The Mutual Fund Dealers Association of Canada has decided to go ahead with plans to beef up its contingency fund from $30 million to $50 million, although the increase will be phased in over a longer time period than initially planned.
Earlier this year the MFDA issued a bulletin concerning proposals by the MFDA Investor Protection Corp. to boost the size of its contingency fund to $50 million, among other proposed changes. In a bulletin published Tuesday, the MFDA indicates that it plans to go ahead with the proposed increase.
The regulator notes that many of its members, \u201cwere not convinced of the merits of the IPC proposal to increase the fund size to $50 million. Some members expressed their disagreement by questioning the need and value of the fund in the first place, while others questioned the information provided and reasons given in the support of the increase.\u201d
However, it says that the MFDA and IPC \u201care satisfied that insolvency risk does exist\u201d for MFDA members and their customers, and that the fund must increase as the risk of insolvency of fund dealers increases.
The bulletin also indicates that the period proposed by the IPC for raising the additional $20 million for the fund will be increased from five to seven years, and the assessment period for raising the additional funds will begin on July 1, 2011.
This change follows comments from MFDA members seeking a longer transition period to lessen the burden of the additional fundraising. The MFDA notes that the assessments starting in July 2011, will be substantially less than the current annual assessment (the new amounts will be approximately 55% of the prior year\u2019s assessment).
The MFDA and IPC say they will study other possible changes to the fund. The bulletin indicates that the MFDA board \u201caccepted the principle of aligning the IPC scope of product coverage with the IPC assessment base but decided that the matter required further consideration\u201d. As a result, MFDA staff has been asked to work with the IPC to analyze, by October 1, 2011, the practical implications and desirability of changes.
The IPC will also investigate other possible changes, such as the use of risk-based assessment methodologies, and the use of insurance products, by either the IPC or dealers themselves, to mitigate risks. The IPC has been asked, with the support of MFDA staff, to provide their analysis on these issues by January 1, 2012.
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