Self-regulatory organizations (SRO)
A self-regulatory organization (SRO) is an entity that is organized for the purpose of regulating the operations and the standards of practice and business conduct of its members and their representatives with a view to promoting the protection of investors and the public interest. SROs:
- set regulatory and investment industry standards
- regulate the business and financial conduct of member firms and their registered representatives
- have a mandate to protect investors and the public interest
Ontario’s Securities Act provides the Ontario Securities Commission (OSC) with the power to recognize SROs and to set out the authority of an SRO to carry out certain regulatory functions. The recognition orders also set out terms and conditions each SRO must comply with in carrying out their regulatory functions. The terms and conditions of recognition require each SRO to operate on a not-for-profit basis and continue to meet set criteria such as:
- ensuring an effective governance structure
- regulating to serve the public interest in protecting investors and market integrity
- effectively identifying and managing conflicts of interest
- operating on a cost-recovery basis
- maintaining capacity to effectively (i) perform its regulatory functions and (ii) establish and maintain rules and
- complying with ongoing reporting requirements to the applicable recognizing regulators.
As part of the Canadian Securities Administers (CSA), the OSC’s oversight of SROs is coordinated through memoranda of understanding, which set out how the CSA will oversee the SRO’s performance of its self-regulatory activities and services, and to ensure it is acting in accordance with its public interest mandate, specifically by complying with the terms and conditions of recognition.
There is currently one recognized SRO, the Canadian Investment Regulatory Organization (CIRO), that operates as a successor to the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (the MFDA). IIROC and the MFDA amalgamated to continue as the New Self-Regulatory Organization of Canada (New SRO), effective January 1, 2023, which subsequently changed its name to CIRO on June 1, 2023.
The following message was sent to SRO members on April 5, 2022.
We are contacting you today with a status update on work that is underway to implement the new, single enhanced self-regulatory organization (SRO) and new investor protection fund (IPF).
Work is progressing well and timing is on track for a completion date of December 31, 2022. This is in keeping with the timeline that was agreed upon by the Canadian Securities Administrators (CSA), and the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada (the SROs).
Interim Rule Book
The CSA and SROs are working closely to develop rule proposals for an interim rule book, with plans to publish the proposals for comment in May 2022. Of note, some of the proposals will focus on reducing regulatory burden that is the result of:
- The obligation to maintain two separate legal entities for mutual fund dealer and investment dealer businesses in the same group.
- The need for mutual fund dealers to use workarounds to access certain products, such as ETFs.
The interim rule book will be in place when implementation is completed in December 2022. Following implementation, we will begin work to develop a harmonized rule book for investment dealers and mutual fund dealers. Our work will be informed by a comprehensive policy plan for regulation based on the principle that like activities will be regulated in a like manner. We will conduct consultations and assess public comments to ensure the rules clearly reflect member and public interest views. The intention is to create consistent rules that present a risk- and principles-based approach to rules, compliance and enforcement.
Québec Mutual Fund Dealers
Québec mutual fund dealers (MFDs) will become members of the New SRO once it is established, but will operate within a regulatory status quo during the transition period for their activities in Québec.
This transition period will be substantially synchronized with the transition towards a harmonized rule book. During this time NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and other provincial regulations continue to apply. Although the Québec MFDs will not contribute to the new IPF for accounts located in the province, they will continue to contribute to the Fonds d’indemnisation des services financiers and their dealing representatives will continue on as members of the Chambre de la sécurité financière in keeping with legal requirements, which will remain in place after the transition period.
Key Upcoming Dates
The CSA, IIROC and the MFDA are pleased to continue working together towards the December 31, 2022 closing date and we look forward to publishing rule proposals for comment in May 2022 and announcing the CEO and Board of the new SRO in the second quarter.
Stan Magidson, Chair and CEO of the Alberta Securities Commission
Andrew J. Kriegler, President and CEO of IIROC
Mark T. Gordon, President and CEO of the MFDA