Key Issues Facing Canada’s Investment Industry
Anti-Money Laundering (AML)
Financial services firms follow an extensive and onerous process to verify client identity to prevent suspicious transactions. They are also required to identify money laundering/terrorist financing risks and have in place risk mitigation measures, including ongoing monitoring of transactions.
The IIAC advocates on behalf of members to ensure Canada’s AML regulatory regime is robust and effective while ensuring the compliance burden is not overly onerous.
Bond Market Transparency and Surveillance
Timely surveillance, oversight and transparency are important to the integrity of Canada’s debt market. They are essential ingredients to investor confidence. However, attempts to establish excessive transparency (i.e. the extent to which timely data on prices are visible and understandable to all participants) may deter dealers from committing capital to trading and result in lower liquidity. The IIAC believes a balance must be struck between investor needs for increasing price discovery with the liquidity and efficient functioning of markets. Finally, the IIAC continues to stress to the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) that Canada’s approach to debt market surveillance and transparency must be specifically tailored to the uniqueness of Canada’s debt markets.
Canadian Green and Transition Bond Markets
The Canadian green bond market is a rapidly expanding sector and is growing in tandem with the global green bond market as the world moves to reduce carbon emissions.
The IIAC is working with the IIAC debt markets committee and associated transition bonds working group on an evolving set of recommendations, voluntary standards and insights to facilitate the advancement of more liquid green and transition bond markets in Canada.
Clearing and Settlement Infrastructure
Canada’s clearing and settlement systems underpin our capital markets and investment industry. The IIAC and its members provide regular input to critical systems, including the Canadian Depository for Securities (CDS) and the Canadian Derivatives Corporation (CDCC). This industry input is essential in ensuring the efficiency of these systems.
The IIAC has worked in collaboration with CDCC to design and launch the fixed income and repo central counterparty (CCP). Efforts continue to expand the services and clearing opportunities available through the CCP. Industry input is further being provided to CDS as part of its technology modernization initiative.
Acting in a client’s best interest means ensuring client interests are paramount; conflicts of interest are avoided; clients are not exploited; clients are provided with full disclosure; and services are performed reasonably prudently.
IIAC member firms are providing diverse services under the highest regulatory standards that afford their clients robust investor protection. Advisors and their firms are working effectively to strengthen their client relationships by meeting differing investor needs in an evolving marketplace.
The IIAC believes a regulatory standard mandating that registrants act in their client’s best interest is unnecessary and may lead to client confusion and have negative consequences for investors.
Financial services firms are exposed to potentially serious financial, operational and reputational risk in the event of cyber attacks and data breaches. It is critical that all financial services firms, at the highest level of their organizations, develop and maintain comprehensive cyber security plans to protect themselves, their clients and their industry from the damage that a cyber attack can inflict.
The Cyber Security Resources section of our website contains information, tools and links to resources to assist firms in developing and maintaining their cyber security plans. The IIAC has hosted Cyber Security Conferences and continues to offer periodic webinars to help members better understand the evolving cyber threat and is working with industry experts and service providers to bring our Members key services at association pricing.
The IIAC also contributes to the Financial Services-Information Sharing and Analysis Center (FS-ISAC) monthly newsletter highlighting cybersecurity topics and emerging threats to the securities industry.
Data and Privacy
Recent high-profile data breaches and cases involving misuse of information, along with evolving regulation in Europe and the US, have increased the profile of Privacy regulation in Canada. Announcements by the federal government indicate that reform of PIPEDA is a matter of some urgency. The IIAC has undertaken efforts to ensure we are proactive in advancing industry interests in this realm. The IIAC formed a Data/Privacy Committee in the spring of 2019 to respond to regulatory initiatives related to privacy, and has developed tools, templates and practices to assist firms in strengthening their privacy stance. Our strategy is to ensure that Privacy Regulation accommodates specific business practices of the industry, and is tailored to ensure business can be effectively and efficiently conducted, while protecting vital client information. We are continuing to liaise with federal government representatives and IIROC to advance our position and assist in developing the policy direction of this important initiative.
Financial Planning Standards
Individuals providing financial planning services can have a significant impact on a client’s financial and emotional well-being. Ontario has been creating requirements surrounding the uase of financial planner/financial advisor titles as well as the appropriate scope of such regulation.
The IIAC agrees that those involved in financial planning must have the necessary proficiency and meet minimum acceptable standards regardless of the regulatory channel within which they work, but expressed a number of concerns with the proposals put forward.
Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is U.S. legislation intended to detect U.S. persons who are evading U.S. tax using financial accounts held outside of the U.S. Under FATCA, non-U.S. financial institutions are required to report relevant information to the U.S. tax authorities on financial accounts held by identified U.S. persons. If a non-U.S. financial institution fails to comply with FATCA, the IRS can impose a 30 per cent withholding tax on U.S.-source payments paid to the financial institution or its clients.
The IIAC U.S. Tax Committee and its various working groups have been actively involved as FATCA was rolled out. The Committee successfully advocated for cost-effective reporting and led efforts to streamline the reporting process. The IIAC continues to monitor and respond to changes to FATCA requirements and actively works with firms on compliance related issues.
Investment Banking Disclosure Requirements
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have been active in their attempts to reformulate many of the regulations that affect the ability and means by which companies can raise funds and undertake transactions to reorganize their businesses. These initiatives include a number of new and amended prospectus exemptions, as well as regulation dealing with take-over bids; the accompanying regulatory, public and shareholder disclosure; and due diligence procedures to be undertaken by dealers. Although many of these proposals are positive, they often contain elements that would create inefficiencies and unnecessary costs.
Through its Investment Banking Committee, the IIAC identifies and pushes back against inefficiencies resulting from the complex patchwork of differing prospectus exemptions across jurisdictions, inappropriate disclosure of private information, and extensive timelines interfering with the deal-making process.
Market Data Fees
The IIAC continues to advocate for our members both domestically and internationally (through a partnership with international securities associations) to address the serious issue of inflated and increasing market data fees originating from marketplaces as well as other market data vendors.
Non-Investment Fund Reporting Issuers
The Canadian Securities Administrators (CSA) recognize more that can be done to reduce the regulatory burden for reporting issuers, while being mindful of the impact on investor protection. The Consultation Paper it issued contains a broad range of proposed reforms, including relief for smaller issuers and streamlined rules for both offerings and continuous disclosure (e.g. reducing duplicate disclosure requirements and enhancing electronic delivery of documentation). The Paper provides an opportunity for the IIAC to provide meaningful input on behalf of its member firms.
OECD Common Reporting Standard (CRS)
The OECD called on national governments to require their financial institutions to provide detailed financial account information (including account balances, interest, dividends and sales proceeds from financial assets) and exchange that information with other jurisdictions annually to combat cross-border tax evasion and protect the integrity of the tax systems. More than 40 tax jurisdictions pledged to achieve automatic information exchanges in 2017. The IIAC stressed the Canadian industry needed sufficient time to prepare for the tax-reporting demands. The IIAC assisted firms during the implementation phase of CRS and has been actively providing additional feedback and recommendations to the Canada Revenue Agency (CRA) in its CRS guidance.
Order Execution Only (OEO) Services and Activities
The OEO business model, developed in the early 2000s, saw firms offering clients trade execution services only with little to no ancillary tools or services, and the products offered were primarily limited to listed securities. Since then, the OEO business model has evolved significantly with OEO firms now offering a wide variety of products, tools and account types. At the same time, changes in the investment industry has impacted the OEO business model. We continue to work with IIROC and the CSA on issues impacting the OEO dealers.
Tax Reporting on Investments
IIAC members prepare and issue millions of tax slips to clients each year. This reporting is critical in administering the government’s tax policy objectives and ensuring investors understand the tax implications of their portfolio decisions, while equipping them with the information they need to accurately calculate and pay taxes owed.
The IIAC monitors tax slip changes announced by the CRA and other tax authorities to ensure tax reporting obligations on member firms are clear, not overly onerous and that member firms have sufficient time to adapt to changes and put in place systems that allow them to meet their reporting obligations.
For more information on these issues, please refer to the IIAC’s Activity Updates.