Month: May 2021

Titles, Titles and More Titles – Notice of Changes and Request for Further Comment on Financial Professionals Title Protection Rule

On May 11, 2021, the Financial Services Regulatory Authority of Ontario (“FSRA”) proposed for a second time Rule 2020-001 Financial Professionals Title Protection under the Financial Professionals Title Protection Act, 2019. As a reminder, FSRA’s title protection framework is intended to mitigate consumer confusion and help provide assurance that persons providing financial planning or financial advisory services are qualified to do so through minimum standards for title usage. The proposed rule establishes approval criteria for credentialing bodies as well as approval criteria for those credentialing bodies to issue a financial planning and/or financial advisory credential to title users. The framework includes minimum proficiency, competency and knowledge standards for persons approved to use the titles through the credentialling requirements, but will not amount to a new licensing regime nor regulate individual conduct. In the framework consultation summary report containing responses to comments made on the original August 2020 consultation, FSRA notes its intention to include SROs as credentialing bodies under the framework and confirms that the framework is not intended to introduce new conduct standards for firms registered with IIROC or the MFDA.

FSRA has also proposed guidance with respect to its supervision approach, and revised guidance on its approach to administering applications. Several amendments were made to the application guidance, including with respect to the approval criteria for a credentialling body and also to specifically require applicants to show their policies and procedures with respect to real or perceived conflicts of interest. Additional expectations are also set out with respect to the curriculum of credentialing bodies, such as a specific requirement for the financial advisor curriculum to provide an understanding of standard retail investment products and how they should be viewed with respect to other areas of financial advice. Its approach to supervision will include annual reviews of approved credentialling bodies. FSRA also expects that credentialing bodies will share information with other such entities to ensure that only qualified persons obtain and keep an approved credential (and don’t credential-hop). Further, FSRA expects that credentialling bodies will have a process in place to review the good standing of their own credential holders in the event regulatory action is taken by another credentialing body or regulatory body.

Of specific interest to current title holders, the title restrictions extend to those titles that could be reasonably confused with the title of financial planner or financial advisor. Many commentators asked for additional clarification and examples of confusing titles. An appendix to the draft supervision guidance now provides examples of both titles that FSRA considers could reasonably be confusing and those that would not likely be confused with the title of financial planner or financial advisor. We expect this list to be the subject of new comments during this consultation period.

It is also proposed that credentialing bodies provide FSRA with the information that will be posted on their websites with respect to individuals and their credentials, as well as any disciplinary action taken against such individuals, in order to allow FSRA to create a central registry of credential holders. The formation of a central registry was suggested by a number of commentators on the original proposal.

In the notice accompanying the proposed rule, FSRA has set out for the first time its overview for its intended collection and remittance of fees, for which a separate consultation will be launched in the next few months. FSRA is currently proposing a framework that would include a fixed application fee ($10,000 for approval of a credentialing body and $5,000 for each application for approval of a credential) to recover direct costs of reviewing such applications. Each credentialing body would also be subject to an annual fee in order to help FSRA recover its annual oversight costs, as well as its start-up costs to implement the title protection framework. Such costs would be recovered through a mixture of fixed annual fees of $25,000, variable fees based on each credentialing body’s number of credential holders, as well as a third amount related to recovery of start up costs over a five-year period.

It is specifically noted that FSRA will have a process to review and adjudicate complaints against persons using a financial planner or financial advisor title without an approved credential, as well as complaints against the credentialling bodies themselves. The transition period for persons utilizing the title of financial planner or financial advisor without a recognized credential has been shortened to four years for the financial planner title and two years for the financial advisor title (from the date the rule comes into force, and only if the title was already in use as of January 1, 2020). Comments on the proposed rule and related guidance are due June 21, 2021.

If you have any questions on the impact of these proposals on your business, please contact your usual lawyer at AUM Law.

May 31, 2021

All Together Now – OSC Joins DSC Ban

On May 7 the Ontario Securities Commission (OSC) announced that it will join in on the ban on deferred sales charge (DSC) sales of mutual funds, which the rest of the Canadian Securities Administrators (CSA) announced in February 2020. The ban is expected to be effective June 1, 2022 and will be achieved through a prohibition on the payment by fund organizations of upfront sales commissions to dealers. Like The Beatles in their Yellow Submarine, the CSA will be all together now in their ban of DSCs. The CSA’s multilateral ban, not including the OSC, was discussed in our February 2020 Bulletin.

The OSC reported that it received support for a harmonized DSC ban from industry stakeholders who commented on the OSC’s Proposed Rule 81-502 Restrictions on the Use of the Deferred Sale Charge Option for Mutual Funds, published in February 2020 (the Proposed Rule). The Proposed Rule would not have banned DSCs, but rather imposed restrictions on the use of DSCs. Among other things, the restrictions would have limited redemption schedules to three years and dealers would have been prohibited from selling funds with a DSC option to clients who were either aged 60 or over or had an investment horizon shorter than the DSC schedule.

The OSC received 34 comment letters on the Proposed Rule. Approximately 70% of commenters advocated for a complete ban of DSCs and urged the OSC to harmonize the rules with the CSA. Commenters expressed concern that the Proposed Rule would create a two-tiered regulatory approach, which would create compliance issues, be costly and burdensome to implement and monitor, and cause market inefficiency. Commenters also expressed concern that even with the restrictions under the Proposed Rule, there would still be negative investor outcomes with the DSC option. The OSC also noted that mutual funds with the DSC option have been in net redemptions since 2016 and had a total net outflow of $3.34 billion in Canada during 2020. During the same time, there was a total net inflow of $23 billion into mutual funds with no-load options. The OSC also noted that with advances in industry innovation, Ontario investors have access to affordable investment options, including no-load funds and exchange-traded funds that are available to investors of all account sizes. Approximately 25% of the commenters expressed support for the Proposed Rule and provided suggestions on the proposed restrictions.

One of the arguments in favour of DSCs is that they help smaller investors access financial advice that they would not otherwise be able to receive. DSCs help pay for upfront commissions paid by fund mangers to advisers. The argument is that, with the upfront commission, the adviser can afford to deliver appropriate advice and guidance to investors over several years. This would be the case even for clients with smaller accounts, where the adviser might otherwise not be able to afford to service that client.

With the announcement on May 7, the OSC also published OSC Staff Notice 81-731 Next Steps on Deferred Sales Charges. The OSC will now bring forward final amendments to National Instrument 81-105 Mutual Fund Sales Practices that will prohibit fund organizations from paying upfront sales commissions to dealers. The prohibition on the payment by fund organizations of upfront commission to dealers will result in the discontinuation of all forms of the DSC option, including low-load options. The redemption schedules for mutual fund investments purchased under a DSC option before June 1, 2022 will be allowed to run their course until their scheduled expiry.

May 31, 2021

BLG Transaction – New Beginnings

As announced on May 6, all of us here at AUM Law are thrilled about our new relationship with Borden Ladner Gervais LLP (“BLG”). The acquisition by BLG combines its deep expertise and long-standing counsel in the investment management industry with our annual fixed-fee regulatory compliance support plans and related offerings. We will continue to provide clients with an efficient, innovative approach to help manage their legal and regulatory compliance obligations. We would be pleased to discuss the many benefits of this combination with you. AUM Law has become an even more exciting destination for experienced regulatory compliance professionals to join our team based approach that clients can access as needed, and the transaction will significantly move us forward in our journey to expand and automate our regulatory compliance offerings as part of the BLG Beyond portfolio. Announced in January 2021, BLG Beyond is a set of alternative legal services that offer fast, consistent and cost-effective tools in the areas of eDiscovery, leasing, lending, consulting and IP Strategy. As we work to integrate into BLG Beyond, our dedication to client service excellence will not change and our commitments to our clients will not be impacted. We greatly appreciate the support we have received from so many of you during our first decade and we look forward to supporting you and your businesses for many years to come.

May 31, 2021

BLG acquires AUM Law, shifting the legal landscape in Canada

Deal Provides Investment Industry with Flexible, Innovative Approach to Manage Risk

Toronto, ON – May 6, 2021  AUM Law today announced the acquisition of our firm by Borden Ladner Gervais LLP (BLG). The transaction combines BLG’s deep expertise and long-standing counsel in the investment management industry with AUM Law’s fixed-fee regulatory compliance offerings, providing clients with an efficient, innovative approach to help them manage a wide array of legal and regulatory compliance obligations. Financial terms of the transaction were not disclosed.

“Our clients rely on us to stay ahead of change and help them navigate the complex business landscape,” said John Murphy, National Managing Partner and CEO, BLG. “This acquisition, which is the first of note in our sector in several years, is evidence of our commitment to embrace innovation to transform the practice of law and bring new services to our clients as quickly as possible.”

BLG’s investment in AUM Law will allow the firm to expand and automate its regulatory compliance services to clients across Canada as part of the BLG Beyond portfolio of alternative legal services. With over 60 years of experience through lawyers located in all offices across Canada, BLG’s Investment Management Group holds the number one place in Chambers Canada’s legal rankings and is the largest practice group focusing exclusively on the investment management industry in Canada. Established in 2009 to coincide with the introduction and roll-out by the Canadian Securities Administrators of the new cross-Canada registration regime, AUM Law has developed a systematic, predictable approach to regulatory compliance and general counsel requirements, as well as one-off fixed fee services and modules.

“Since inception, we have developed strong client relationships while developing our model to proactively support our clients with managing risk and compliance in a rapidly changing environment,” said Kevin Cohen, President, AUM Law. “This is an opportunity to expand our platform across Canada and bring our alternative legal services model to new clients as part of BLG, attract the finest talent to our team, and leverage BLG’s investment in technology to further enhance the client experience. It’s an exciting moment for our firm, our people and our clients.

May 6, 2021