Since 2019, the Canadian Securities Administrators (CSA) have
worked towards enhancing the framework for self-regulatory
organizations in Canada. Earlier this year, the CSA announced its
plans to create a new, single self-regulatory organization (the New
SRO) that will provide enhanced regulation of the investment
industry. In tandem with creating the New SRO, the CSA is also
working towards creating a new Investor Protection Fund (the New
The New SRO will consolidate the functions of the Investment
Industry Regulatory Organization of Canada (IIROC) and the Mutual
Fund Dealers Association of Canada (MFDA), while the New IPF will
combine the two existing investor protection funds – the
Canadian Investor Protection Fund (CIPF) and the MFDA Investor
Protection Corporation (MFDA IPC) – into an integrated fund
independent of the New SRO.
Both the New SRO and the New IPF are to be created by the end of
2022. These are important developments for all in the investment
industry and this article outlines the key takeaways in 2022, along
with the status of the CSA’s work and the expected outcomes.
This article is the first of a series outlining the implications of
this significant regulatory initiative for the Canadian investment
Application for recognition of new self-regulatory
On May 12, 2022, the CSA published for comment Staff Notice and Request for Comment 25-304
Application for Recognition of New Self-Regulatory
Organization advancing its recommendation to consolidate
IIROC and the MFDA into the New SRO. This staff notice built on the
2021 CSA Position Paper 25-404 New Self-Regulatory
Subject to the CSA’s consideration of the comments received
on the staff notice, the New SRO can be expected to have a mandate
to act in the public interest by protecting investors from unfair,
improper, or fraudulent practices by its members and fostering fair
and efficient capital markets and public confidence in capital
markets. The mandate will also include facilitating investor
education; administering a fair, consistent and proportionate
continuing education program; incorporating regional considerations
and interests from across Canada; and administering robust
compliance, enforcement and complaint handling and resolution
The staff notice consisted of a draft application for
recognition of the New SRO and included a draft by-law and interim
rules, draft terms of reference for the New SRO Investor Advisory
Panel, and new requirements for Québec. Also included with
the staff notice was a draft Recognition Order for the New SRO, as
well as a draft MOU among regulators regarding oversight of the New
The New SRO will initially have two classes of members: Dealer
Members and Marketplace Members (together, the Members). Dealer
Members will consist of investment dealers and mutual fund dealers,
while Marketplace Members will include recognized exchanges,
quotation and trade reporting systems, and others that facilitate
the trading of securities or derivatives in Canada in the
circumstances listed in the application.
The staff notice also set out the proposed governance structure
for the New SRO. The initial board, which was announced by the CSA on May 12, 2022, consists
of 15 persons, including the Chief Executive Officer of the New
SRO, Andrew Kreigler (announced in June). Eight of the board members
are independent and six of the board members represent the Members.
The board and its committees are required to be composed of a
majority of independent directors, each with independent chairs,
with the Governance Committee being composed of all independent
The New SRO will also have a National Council and seven Regional
Councils, comprised of Dealer Members from each region, as defined
in the by-law. The Regional Councils will have an advisory role and
provide regional perspectives and recommendations on policy matters
to staff of the New SRO. The National Council will be comprised of
the chairs and vice-chairs of the Regional Councils and will act as
a forum for consultations among the Councils, as well as provide
recommendations on regulatory policy matters to the CEO and Chair.
An Appointments Committee will have the responsibility for
appointing members to the hearing committees of the New SRO.
The New SRO will establish investor engagement mechanisms,
including an investor office to provide investor outreach and
education and an Investor Advisory Panel to provide independent
research on regulatory and public interest matters. The Chair of
the Investor Advisory Panel must meet with the New SRO board at
least once per year and will publish a public report annually to be
posted on the New SRO’s website.
The New SRO will develop an appropriate fee model following its
creation. On an interim basis, the New SRO will maintain the
existing fee structures and models of IIROC and the MFDA, as well
as the existing criteria for access to membership and the provision
of regulatory services.
All current members of the MFDA and of IIROC will become Members
of the New SRO automatically once the New SRO is established and
recognized by the CSA. The New SRO intends to adopt interim rules,
which will incorporate the regulatory requirements of IIROC and the
MFDA and will include:
- the Investment Dealer and Partially Consolidated Rules (largely
the former IIROC Rules with amendments to accommodate mutual fund
dealer activity within an investment dealer);
- the Universal Market Integrity Rules; and
- the Mutual Fund Dealer Rules.
The interim rules will include new proposals to:
- amend the current IIROC proficiency requirements to allow dual
registered firms to employ mutual fund-only licensed persons
without having to upgrade their proficiencies to those required of
a securities licensed person, although the CPH exam must completed
within a specified time frame, and
- permit introducing/carrying broker arrangements between mutual
fund dealers and investment dealers.
Continuing education (CE) requirements for current IIROC and
MFDA registrants outside of Québec will continue to apply.
Mutual fund registrants in Québec will continue to comply
with the Chambre de la sécurité
financière’s (CSF) CE requirements. The New SRO can be
expected to work towards a future harmonization of the CE
The staff notice also contains Requirements for Québec, including,
among other requirements, that the New SRO will maintain a
Québec District and any decision concerning the supervision
of its self-regulatory activities shall be made principally by
persons residing in Québec.
Application for approval of the new investor protection
Concurrently with the application to recognize the New SRO, the
CSA published for comment CSA Staff Notice 25-305 Application for
Approval of the New Investor Protection Fund. This staff
notice sets out a proposal to amalgamate the two existing
compensation funds – CIPF and the MFDA IPC – into a single
compensation fund (the New IPF).
The New IPF will be independent from the New SRO and will be
amalgamated under the Canada Not-for-profit Corporations
Act. The purpose of the New IPF will be to provide protection
to customers of New SRO Members who have suffered financial loss as
a result of a Member’s insolvency.
The staff notice included draft versions of the by-law, coverage
policy, claims procedures, and appeal committee guidelines, along
with the draft approval order for the New IPF and a draft MOU among
regulators regarding oversight of the New IPF.
The New IPF is expected to be established by Dec. 31, 2022.
Members of the New IPF will be the individuals who compose the
board, from time to time, and they are required to meet at least
annually. The primary role of members is to elect directors,
appoint the auditor of the New IPF, receive the financial
statements of the New IPF, and confirm by-laws.
The staff notice sets out the proposed structure for the New
IPF. The board will be comprised of industry directors and public
directors, as defined in the application, and the CEO. The number
of public directors must exceed the number of industry directors by
at least one. The board will also appoint various committees, each
of which must be comprised of a majority of public directors. The
Chair of the board of the New IPF, along with industry and
independent board members, was announced along with the publication
of the staff notice. The CEO of the New IPF remains to be
Requirements for funding and maintenance of the New IPF are also
set out in the staff notice. The New IPF will be required to
publish its methodologies of establishing assessments for
contributions from each category of member. It will also be
required to conduct analysis of the risks associated with each
category to determine whether a single assessment methodology is
appropriate. Until the analysis is completed, the staff notice
proposes that the funds available to satisfy potential claims for
coverage by customers of investment dealers and mutual fund dealers
will remain segregated and be subject to separate assessments.
Single entities with investment dealer and mutual fund dealer
registration will have coverage from the investment dealer fund.
The New IPF must ensure a moratorium on any changes to the current
assessment methodologies that would result in a material increase
to the assessments levied on each category of member. The money in
each fund must be invested in accordance with the relevant policies
applicable to that fund and require safety of principal and a
reasonable income while assuring sufficient liquidity for potential
claims. The draft coverage policy sets out the losses and property
covered, eligible customers, and how claims can be made.
As with the proposal for the New SRO, a separate regime is
proposed for customers of mutual fund dealers in Québec,
considering that there is an existing regulatory framework for such
dealers and that they are not currently members of the MFDA. The
staff notice proposes that the New IPF will not provide coverage
for mutual fund dealer customer accounts in Québec and
members of the New SRO will not be subject to assessments to
contribute to the Mutual Fund Dealer Fund of the New IPF in
relation to mutual fund dealer customer accounts located in
Québec. The AMF has published for comment its proposed
transition plan for mutual fund dealers, as described in more
Amendments relating to the transition for Québec mutual
fund dealers to the New SRO
The AMF published its draft Regulation to amend Regulation 31-103 respecting
Registration Requirements, Exemptions and Ongoing Registrant
Obligations to provide the transitional provisions
designed to ensure that mutual fund dealers registered in
Québec become members of the New SRO. Under the proposed
regulation, all mutual fund dealers in Québec will be
required to become members of the New SRO; however, they will be
transitioned to the New SRO in two phases – a transition
phase and a permanent phase – on various terms and
The transition phase will begin on Jan. 1, 2023, where mutual
fund dealers in Québec will become members of the New SRO.
At this time, these dealers will not be subject to the rules of the
New SRO, except for its operating rules. Instead,
Québec-based mutual fund dealers will continue to be subject
to the regulatory framework currently applicable in Québec.
Such dealers will still be able to participate in the New SRO’s
committees and will pay a reduced membership fee.
The permanent phase will begin on the later of the
implementation date of the New SRO’s harmonized rulebook, and
the date that is one year after AMF approval of the New SRO’s
harmonized rule book or on any other date determined by the AMF, on
a consultative basis. At that date, Québec mutual fund
dealers would be subject to the same oversight as in the other
Canadian jurisdictions, while taking into account features specific
to the framework applicable to the mutual fund sector in
Québec. The AMF expects the transition period to extend at
least one year following the adoption of the New SRO’s
The AMF plans to consult with market participants again after
Jan. 1, 2023 in respect of the amendments to National Instrument
31-103 (as it applies in Québec) that will be needed to
implement the applicable model during the permanent phase.
There is still a lot to be determined about the implications of
the New SRO and the New IPF. Both IIROC and the MFDA have published
identical FAQs on their websites that essentially explain, at least
for the short term, that it will be business as usual for the
members of these SROs, but with opportunity for enhancements to
businesses operated by MFDA and IIROC member firms, particularly
for those organizations with firms that are today registered as
mutual fund dealers and as investment dealers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.