Key Issues











 

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.

 

CAPITAL MARKETS ACT, ONTARIO

On October 12, 2021, the Ontario Ministry of Finance released its draft Capital Markets Act (CMA). This is part of the government’s Capital Markets Modernization Review. The CMA is new draft legislation intended to replace the Securities Act and the Commodity Futures Act in Ontario. As part of the government’s commitment of burden reduction and streamlining regulatory oversight, the CMA would significantly modernize Ontario’s capital markets regulatory framework, align it with development in a rapidly evolving sector and further enhance Ontario’s position as a globally competitive capital market jurisdiction.

Modernizing Ontario’s capital markets through the introduction of the CMA was the first recommendation of the final report of the Capital Markets Modernization Taskforce. A number of Taskforce recommendations have been incorporated in the CMA.

The IIAC will be responding to the consultation on the draft CMA by the January 21, 2022 deadline.

 

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.

 

CYBERSECURITY/ PRIVACY

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 IIAC has hosted Cyber Security Conferences and continues to offer webinars to help members address 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.

The IIAC’s Data/Privacy Committee responds 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 provincial and federal government representatives and IIROC to advance our position and assist in developing the policy direction of this important initiative.

 

DEBT MARKETS: 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.

 

DEPOSIT INSTRUMENTS

IIAC Members are among the largest distributors of deposit instruments such as GICs and High Interest Savings Accounts (HISAs). Effective April 30, 2022, new regulations from The Canada Deposit Insurance Corporation (CDIC) come into effect impacting all Nominee Brokers that distribute these products.  The IIAC participates on CDIC’s Brokered Deposit Advisory Group (BDAG) and several of its sub-groups which have been established to develop industry guidance and resources to assist with implementing the new requirements.  The IIAC has contributed to several of these resources to ensure IIAC member views are properly reflected.

The IIAC has prepared a summary document for members outlining some of the new CDIC requirements.

The IIAC will continue working with members in the lead up to the CDIC implementation to ensure awareness of the new requirements and obtain any necessary clarifications from CDIC.

 

ESG/ SUSTAINABILITY

Over the last several years the IIAC has focused on providing its members with current and timely thought leadership pieces and led conferences and webinars in the rapidly growing and evolving ESG and sustainability market sector.

In an ongoing series of conferences, the IIAC has assembled Canadian and international experts to share their expertise and insights on issuance and investment opportunities in the ESG, green bond, and transition bond markets. The IIAC Debt Markets Committee and associated Transition Bonds Working Group work on an evolving set of recommendations, voluntary standards and insights to facilitate the advancement of more liquid green and transition bond markets in Canada.

The IIAC will continue to update and work with its members on taxonomy developments and the ongoing activity geared towards creating uniform standards and guidelines globally and in Canada.

In the broader ESG and sustainability space, the IIAC will also widen its focus to include the impact and opportunities of sustainability beyond the capital markets sector.

 

FINTECH: INNOVATION SOLUTIONS

The IIAC contributes to the knowledgebase of the growing FinTech/RegTech and Innovation landscapes by providing a forum for sharing of best practices, and identifying future areas of focus and implementation for the benefit of investors.

We work with regulators to appreciate the quickly evolving and broadening FinTech/ RegTech/ Innovation environment in a manner that ensures investors are best served.

As part of its efforts, the IIAC hosts conferences and webinars on topics including Open Banking, Artificial Intelligence and Digital Assets.

 

INVESTMENT BANKING

The Canadian Securities Administrators (CSA), various of its members 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 advocates to avoid 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.

 

ORDER EXECUTION ONLY (OEO) SERVICES

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.

 

SRO REFORM

The CSA released its Position Paper 25-404 – New Self-Regulatory Organization Framework on August 3, 2021. The CSA will support the development of a single, national enhanced SRO.

The IIAC submitted a Response on October 4, 2021 and and urged the CSA to proceed quickly and expeditiously to achieve implementation. The IIAC called for a commitment to a risk-based, balanced approach to regulation that recognizes different business models and is designed to meet evolving investor needs and preferences. The IIAC made several other recommendations, including in the areas of governance, market surveillance, and post-implementation analysis and will continue to work with the CSA, IIROC and MFDA toward implementation.

 

TAX

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.

CRS requires financial institutions to provide the CRA detailed client financial account information (including account balances, interest, dividends and sales proceeds from financial assets) and the CRA exchanges that information with other jurisdictions annually to combat cross-border tax evasion and protect the integrity of the tax systems.  The IIAC continues to monitor for and respond to changes to CRS requirements and actively works with firms on compliance related issues.

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 continues to monitor and respond to changes to FATCA requirements and actively works with firms on compliance related issues.

 

WEALTH MANAGEMENT

The Client Focused Reforms (CFR) enhance requirements for firms and advisors with respect to conflict-of-interest, know-your-client (KYC), know-your-product (KYP), suitability, relationship disclosure documents, misleading communications, supervision and record keeping.

There is a phased-in approach for the CFR, with conflict-of-interest rules in effect as of June 30, 2021 and all remaining aspects of the rules to come into force December 31, 2021.

The IIAC continues to advocate on behalf of members including participation on the CSA’s CFR Implementation Committee. The IIAC maintains a CFR Implementation Committee to assist firms with implementation issues.

The IIAC also continues to review and respond to issues related to the delivery of wealth management services including those related to aging or vulnerable investors.

Financial Planning Services

Individuals providing financial planning services have a significant impact on an investor’s financial well-being and piece of mind. Ontario, Saskatchewan and New Brunswick are at various stages of creating additional statutory and regulatory requirements surrounding the usage of financial planner/financial advisor titles.

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. These provincial initiatives unfortunately cause investor confusion and unnecessary duplication of regulation for market registrants. Titles are clearly fully regulated by securities regulators, including the SROs, whose members should be exempted from these additional regimes.

 

 

For more information on these issues, please refer to the IIAC’s Activity Updates.