MSN - 0034
Nov 30, 2004
Joint Regulatory Notice – Update to Joint Service and Omnibus Arrangements Between IDA and MFDA Members
MFDA Staff Notices are intended to assist Members and their Approved Persons in the interpretation, application of and compliance with requirements under MFDA By-laws and Rules. Notices make reference to these requirements and set out MFDA staff's interpretation of how to comply with these requirements. Notices may also include best practices or guidance.
This joint regulatory notice has been prepared by the Investment Dealers Association of Canada, and the Mutual Fund Dealers Association of Canada (collectively, the self-regulatory organizations or “SROs”).
On June 11, 2004, the SROs published joint notices (IDA Notice MR-0296 and MFDA Notice MR-0029) relating to joint service and omnibus arrangements between IDA and MFDA Members. The notice advised that the joint service and omnibus arrangements raise significant investor protection concerns and:
- As of the date of the notice, IDA and MFDA Members should not enter into any new joint service or omnibus arrangements; and
- IDA and MFDA Members should not acceept new clients utilizing any existing arrangements.
The notice also advised that existing arrangements would have to bee unwound by December 31, 2004.
The SROs established a joint industry committee of IDA and MFDA members (the “Committee”) to review the regulatory issues with joint arrangements and propose solutions.
One of the alternatives considered by the working group was an MFDA/IDA introducing/carrying model. As the MFDA is not a participating SRO of the Canadian Investor Protection Fund, an MFDA/IDA introducing broker/carrying broker model is not available at the present time.
The Committee identified two other models that do not exist in the industry today. The first of these models applies when the trading activities for the mutual fund dealer’s clients are limited to assets the mutual fund dealer is permitted to sell (“permitted assets”), but for some reason, such as systems limitations, the mutual fund dealer cannot hold/process the trades in certain classes of these securities – such as third party mutual funds or government fixed income securities. The second model applies to registered retirement savings plans (RRSPs) where the client wishes to hold both permitted assets and other assets in a single registered plan.
Details of these models are outlined in the report of the Committee submitted to the OSC on November 4, 2004. OSC staff is reviewing the report and have also issued OSC Staff Notice 31-712 relating to joint service and omnibus arrangements. Revised OSC Staff Notice 31-712 describes the results of the OSC’s industry consultation process and advises that existing joint service and omnibus arrangements must be terminated by October 31, 2005.
Any Member with a joint service or omnibus arrangement is required to submit a detailed plan to the applicable SRO by January 31, 2005. The plan must include:
- a general description of the existing arrangement and how it will be restructured to comply with regulatory requirements;
- draft correspondence to be provided to those clients affected by the restructuring advising of any impact or options available to them;
- a detailed implementation plan, including timeframes for completion of significant stages, with a final implementation date as soon as practicable and in any event no later than October 31, 2005.
Any Member that does not submit a plan by January 31, 2005 or that is not in compliance with regulatory requirements by October 31, 2005 will be required to immediately terminate the arrangement and may be subject to disciplinary action.
|MFDA||Laura Milliken||(416) 943-5843|
|MFDA||Karen McGuinness||(416) 943-5897|
|IDA||Paul Bourque||(416) 865-3038|
|IDA||Louis Piergeti||(416) 865-3026|
|IDA||Larry Boyce||(416) 943-6903|