Quebec investors would be better protected by the harmonization of the rules, framework and controls governing in the mutual fund industry in that province, says Desjardins Group.

Desjardins Group representatives made their presentation today in Quebec City at the Quebec Public Finance Committee hearings on mutual funds.

Bruno Morin, senior vp, investment funds and trust services, at Desjardins, explained to the members of the committee that the mutual fund industry is divided into two major categories. On the one hand, regulated financial institutions such as the Desjardins Group or the banks offer products to consumers. “These organizations are already subject to a very stringent legal and regulatory framework, particularly as regards financial soundness and solvency. A financial institution such as Desjardins applies a rigorous integrated risk management process, and yet is the object of frequent inspections by the regulatory bodies to which it is accountable,” said Morin.

On the other hand, independent mutual fund producers, who have no ties to such financial institutions and are not required to register with the regulatory authorities, are not subject to the same requirements, namely as regards to their financial base (capitalization, leverage, working capital) and state of solvency (insurance protection, liability, etc.). “In order to ensure greater protection for investors, not only the products offered, but those who produce them as well, should be subject to the regulations and laws in force,” added Morin.

According to Desjardins Group, the legislator and the regulatory authorities must factor into their considerations the major distinctions between the two categories of mutual fund producers. “In our opinion, a better harmonization in the application of the rules, framework and controls seems to be the best path to follow, since it is the most likely to have an immediate impact on investor protection,” said Morin.

The Desjardins representatives also argued that various regulation projects are currently under study in Canada with a view to further tighten the controls governing the administration of mutual fund producers, particularly as regards governance and compliance, and thus promote investor trust and protection.

In this context, stated Morin, “we must be sure that any measure adopted following the works of the committee will truly entail an enhancement of investor protection, in addition to ensuring harmonization with the regulations of other Canadian jurisdictions”.

As to the eventual extension of the coverage provided by the Fonds d’indemnisation des services financiers, Desjardins believes that it is an important issue, but underlines that a new fund would entail additional financing expenses. Furthermore, the introduction of an extended compensation fund could give consumers a false impression of security. “A broader coverage of the compensation fund that would encompass the distribution to production of mutual funds could lead to the belief that the product is ‘guaranteed’, while the capital of these savings products is never guaranteed,” Morin pointed out.

Desjardins also agrees with the idea of an in-depth look into the option of imposing more severe penalties likely to have a deterrent effect. Lastly, it believes that the Autorité des marchés financiers has the power it needs to rigorously and energetically shoulder its mission.