canadian Securities Administrators (CSA). Ontario’s Capital Markets Modernization Taskforce has also recommended reforming self-regulation by merging the MFDA with the Investment Industry Regulatory Organization of Canada (IIROC) in the short-term, with the ultimate goal of expanding oversight to other registration categories over time.

The MFDA is now pushing ahead with the development of an “implementation roadmap” for its preferred model, which, it argued, is closely aligned with the recommendations of the Ontario task force.

“The task force’s recommendations to create a new single SRO to oversee all advisory firms, with a strengthened accountability framework, including its governance recommendation to include CSA nominees on the new SRO board, are very much aligned with the MFDA’s proposals,” the MFDA said in a notice.

In the meantime, the CSA is continuing to review the comments it received on its consultation on SRO reform, and has indicated that it will publish its conclusions later this year.

“The roadmap is intended to support the ongoing consultations on fundamental reform of securities industry self-regulation currently being conducted under the leadership and direction of the CSA,” the MFDA said in a release.

“Our goal is to empower and assist all stakeholders — investors, industry, regulators and governments — in envisioning a clear path toward a new SRO driven first and foremost by the public interest, and underpinned by sound governance, industry expertise and responsiveness to investor and market needs,” said Mark Gordon, president and CEO of the MFDA. “A clear implementation roadmap, which enables everyone to visualize how such change can be achieved, is a critical step in this effort.”

Notwithstanding the MFDA’s efforts, IIROC has advocated for a straightforward merger of the two existing SROs. Trade groups for the EMD sector and portfolio managers have opposed being drawn into an SRO altogether.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.