The prospect of a major restructuring of the competitive and regulatory landscape between investment and mutual fund dealers appears to be off the table for the time being, according to a notice that the Investment Industry Regulatory Organization of Canada (IIROC) published on Thursday.
IIROC’s notice is a response to the results of the consultation on a white paper the self-regulatory organization (SRO) released late last year in which it asked registrants to consider two connected issues: allowing investment dealers to employ mutual fund representatives by eliminating the existing requirement that they upgrade the qualifications of mutual fund licensed employees to full-service status; and, allowing all reps to use a directed commission structure, which could allow them to operate more tax-efficiently.
IIROC has now announced that it will not be pursuing these changes directly and will instead focus on continuing to work on several fronts that address issues raised in the paper. That’s because the responses from the consultation indicated that many saw these rule changes as possibly leading to a fundamental reordering of the retail investment business, with dual-platform firms likely scrapping their fund dealer arms and, ultimately, to a possible merger between IIROC and the Mutual Fund Dealers Association of Canada (MFDA).
“Our response reflects the wide range of opinions put forward in response to the white paper and the legitimate concerns raised therein, each of which will need to be addressed individually,” IIROC says in its response. “It also reflects a number of developments in the policy landscape since we published the white paper, including proposals put forward by both our [Canadian Securities Administrators (CSA)] partners and some of their governments that may render elements of the white paper moot.”
In terms of addressing some of the issues raised in the white paper, IIROC says it will, “Seek clarification from federal authorities on the tax rules applicable to directed commissions.”
The SRO also indicates that it will also work with firms, on a case-by-case basis, “to help their advisors upgrade to meet IIROC’s proficiency requirements as efficiently as possible.”
Furthermore, IIROC states that it intends to participate in the CSA’s ongoing initiative to enhance proficiency requirements in the investment industry, among a series of other “targeted reforms,” noting that “if implemented, these reforms could make the elimination of IIROC’s proficiency upgrade requirement unnecessary or less impactful on industry participants.”
More generally, IIROC notes that it intends to work with regulators, governments and others on “initiatives to reduce fragmentation, burden, and arbitrage across regulatory platforms while maintaining or increasing investor protection.”
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