Mutual fund dealers and investment dealers that have entered a joint service or omnibus arrangement must submit a detailed plan on how they plan to unwind these arrangements to their applicable SRO by Jan. 31, 2005.

The dissolution of these arrangements was ordered by the Ontario Securities Commission in a notice a little over a week ago. The commission is worried about investor protection under these sorts of business structures.

In a joint notice released today, the Mutual Fund Dealers Association and Investment Dealers Association of Canada say that the plans must include:

  • a general description of the existing arrangement and how it will be restructured to comply with regulatory requirements;
  • draft correspondence to be provided to those clients affected by the restructuring advising of any impact or options available to them; and
  • a detailed implementation plan, including timeframes for completion of significant stages, with a final implementation date as soon as practicable and no later than Oct. 31, 2005.



Any firm that does not submit a plan by January 31, or that is not in compliance with regulatory requirements by October 31 will be required to immediately terminate the arrangement and may be subject to disciplinary action.

The SROs established a joint industry committee of IDA and MFDA members to review the regulatory issues with joint arrangements and propose solutions. The joint committee has proposed several alternatives.

One model considered by the working group was an MFDA/IDA introducing/carrying model. But, as the MFDA is not a participating SRO of the Canadian Investor Protection Fund, an introducing broker/carrying broker model is not an option.

The committee also identified two other models that do not exist in the industry today. One applies when the trading activities for the mutual fund dealer’s clients are limited to assets the mutual fund dealer is permitted to sell, but for some reason, such as systems limitations, the mutual fund dealer cannot hold/process the trades in certain classes of these securities – such as third party mutual funds or government fixed income securities. The second model applies to RRSPs where the client wishes to hold both permitted assets and other assets in a single registered plan.

Details of these models are outlined in the report of the committee submitted to the OSC on November 4. OSC staff are reviewing the report.