Quebec’s mutual fund dealers are divided over which self-regulatory organization should oversee their firms when the province moves to harmonize its regulatory set-up with the rest of the country next year.

The Autorité des marchés financiers, the province’s financial industry watchdog, is consulting on the future of fund dealers’ self-regulation.

Quebec is different from other provinces, in that the distribution of mutual funds is governed by a provincial law separate from the Securities Act. Under that arrangement, firms are regulated by the AMF, while representatives answer to a provincial SRO called the Chambre de la sécurité financière.

Next year, as part of a pan-Canadian reform and harmonization of registration standards, Quebec fund dealers will be brought under the Securities Act and be required to join an SRO. But which organization will regulate them?

It is proving to be a vexing problem for the AMF, one with nationalist overtones. In a discussion paper released in February, the AMF suggested the following three options for self-regulation of the industry:

> the Mutual Fund Dealers Association of Canada, which is the SRO in most other parts of the country, would be given exclusive jurisdiction over fund firms and representatives;

> the MFDA would be given exclusive jurisdiction, but would delegate responsibility to the CSF for regulation of representatives;

> the CSF would be recognized as the Quebec SRO for firms and reps, and would adopt the MFDA’s regulations.

The CSF recently staked its claim to being recognized as the SRO, pitching its experience and proximity to Quebec investors.

“Without a Quebec solution to the passport regime, imagine the hassles an investor will face filing a complaint with an SRO situated in Ontario in a language that is not his own,” CSF executive vice president Luc Labelle said when releasing the organization’s brief in April. “The Chambre represents accessibility, proximity, good management, continuity and Quebec solutions marked by leadership and innovation.”

Publicly, the MFDA is tight-lipped — for the time being. “We’re preparing our response to the consultation paper that was issued by the AMF,” says Ken Woodard, MFDA director of communications and membership services. “At this time, it’s not appropriate for us to be speaking on the matter.”

The issue is raising concern among mutual fund dealers. Quebec dealers with national networks tend to favour the MFDA for fear of incurring additional costs if the CSF is in charge in Quebec. More than half of Quebec-based mutual fund dealers are already members of the MFDA.

On the other hand, smaller Quebec-focused firms would prefer to see responsibility given to the CSF, which also regulates financial planners and insurance reps.

“There is clearly division within the industry,” says Daniel Laurion, the AMF’s director general for special mandates. Higher costs are a key concern for all Quebec-based fund dealers facing the prospect of minimum capital requirements and higher registration fees under the Securities Act.

“We don’t want to undertake a reform of registration that will increase fees,” Laurion says. “The costs are intimately linked to which structure will be chosen.”

The current consultation was scheduled to end May 25. The AMF plans to study the comments over the summer and come out with a set of proposals in the fall.

Changes to regulation of Quebec mutual fund dealers is part of a wider process of reforming and harmonizing registration of firms and individuals across Canada, under what’s known as National Instrument 31-103. IE