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On January1, 2023, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA), Canada’s two Self Regulatory Organizations (SRO), amalgamated, and are temporarily named New SRO.
An SRO is an entity created for the purpose of regulating the operations and the standards of practice and business conduct of its members and their representatives with a view to promote investor protection in the public interest. In Canada, provincial and territorial securities regulators, operating together as the Canadian Securities Administrators (CSA), have a long history of utilizing SROs as part of their regulatory framework. The securities industry SROs operate under the authority and supervision of the CSA.
The former SRO framework required investment dealers to be members of IIROC, and mutual fund dealers to be members of the MFDA. Both IIROC and MFDA members remained subject to regulation by the CSA and complied with national, provincial, and territorial securities legislation. IIROC also oversaw trading activity on debt and equity marketplaces in Canada.
New SRO will benefit all Canadians and provide the member firms with both financial and regulatory efficiencies, while reinforcing New SRO’s commitment to it’s public interest mandate. These efficiencies will stem from combining formerly separate functions, such as compliance, technology systems, administrative departments, member training and regulatory costs.
The amalgamation provides further benefits, including easier access to different products for investors without the need to change firms as their investment needs evolve, greater availability for professional development for registrants, clarity regarding how to file a complaint and increased public confidence in the regulatory framework. New SRO has an independent Investment Advisory Panel which was created to support rule development and ensure the interests of investors are a primary consideration. This will enhance New SROs’ corporate governance practices.
The former Canadian Investor Protection Fund and the MFDA Investor Protection Corporation, were also amalgamated into a single compensation / contingency fund, known as the Canadian Investor Protection Fund (CIPF). The CIPF is a single, not-for-profit legal entity, independent from New SRO.
Bringing together two separate SROs with two different rule sets, fee models and organizational structures has created its challenges. Interim Rules and an Interim Fee Model have both been developed. New SRO Day 1 Interim Rules were formed to ensure a smooth transition and to address any fundamental problems for members. A consolidated rules plan is being developed with the goal of creating consistent rules that clearly reflect member and public interests. Firms who are interested in conducting mutual fund business and investment dealer business within the same legal entity must register as a “Dual Registered Firm” and will be recognized as one Dealer Member of New SRO.
In the next phase of the New SRO implementation process, additional work will be completed to consider whether incorporation of other registration categories that are currently overseen by members of the CSA would be appropriate. This may lead to modifications to the CIPF extending coverage to these additional registration categories.
This blog post was written by the Nova Scotia Securities Commission Market Regulation Branch