New law would kill the Cham­bre

Pro­posed bill would re­sult in fun­da­men­tal shift in Que­bec

Investment Executive - - FRONT PAGE - BY JAMES L ANGTON

sweep­ing leg­isla­tive re­form in Que­bec prom­ises to touch on all as­pects of the prov­ince’s fi­nan­cial ser­vices sec­tor. That in­cludes the se­cu­ri­ties and de­riv­a­tives mar­kets, in which a fun­da­men­tal shift in the reg­u­la­tory struc­ture would oc­cur, along with changes to en­force­ment pro­vi­sions, com­plaint-han­dling stan­dards and whistle­blower pro­tec­tion.

In early Oc­to­ber, Que­bec Fi­nance Min­is­ter Car­los Leitão un­veiled pro­posed leg­is­la­tion ( Bill 141: An act mainly to im­prove the reg­u­la­tion of the fi­nan­cial sec­tor, the pro­tec­tion of de­posits of money and the op­er­a­tion of fi­nan­cial in­sti­tu­tions) that would re­vise large swaths of the prov­ince’s reg­u­la­tions re­gard­ing the fi­nan­cial ser­vices sec­tor. Al­though much of the bill fo­cuses on the in­surance side of the in­dus­try (see story be­low, at right),

it also would in­tro­duce sig­nif­i­cant changes that would af­fect the in­vest­ment in­dus­try.

No­tably, the pro­posed bill would do away with the Cham­bre de la sécu­rité fi­nan­cière (CSF), the self-reg­u­la­tory or­ga­ni­za­tion (SRO) that over­sees fi­nan­cial plan­ners, in­surance ad­vi­sors and schol­ar­ship plan bro­kers in the prov­ince.

The ex­is­tence of the CSF as an SRO has meant that the Mu­tual Fund Deal­ers As­so­ci­a­tion of Canada (MFDA) is not rec­og­nized as an SRO in Que­bec, al­though it’s rec­og­nized as such in the rest of Canada. In­stead, the MFDA has op­er­ated un­der a co­op­er­a­tion agree­ment with the CSF and the Au­torité des marchés fi­nanciers (AMF) to pro­vide over­sight in Que­bec.

With the pro­posed elim­i­na­tion of the CSF, the AMF would take over di­rect su­per­vi­sion of fi­nan­cial plan­ners and oth­ers who cur­rently are reg­u­lated by the CSF in Que­bec. The MFDA is not likely to step into an SRO role in that prov­ince.

“We ex­pect our sta­tus in Que­bec would re­main the same,” says Karen McGuin­ness, se­nior vice pres­i­dent of mem­ber reg­u­la­tion, com­pli­ance, with the MFDA.

As­sum­ing that the bill is passed more or less in­tact — and the AMF be­gins di­rect reg­u­la­tion of fi­nan­cial plan­ners — McGuin­ness an­tic­i­pates “the MFDA would con­tinue work­ing col­lab­o­ra­tively with the AMF.”

Bill 141 would not af­fect sel­f­reg­u­la­tion by in­vest­ment deal­ers. Un­like the MFDA, the In­vest­ment In­dus­try Reg­u­la­tory Or­ga­ni­za­tion of Canada (IIROC) is rec­og­nized as an SRO in Que­bec, and that recog­ni­tion would not change un­der the new frame­work con­tem­plated by the bill. IIROC states that it’s re­view­ing the de­tails of the bill, but doesn’t fore­see any change to its role in the prov­ince.

Of course, whether the bill passes in its cur­rent form re­mains to be seen. The CSF has ex­pressed dis­may over the gov­ern­ment’s plan to do away with its role. And the CSF has sig­nalled that it in­tends to be in­volved with the con­sul­ta­tions that have been promised as part of this far-reaching leg­isla­tive ef­fort, in the hope of chang­ing some minds and thus sav­ing it­self from the chopping block.

In the mean­time, Bill 141 pro­poses an ar­ray of changes that could im­pact both in­vestors and the in­vest­ment in­dus­try. For ex­am­ple, the bill would in­tro­duce new pro­vi­sions to pro­tect in­vest­ment in­dus­try whistle­blow­ers.

Last year, the AMF an­nounced plans for a new whistle­blower pro­gram de­signed to bol­ster en­force­ment by en­cour­ag­ing in­dus­try in­sid­ers to re­port mis­con­duct that the reg­u­la­tor might not dis­cover on its own.

Al­though the AMF’s pro­gram doesn’t pro­pose pay­ing fi­nan­cial re­wards for tips that lead to ma­jor en­force­ment ac­tion (un­like the On­tario Se­cu­ri­ties Com­mis­sion’s new pro­gram), it does prom­ise to pro­tect prospec­tive tip­sters from re­tal­i­a­tion by their firm.

These anti-re­tal­i­a­tion mea­sures are part of the pro­posed bill, which also would ex­plic­itly re­lease in­dus­try per­son­nel from any obli­ga­tions to main­tain con­fi­den­tial­ity in or­der to al­low them to pro­vide tips to the AMF (ex­cept for lawyers and no­taries, who still would be sub­ject to con­fi­den­tial­ity re­quire­ments).

At the same time, the bill aims to bol­ster con­sumers’ voices within the new reg­u­la­tory frame­work by es­tab­lish­ing a new com­mit­tee — to be known as the Comité con­sul­tatif des con­som­ma­teurs de pro­duits et util­isa­teurs de ser­vices fi­nanciers — that would be charged with rep­re­sent­ing con­sumer in­ter­ests to the AMF. That com­mit- tee would pro­vide feed­back on reg­u­la­tory pol­icy from re­tail clients’ per­spec­tive and raise other con­sumer is­sues with the reg­u­la­tor, much in the same man­ner as the OSC’s In­vestor Ad­vi­sory Panel (IAP) does.

Un­like IAP mem­bers, the mem­bers of Bill 141’s pro­posed con­sumer com­mit­tee would not be paid for their par­tic­i­pa­tion, but the AMF would pro­vide ad­min­is­tra­tive sup­port to the com­mit­tee. Ex­penses would be cov­ered and mem­bers would have access to the re­search and other in­for­ma­tion that the AMF uses to de­velop pol­icy.

With the planned abo­li­tion of the CSF, Bill 141 also would bol­ster the role of a reg­u­la­tory tri­bunal known as the Tri­bunal ad­min­is­tratif des marchés fi­nanciers, which holds hear­ings on mat­ters per­tain­ing to se­cu­ri­ties and de­riv­a­tives law, along with other el­e­ments of fi­nan­cial ser­vices sec­tor leg­is­la­tion.

The pro­posed leg­is­la­tion would re­quire that the tri­bunal ap­prove any plans by the AMF to re­turn money to harmed in­vestors in cases in which the AMF seeks to pro­vide resti­tu­tion.

Bill 141 also would change reg­u­la­tory en­force­ment. For ex- am­ple, the bill pro­poses that freeze or­ders im­posed by the AMF would re­main in effect for up to one year rather than the 120-day limit that cur­rently ap­plies.

The pro­posed bill also would in­tro­duce re­quire­ments un­der se­cu­ri­ties and de­riv­a­tives law for com­plaint han­dling, such as re­quir­ing firms to have poli­cies for deal­ing with client com­plaints, and would set min­i­mum stan­dards for ad­dress­ing these is­sues.

On the se­cu­ri­ties side, the bill pro­poses mea­sures that would im­pose re­stric­tions on the com­mis­sion-shar­ing ar­range­ments that cer­tain ad­vi­sors could en­ter into. For ex­am­ple, mu­tual fund deal­ers and schol­ar­ship plan deal­ers would share com­mis­sions only with firms and ad­vi­sors who also are reg­u­lated. Such re­fer­ral ar­range­ments would be pre­scribed by reg­u­la­tion and would have to be doc­u­mented. The bill also would ex­plic­itly re­quire that de­riv­a­tives-trad­ing plat­forms and ex­change-traded de­riv­a­tives be reg­u­lated.

As with any leg­isla­tive ini­tia­tive, noth­ing is fi­nal un­til the bill is passed and im­ple­mented — which is likely to hap­pen in late 2018 — and the reg­u­la­tions are adopted.

None­the­less, the in­dus­try in Que­bec should be pre­pared for a seis­mic shakeup over the next cou­ple of years as these pro­posed changes take hold.

Bill 141 aims to bol­ster con­sumers’ voices by es­tab­lish­ing a com­mit­tee sim­i­lar to the OSC’s IAP

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