Overview of regulatory framework for Canadian asset managers

Alix d'Anglejan-Chatillon and Jeffrey Elliott 

The last few years have seen the development and implementation of various regulatory initiatives affecting the Canadian asset management industry, including amendments to the dealer, adviser and investment fund manager registration framework.

As such, we have recently drafted an overview of the Canadian regulatory framework for asset managers for the third edition of The Asset Management Review. The publication, released by Law Business Research, is also available as an e-book.

FSB proposes standards for global securities financing and data collection and aggregation

On November 13, the Financial Stability Board published a consultation report that sets out proposed standards and processes for global securities financing and data collection and aggregation. 

Among other things, the report includes proposals on data elements for repos, securities lending and margin lending, as well as recommendations to ensure consistency among national and regional data collection. 

The FSB is accepting comments on the proposal, including in respect of specific questions asked of stakeholders, until February 12, 2015.

OSC Staff take narrow view on application of "hedger" exemption under the CFA

Margaret GrottenthalerKenneth G. Ottenbreit and Terence W. Doherty - 

In a recently released staff notice, staff of the Ontario Securities Commission (OSC) have provided guidance on the availability of certain exemptions from the dealer registration requirement under the Commodity Futures Act (CFA) that we believe is contrary to the prevailing interpretation among market participants. As we reported in September, under OSC Staff Notice 33-744 – Availability of registration exemptions to foreign dealers in connection with trades in options and futures contracts under the Commodity Futures Act (Ontario) (the Notice), OSC staff take the view that an unregistered dealer may not rely on the “hedger” exemption and also take a very narrow view of the availability of the “unsolicited trade” exemption under the CFA.

In the Notice, OSC staff state their view that the hedger exemption is not available to an unregistered non-Canadian dealer that wishes to trade with a hedger. In our view, the longstanding and accepted interpretation of the hedger exemption has been that the exemption may be relied on by an unregistered non-Canadian dealer. The Notice represents a surprising and very restrictive interpretation of the availability of the “hedger” exemption commonly relied on by unregistered non-Canadian dealers when trading futures with Ontario resident “hedgers”, and runs counter to over thirty years of accepted legal interpretation and industry practice.

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AMF issues exemptions from trade reporting rule

On October 31, the Autorité des marchés financiers du Québec (the AMF) exempted the Fédération des caisses Desjardins du Québec (the Quebec Federation), all the Quebec Federation’s Caisse Desjardins members, the Quebec Federation’s subsidiaries, Caisse centrale Desjardins du Québec (Caisse centrale), the Fédération des caisses populaires de l’Ontario inc. (the Ontario Federation) and all of the Ontario Federation’s caisse populaire members (together, the Desjardins Group) from their obligations under section 26 of Regulation 91-507 to report derivatives trade data to a recognized central repository in respect of trades among the entities of the Desjardins Group.

The AMF highlighted the following facts in support of the exemption demand:

  • the AMF exercises prudential supervision over the Desjardins Group, including over the Ontario Federation and its members;
  • the Deposit Insurance Corporation of Ontario exercises prudential supervision over the Ontario Federation’s caisse populaire members; and
  • Caisse centrale acts as treasurer and financial agent within the Desjardins Group and as a counterparty both within the Group and externally.

IIROC adopts debt transaction reporting rule

Last week, the Investment Industry Regulatory Organization of Canada (IIROC) adopted a new rule requiring dealers to report debt securities transactions.

Under this new Dealer Member Rule 2800C, and subject to certain exceptions, debt market transactions executed by a dealer member must be reported to IIROC on a post-trade basis (on T+1), including those executed on an Alternative Trading System or through an Inter-Dealer Bond Broker. Transaction information will have to include certain specified data elements, and the Customer Legal Entity Identifier and Customer Account Identifier will remain optional fields for the time being, although the requirement will be reassessed by the Bank of Canada and IIROC within the next few years. IIROC advises that dealer members who choose to report the Customer LEI should ensure that their customer has authorized such disclosure to IIROC. Similar reporting requirements for transactions of dealer members’ affiliates who are Government Securities Distributors (GSD) are also being implemented.

The first phase of reporting responsibilities will be implemented beginning on November 1, 2015 for dealer members who are GSDs (or have affiliates who are GSDs) and are participants in the Market Trading Reporting System, with a second phase taking effect on November 1, 2016 for all other debt securities transaction reporting by GSD and non-GSD dealer members. The new rule is intended to enable IIROC to carry out its responsibilities with respect to surveillance and oversight of over-the-counter (OTC) debt market trading.

As we previously discussed, IIROC released a proposed version of the rule for comment early last year and republished the proposed rule in January 2014. The final version of the rule takes into account public comments received in response to the previous proposals and includes minor revisions intended to enhance the clarity and consistency of the earlier drafts. For more information, see IIROC Notice 14-0250.

Comment period on cooperative capital markets regime extended to December 8

Canadian jurisdictions participating in the cooperative capital markets regulator project announced today that the consultation period in respect of the draft Provincial Capital Markets Act (PCMA) and Capital Markets Stability Act (CMSA) has been extended to December 8, 2014. The comment period had been originally scheduled to end on November 7, 2014.

For more information on the proposed regime, see our posts on the infrastructure of the proposed new regime, the proposed provincial acts, and the effects of the proposals on derivatives regulation.

AMF recognizes CFTC and ESMA rules for trade reporting

Quebec's Autorité des marchés financiers yesterday issued a decision in which it recognizes that the trade reporting rules of the U.S. Commodity Futures Trading Commission and those of the European Securities and Markets Authority are equivalent to the requirements imposed under Regulation 91-507. Under s. 26(5) of  the Regulation, a reporting counterparty is deemed to satisfy certain obligations  of the Regulation where it reports a transaction to a recognized trade repository pursuant to the laws of a foreign jurisdiction which appear on a list determined by the Autorité and certain other conditions are met.

Market participants may consult the list of laws of jurisdictions other than Quebec that are equivalent for the purposes of this deemed compliance provision on the AMF website.

As we've previously discussed, the trade reporting rules come into force beginning today.

Amendments to Regulation 91-507 approved in Quebec

Quebec's Regulation to amend Regulation 91-507 respecting Repositories and Derivatives Data Reporting has now received Ministerial approval. As we wrote last week, the amended regulation comes into force tomorrow.

Legal Entity Identifiers required for derivatives reporting as of October 31

The Ontario Securities Commission, AMF and MSC have now released notices reminding derivatives market participants of the imminent requirement to identify counterparties to a transaction by a Legal Entity Identifier (LEI). The OSC further advises that “non-reporting counterparties should provide all relevant information to reporting counterparties under OSC Rule 91-507, including their LEI, to assist reporting counterparties in complying with their obligations”. The obligations in Quebec and Manitoba are similar.

As we've recently discussed, trade reporting rules in Ontario Manitoba and Quebec will require reporting beginning October 31. The requirement to identify counterparties by an LEI will apply to all transactions for which the reporting counterparty is a derivatives dealer or recognized or exempt clearing agency.

The OSC, AMF and MSC also state that reporting counterparties faced with legal barriers to reporting counterparty-identifying information in their jurisdiction should apply for exemptive relief. Meanwhile, while derivatives market participants may face operation challenges not related to legal impediments to obtaining counterparty LEIs by October 31, the notices advise that best efforts should be used to obtain counterparty LEIs as soon as possible.

Canadian consultation on Capital Markets Acts important to derivatives markets

Margaret Grottenthaler -

As we posted earlier, the Department of Finance has published for consultation legislation to create a cooperative system under which participating provincial and territorial jurisdictions would enact uniform legislation to regulate capital markets within their jurisdictions (the Provincial Capital Markets Act (PCMA)) and the federal government would enact the Capital Markets Stability Act (CMSA) to address systemic risk in national capital markets, criminal matters and data collection across all jurisdictions. A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial system (in participating jurisdictions) and the federal system.

This post provides further detail on those aspects of the proposed Acts that would regulate derivatives markets. 

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