New OAR: inclusion not visible

“It is not the responsibility of the AMF to determine the tax framework applicable to mutual investment brokers. I do not have the authority to allow the inclusion of representatives on a preliminary basis. It is believed that this requires changes in legislation. We are a little committed to where we have reached the end of what we could have done, ”said Eric Jacob.

The superintendent clarified that a working group of stakeholders has recently been set up, in which the AMF is involved, which is studying this issue. “Terms of payment of commissions to third parties (for example, unregistered companies) is a difficult topic,” he said.

Remember that the tax dispute pits Revenu Québec (RQ) against the financial industry, causing the latter a share of uncertainty. According to the Board of Investment Funds of Quebec (CFIQ), in 2020 and 2021, RQ issued an assessment notice to several representatives who carried out the division, as it does not recognize the validity of this division.

According to the CFIQ, such a position of RQ contradicts the provisions of Art Securities Law (LVM) Quebec. In 2018, it was amended to allow for a member registered in the collective savings sector to share their commissions with a firm registered in the Law on Distribution of Financial Products and Services (LDPFS).

“There is a conflict between the interpretation of RQ tax legislation, on the one hand, and the will of the legislator, when he passed Bill 141, which amended the WMD. Thus, the benefit that the legislator wanted to provide to the representatives of mutual funds, allowing the distribution of commissions by changing the LVM, is no longer a valid option, “- wrote CFIQ in a brief note provided by AMF, among other things, in 2021. The group calls for representatives of mutual funds to be given the opportunity to include their activities. At present, the structure of the new OAR cannot satisfy them.

Reduced commission for brokers in transition

During the symposium, AMF representatives discussed some provisions for the new SRO, which will be announced by Canadian securities administrators on May 12. Here is the result.

First, the transition to the introduction of a new SRO, which does not yet have a name, will take place in two stages, namely transitional and permanent. The transition phase will begin 1is January 2023 and will end on an indefinite date. From 1is Next January, mutual fund brokers will automatically join the new OAR. From this date, companies engaged in both brokerage activities of mutual funds and investment intermediation activities will be able to unite them within one legal entity.

During the transition phase, the rules of the new SRO will not apply to Quebec mutual fund dealers for their activities in Quebec, with the exception of a few rules. The current regulatory framework, including NI 31-103, will continue to operate. AMF will continue to be responsible for overseeing the application of the system for mutual fund dealers in Quebec.

“In essence, this will be a status quo during the transition period,” said Eric Jacob.

For brokers in Quebec that do business elsewhere in Canada, the new SRO will not change the authority over the functions and powers of the CSF. The new SRO and the CSF will sign a cooperation agreement.

Mutual fund dealers will not have to contribute to the new SRO guarantee fund during the transition period. They will continue to contribute only to the Financial Services Compensation Fund. During the transition phase, mutual fund dealers will have to pay reduced membership fees to the new SRO, ie fees that are proportional to the services offered by the new SRO.

The end of the transition period will be the subject of consultations. “It is clear that we want this period to end one year after the revised rules of the new SRO enter into force, if possible to ensure an adequate transition period for mutual investment dealers. Consultation will be important. After receiving the comments, we will consider whether it is appropriate to stop it later, “said Eric Jacob.

As for the permanent phase, the same framework will apply to mutual fund dealers in Quebec as to mutual fund dealers operating in other jurisdictions, given the specifics of the Quebec mutual fund savings system, which includes the role of the CSF. The new SRO will take on several aspects of the regulatory framework, including inspections and enforcement, as is currently the case at the AMF.