The MFDA has sent a letter to its members that operate in Quebec explaining the status of its plans. On May 8, Quebec introduced Bill 107 to create a super regulator, the Agence Nationale d’Encadrement du Secteur Financier.

The bill provides for recognition of self-regulatory organizations in Quebec; so, the MFDA could apply for recognition once the bill is in force. The MFDA would then be able to directly regulate the Quebec-based operations of its members.

In the meantime, it’s not clear how Quebec will be handled. “In light of the recently proposed legislative changes in Quebec, the MFDA is of the view that it would be premature to require members to segregate their Quebec mutual fund distribution operations into a separate corporation at this time,” it says in the letter.

However, the MFDA board has passed a resolution providing that one of the following three things must occur on or before July 1, 2003: the appropriate regulatory agency in Quebec has harmonized its rules with those of the MFDA; the MFDA has been recognized as an SRO under Bill 107; or MFDA members have restructured and segregated their Quebec mutual fund distribution operations into a separate corporation.

The MFDA is currently considering filing an application for SRO recognition under Bill 107 once it is in force. But it notes that if it does not have SRO status, or harmonized rules with another agency by July 1, 2003, MFDA membership will be at risk for those that haven’t restructured.

The MFDA has been in negotiations with the Bureau des service financiers regarding the regulation of MFDA members in Quebec. The goal of these discussions was to reach a cooperative arrangement that would avoid requiring MFDA members to segregate their Quebec-based mutual fund distribution operations into a separate corporate entity. An agreement was negotiated by staff of the MFDA and the Bureau. It was approved by the MFDA Executive Committee in February, but it was later rejected by the board of the Bureau.

The effect of the agreement would have been that reps acting only in Quebec would be regulated directly by Quebec securities regulatory authorities. As well, MFDA members operating in Quebec would have been required to comply with all Quebec regulatory requirements as well as all MFDA rules.

It was also understood that Quebec regulatory requirements would prevail where there was a direct inconsistency with MFDA rules. However, that compromise is now dead, and it remains to be seen how the regulatory reshuffle plays out in Quebec.