The investment industry continues to express concerns as the Canadian Investment Regulatory Organization (CIRO) continues rewriting its rulebook.
Over the summer, CIRO consulted on the latest phase of its effort to consolidate the existing rulebooks for mutual fund and investment dealers.
The self-regulatory organization (SRO) has carried out three parts of a planned five-phase project to craft a single rulebook. From the outset, the industry called for this overhaul to occur in one fell swoop — with the new rulebook coming into force once all five phases are complete.
That stance was reiterated in the latest consultation.
“It is only once all five phases of the project are completed that a comprehensive analysis can be done to ensure nothing has been missed and that nothing within the rules is contradictory,” the Investment Funds Institute of Canada (IFIC) said in its submission.
Adopting rule changes all at once, rather than sequentially, will also make it easier for firms to determine how best to implement the new requirements within their own businesses and minimize any client confusion that may arise.
“In short, a concurrent implementation will allow the complete set of rules to arrive as a cohesive whole, and will maximize their impact in the market in a positive manner,” IFIC said.
The Investment Industry Association of Canada also called for CIRO to publish a draft of the new rulebook for comments once all five phases of the consolidation project are complete.
Support for this approach was not universal. The Canadian Advocacy Council of CFA Societies Canada’s (CAC) submission said that, while the council supports implementing the new rules once all consultations are complete, it doesn’t believe an additional consultation on the final rulebook is needed before the new rules can be adopted.
“We would encourage CIRO to instead focus its resources on expediting the implementation of the consolidated rules and therefore proceed with the approval without republication once the phased consultations are complete,” the CAC said.
On Sept. 12, CIRO stated that it will republish all rules in the winter of 2025-2026 and subsequently adopt the new rulebook in one go rather than implementing it in stages.
The CAC also suggested a one-year transition period to implement the final rules, saying more time shouldn’t be needed given the project’s lengthy consultation process. Instead, firms that want more time should seek relief from CIRO.
Some industry groups have requested at least two years for the transition. The Canadian Bankers Association’s (CBA) submission said firms should have a minimum of 24 months to update their systems, adopt new processes, revise client disclosures and make other needed adjustments — with longer transitions allowed for changes with major operational implications.
The proposals to double the maximum fine for regulatory violations to $10 million from $5 million and to toughen the terms of industry suspensions also attracted a fair amount of feedback.
Industry trade groups were emphatically opposed to doubling the fines. For example, the CBA’s submission said the proposal to adopt a $10-million maximum was “well outside the scope” of the rule consolidation project, “not in line with the spirit” of the SRO’s sanctioning guidelines and would exceed the maximums in force among provincial regulators.
The CBA also argued that higher maximum penalties risk “reducing the availability of investment advice to the public due to a chill on professionals and firms engaging in business under such conditions.”
Yet, the proposal had supporters. For example, the CAC strongly agreed with raising the ceiling on potential fines, and said doing so “should serve to increase deterrence.”
IG Wealth Management also supported the higher potential penalties while offering a caveat: “While we support the overall recommendation, we expect that CIRO will continue to apply fines in a proportionate manner while ensuring there is not general inflation to all monetary fines applied in enforcement matters.”
In addition to potentially increasing maximum monetary penalties, the consultation contemplated taking a tougher line with reps who are suspended or banned for misconduct. The goal would be to prevent reps from working for a dealer in another capacity while their registration is on hold.
Here, too, the industry associations pushed back.
“An individual who is subject to sanctions should not be prohibited from earning a living income within the industry,” argued the Federation of Independent Dealers’ (FID) submission. The FID warned that tougher employment restrictions could put firms in conflict with labour laws or push them to terminate these employees.
“CIRO should consider expanding the scope of prohibited activities for sanctioned individuals without denying their right to employment,” the FID said.
Finally, the consultation addressed dispute resolution. Specifically, CIRO wants fund dealers to participate in its arbitration service, which was previously available only to investment dealers. The SRO also wants the Ombudsman for Banking Services and Investments (OBSI) to provide it with information about client complaints involving dealers and reps.
IFIC said mutual fund dealers should not be required to take part in CIRO’s arbitration service — at least not yet. IFIC noted the framework for industry dispute resolution remains under review, as the regulators that oversee OBSI are considering giving OBSI binding authority to resolve complaints. The association also said a comprehensive review of the system for dealing with client complaints and client/industry disputes should take place first.
“We urge CIRO to participate in such an analysis and, therefore, to delay the requirement for mutual fund dealers to participate in the CIRO arbitration process until the CSA/OBSI project is completed,” it said.
The FID opposed the proposal to allow OBSI to share more information with CIRO, saying it “reject[s] outright the idea of CIRO accepting OBSI investigation materials.”
“Our members have had sufficient experience with OBSI over the years to underpin our belief that CIRO provides the higher standard of investigation and expertise in securities matters. We do not want that high standard to lose its edge or regulatory perspective by referencing materials from a consumer complaint body,” the FID said. “We want our SRO to do its own investigations.”
This article appears in the September issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.