On June 4, 2021, the Mutual Fund Dealers Association of Canada (MFDA) published Account Transfers – Summary of Comments (Bulletin), summarizing the comments that the self-regulatory organization received in response to MFDA Consultation Paper on Account Transfers (Consultation Paper) and providing its own comments in further response. The Consultation Paper was published last year to solicit feedback from stakeholders with an objective of improving the process by which client accounts are transferred between investment firms. Although the scope of the discussion in the Bulletin is mostly limited to the MFDA’s regulatory jurisdiction, namely the MFDA member firms, it may potentially have broader implications for the investment industry generally.
Summarizing the comments received, the MFDA noted that some of the common causes for delays or troubles in effecting account transfers included the following:
- Reliance on manual processes due to the absence of a commonly used electronic transfer mechanism;
- Defects and deficiencies in the transfer processes, or “Not in Good Order” transfers commonly arising due to the lack of uniformity in the transfer forms and the use of paper forms;
- Client retention efforts by firms;
- Different internal transfer policies at firms and lack of transparency regarding appropriate contact information;
- Firms having different standards regarding signatures, such as the requirement for wet signatures on original paper forms; and
- Inherent challenges associated with certain transfers and accounts such as registered accounts and products that cannot be transferred through FundServ such as GICs.
Among the various actions that the MFDA proposed to take to address some of the above issues were amendments to the MFDA Rules that would further establish transfer timelines and standards for MFDA member firms, in addition to the current principle-based rule on account transfers. As such rules would not be binding on non-MFDA member firms, the MFDA undertook to raise the matter of transfer timeframes with other regulators and industry associations.
Some commenters noted the importance of the MFDA and the Canadian Securities Administrators (CSA) coordinating a regulatory response to paperless initiatives and the need for a cost-efficient automated process and suggested that an industry task force be established to come up with a standardized approach for all industry participants.
Since any initiative, including in the area of automated processes, would be limited to mutual fund dealers if tackled by the MFDA alone, and because the issues raised in the Bulletin are likely to have common relevance for industry participants generally, it is reasonable to expect that the MFDA may attempt to engage other regulators and industry stakeholders on the relevant discussions, or that other regulators, such as the CSA, may show interest in adopting similar initiatives and coordinating with the MFDA and other regulators.
If you have any questions about the Bulletin, or require assistance with issues involved in client account transfers (regardless of whether you are a MFDA member firm or not), please do not hesitate to contact any member of our team.
June 30, 2021
A recent settlement between an Alberta-based registrant and the Investment Industry Regulatory Organization of Canada (IIROC) presents a sharp reminder to all registrants about the importance of keeping their OBAs up to date.
In a June 4, 2021 settlement with IIROC, the registrant agreed to a $75,000 fine, a six-month suspension and an order to pay $5,000 in costs, in connection with a failure to disclose an OBA to his firm, which ultimately resulted in a conflict of interest arising between the registrant and several clients. According to the settlement, the registrant failed to notify his firm of his involvement in a property development business, in which a number of his clients also had a financial interest. Evidently, the business failed, and two of the registrant’s clients lost all, or a significant portion, of their investments. IIROC found that the registrant did not inform his firm of the OBA by downplaying his involvement, and that he failed to report, and address, a material conflict of interest with his clients.
As a refresher, as described in detail in Companion Policy 31-103 CP, registrants must disclose all outside business activities in Form 33-109F4 (or Form 33-109F5 for changes in outside business activities after registration). OBAs currently include any employment and business activities outside the registrant’s firm, all officer or director positions, and any other similar position, including positions of influence. Individual registrants under Ontario securities law are required to file OBA disclosure within 10 days of a new OBA or a change to an existing OBA.
On February 4, 2021, the Canadian Securities Administrators (CSA) released a number of proposed changes to certain initial and ongoing regulatory reporting requirements for registrants, including relating to the OBAs. The proposed changes seek to:
- Change this term from “Outside Business Activities” to “Outside Activities”, to indicate that reportable activities include more than just a compensated position.
- Provide a fairly comprehensive set of evaluation criteria to help registrants determine what is reportable to regulators and what is not.
- Extend the reporting deadlines from 10 to 30 days.
For more details regarding these changes please see Outside Activities 2.0: Potential Burden Reduction Comes to Reporting of Registrant Information.
While the Ontario Securities Commission (OSC) has announced a moratorium on late fees for failing to disclose OBAs, starting retroactively on January 1, 2019 and ending on December 31, 2021, at the latest, the recent IIROC settlement brings into focus why registrants should continue to report all their OBAs in a timely and fulsome manner.
June 30, 2021
On May 19, CFA Institute published its Exposure Draft of ESG Disclosure Standards for Investment Products (the Exposure Draft). The draft is the second proposed version of standards (the Standards) on principles, requirements and recommendations in connection with the identification, comparison and presentation of investment products with environmental, social, and governance (ESG)-related features. The purpose of the Standards is to provide greater transparency and consistency in ESG-related disclosures, resulting in clearer communication regarding the ESG-related features of investment products. With the Exposure Draft, CFA Institute is seeking to elicit feedback from the public on the Standards.
CFA Institute noted that the recent substantial interest in investment products with ESG-related features has prompted a growing number of investment professionals and market participants to call for the development of a global standard to help investors understand which ESG-related investment products align with their needs and preferences. The Standards are meant to address that demand. CFA Institute stated that the Standards are suitable for all types of investment vehicles, all asset classes, all ESG strategies, and all markets.
The Exposure Draft notes that the CFA Institute Asset Manager Code, a voluntary principles-based code that outlines a firm’s ethical and professional responsibilities to clients, states that managers must, among other things, ensure that disclosures are truthful, accurate, complete, and understandable and are presented in a format that communicates the information effectively. The Standards support the Asset Manager Code. The Standards offer more detailed guidance about how to fulfill those requirements when aspects of an investment product’s strategy use ESG information or address ESG issues.
The Exposure Draft considers an ESG-related feature to be any aspect of an investment product’s strategy that uses ESG information or addresses ESG issues. The Standards are intended to be applied by investment managers regardless of how the investment products are named, labelled, or categorized. As well, the Exposure Draft proposes that investment managers have the flexibility to apply the Standard on a product-by-product basis rather than to all products, or at a firm level. The Exposure Draft contains disclosure requirements and recommendations that address certain elements of an investment product’s strategy including objectives, benchmarks, and sources and type of ESG information. The Exposure Draft also includes sample compliant presentations that include ESG information for certain types of investment products.
The Exposure Draft follows work done by CFA Institute’s ESG Working Group composed of industry professionals that explored concepts for a standard that would provide a consistent set of information and enough transparency to help investors understand and compare investment products with ESG-related features. The ESG Working Group released a Consultation Paper on the Development of the CFA Institute ESG Disclosure Standard for Investment Products (the Consultation Paper) in August 2020. Responses to the Consultation Paper confirmed the need for a set of standards and led to the Exposure Draft.
Comments on the Exposure Draft are due July 14, 2021 and can be submitted by any individual, group or organization. CFA Institute has also provided a list of questions for public comment on the Exposure Draft, guidelines for submitting feedback, and a draft response form. Comments received on the Exposure Draft will be considered for the final version of the Standards that are expected to be issued in November 2021.
If you have any questions about the Exposure Draft, please contact your usual lawyer at AUM Law.
June 30, 2021