Several provincial securities regulators will continue to allow the use of personal corporations in the mutual fund dealer industry through the first quarter of 2010; but they expect the industry to come up with a solution to the use of these structures by the end of next May.

In a notice published Friday, regulators in British Columbia, Ontario, Saskatchewan and Nova Scotia granted an amendment to the recognition order of the Mutual Fund Dealers Association of Canada, allowing it to continue the suspension of its rule outlawing the use of personal corporations.

The current suspension period for the rule was due to expire on Dec. 31. The four regulators have agreed to extend that suspension until March 31, 2010, however the MFDA must submit proposed amendments to the rule by May 31, 2009.

The long-outstanding issue is that fund dealers, in some provinces, have long been allowed to flow their commissions through personal corporations, but investment dealers have been prevented from using this structure. Many in the industry would like both sorts of dealers to be able to use personal corporations, which can confer a tax advantage on their practices. However, provincial regulators are worried about preserving dealer and advisor liability in such structures.

The regulators note that the majority of the commenters “advocate that any rule proposal should allow salespersons to conduct registerable activities on behalf of their dealers through the salespersons’ personal corporations, rather than allow a directed commissions approach. They also recommend the establishment of a joint initiative of the [Canadian Securities Administrators], [self-regulatory organizations] and industry to address the incorporated salesperson issue.”

“We would like to note that the CSA’s objective is to ensure that any proposal the SROs submit allowing for salespersons’ corporations addresses our regulatory concerns, primarily the protection of investors,” it says; adding that it has told the investment dealer industry of its concerns with any proposal that includes a non-registered corporation performing registerable activities. “We think the registration regime is an important component to ensure that investors are protected,” it says.

“The CSA supports the notion of industry and the SROs working together to collectively propose a solution that would be applicable to all registrants subject to SRO oversight. The CSA expects industry and their SROs to work together and take the lead in developing a solution that does not diminish investor protection. We look forward to considering such a solution and to discussing how industry might obtain government approval for any required legislative changes,” it adds.

The notice says that regulators granted the extension because it believes that a March 31, 2010 expiry date “would provide sufficient time for the recognizing regulators to consider the regulatory impact of the proposal and for the MFDA to implement the resulting approved amendments.”