CIRO takes step toward consolidated dealer rules

The Canadian Investment Regulatory Organization (CIRO) is seeking feedback on the first stage of its effort to consolidate the rules for mutual fund dealers and investment dealers into a single tome.

With the merger of the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) to create CIRO, the new SRO initially preserved the rules that both sets of dealers lived under prior to the merger.

Now, CIRO is tackling the task of consolidating those requirements into a single rulebook.

Among other things, the purpose of the rulebook consolidation project is to harmonize the requirements that apply to dealers, minimize the threat of regulatory arbitrage, and adopt regulations that are less prescriptive and more principles-based.

The first step in that project proposes the structure for the combined rulebook, including definitions, rule interpretations, exemptions and general conduct standards for dealers, their employees and reps.

According to the notice outlining the proposals, in reviewing the existing dealer rules, the SRO found various areas where there are significant differences between the investment dealer rules and the fund dealer rules. Some of those differences will be dealt with in future stages of the rulebook consolidation effort, it said — and the proposal seeks feedback on certain areas too.

For instance, the existing rules take differing approaches to the practice of delegating certain regulated activities. For now, the consolidated rulebook has adopted the approach used in the investment dealer rules, but regulators haven’t made a final decision on which approach to use in the final consolidated rules.

There are also differences in the regimes that apply to investment dealer reps and mutual fund dealer reps.

“The decision to either retain two separate regimes or to consolidate these two regimes has significant implications that need to be further considered before a decision can be made,” the SRO said in its notice.

The consolidated rules also have to resolve requirements governing activities allowed in the investment dealer world but not the fund dealer industry, such as offering direct electronic access accounts, discretionary accounts, managed accounts and order-execution-only accounts.

To that end, the proposals seek feedback on whether fund dealers should be allowed to offer managed accounts and order-execution-only accounts too.

Other basic differences include methodologies for calculating dealers’ risk-adjusted capital positions, and differences in how firms report positions held in “client name” versus “nominee name.”

The project is also proposing to adopt the MFDA’s approach to granting exemptive relief, which would expand the SRO’s ability to grant relief to investment dealers and their reps.

The proposals are out for comment until December 19.