Mutual fund companies have joined the chorus of Canadian financial industry players complaining to U.S. authorities about the possible impact of the Volcker Rule on the domestic industry.
The Investment Funds Institute of Canada Tuesday released its submission to U.S. policymakers regarding the proposed Volcker Rule, which aims to restrict banks’ proprietary trading and private equity and hedge fund investing activities. The comment period on the proposed rule closed on February 13.
IFIC’s comment letter echoes the complaints made by the banks, and Canadian authorities such as federal Finance minister, Jim Flaherty, among others. It says that the rule would impact Canadian investment fund managers that are affiliated with U.S. banks, and the Canadian mutual funds they manage; and it points to a submission from the big five Canadian banks spelling out those implications.
Flaherty, Carney express concern about proposed Volcker Rule
The letter indicates that IFIC endorses the three main recommendations proposed in the banks’ letter. Specifically, that Canadian mutual funds should be excluded from the proposed definition of ‘covered fund’; that U.S. registered investment companies as well as Canadian and other foreign mutual funds should be excluded from the rule’s definition of an “affiliate”, in order to clearly distinguish public mutual funds from hedge funds, private equity funds and covered funds; and, that Canadian ‘snowbirds’ and other temporary U.S. residents should be excluded from the definition of “resident of the United States”, as this phrase is used in the exemption of foreign funds from the definition of ‘covered funds’.
IFIC argues that that incorporating these recommendations into the rule will not impair its objectives, or diminish the scope of its intended prohibitions over bank proprietary trading and relationships with hedge funds and private equity funds.
However, it maintains that not implementing these recommendations “would allow the proposals to create significant and irreparable harm to the legitimate public asset management business activities of Canadian banks, Canadian investment fund managers and to the operations of Canadian mutual funds.”
“As drafted, the Volcker Rule erects a barrier between the Canadian mutual fund industry and its Canadian clients – especially among our retiree ‘snowbird’ population,” said Joanne De Laurentiis, president and CEO of IFIC. “The exemptions we are seeking would restore the longstanding U.S. regulatory practice of allowing Canadian mutual funds to deal with Canadians temporarily resident in the U.S.”
De Laurentiis also noted the fund industry’s appreciation for the strong positions taken by Flaherty, and Bank of Canada governor, Mark Carney, in raising their concerns about the extra-territorial effect of the proposals.
IFIC says it will continue to advocate for these exclusions from the rule, “as there has never been any suggestion that Canadian mutual funds or their managers have contributed to, or might in the future, contribute to, any instability in the U.S. financial system.”