WP had a 30-minute discussion with IIAC's CRM2 expert Friday. Their rationale for extending the implementation by six months makes sense. Here’s why.
Friday’s discussion came about after WP ran an article
two days earlier that questioned the need to prolong the final implementation of CRM2 beyond the existing timetable. Siding with the OSCs independent Investment Advisory Panel (IAP), who believe a delay is unwarranted and contrary to the best interests of investors in Ontario, IIAC felt that a little backstory along with a presentation of the facts might clear up any misunderstandings about the reasons it’s asking for a six-month extension.
Leading this information session was Barbara Amsden, IIACs in-house expert on CRM2 with more than 20 years in the investment industry, along with Mario Frankovich, CEO of Burgeonvest Bick Securities Limited and the chairperson for IIACs Small Dealers/Introducing Firms Committee.
If anyone could explain the issues that are involved with CRM2, Amsden and Frankovich definitely are at the top of the list.
Here are some of our conclusions:
1. Assuming CRM2 goes ahead as planned and the third and final phase is implemented on July 15, 2016, the first annual performance reporting date for clients would be July 14, 2017. This means that the client will get an annual report for the one-year period ended July 14, 2017, quite possibly a monthly report at the end of July 2017, and then a second annual report five-and-a-half months later.
Frankovich and Amsden mentioned two problems with this timing: First, clients will feel like they’re being inundated with paper. Secondly, many clients will be taking holidays at that time; it’s quite possible that many won’t even see the reports.
2. Some of the implementation requirements of phase two which is scheduled to come into effect July 15, 2015, have yet to be ruled upon. For example, as recently as this past summer, the CRA and Revenu Québec hadn’t come to an agreement about the definition of book cost (as opposed to tax cost) when compared to market value.
As Frankovich stated, “As we sit today, things that we thought we knew that were defined such as cost and market value and it being driven for performance reporting, we’re still not clear on those definitions… we’re still getting into the question of what is cost that’s going to be reported for CRM2 purposes and how are we dealing with market value.”
In other words, even some of the things you’d consider givens such as definition of market value have yet to be agreed upon with the summer just around the corner.
3. When it comes to extending CRM2, IIAC expects to get a final ruling from IIROC early in the new year that answers questions regarding book cost and client name reporting. As for a ruling on the actual extension, Amsden believes it will hear shortly thereafter, perhaps by the end of January.
IIAC originally sent its letter to IIROC asking for a six-month extension on November 18. It clearly expected that it would have already heard on book cost by the end of the year. Unfortunately, these things always take longer than anticipated.
4. IIAC originally asked for a four-year implementation period for CRM2. They got three years instead. Amsden reflected on this suggesting the move from T+3 to T+1 in the early 2000s was far less complicated and yet the change to the settlement date was given a three-year implementation.
She isn’t complaining mind you, just pointing out that IIAC knew from the beginning that a three-year implementation was going to be a tough nut to crack. Now it appears they were right.
Listening to Amsden and Frankovich discuss CRM2 was a very interesting experience. On the one hand you’ve got a subject matter that definitely isn’t party material and extremely technical in nature. On the other you’ve got an industry that’s definitely committed to doing what’s best for clients. It’s not always easy aligning those two.
The OSC feels a July 15, 2016, implementation date is what’s best for clients.
However, after hearing IIACs concerns, it seems reasonable that doing what’s best for clients should include getting things right while also avoiding inundating those same clients with a lot of unnecessary paperwork.
A year-end implementation definitely makes sense when it comes to annual reporting. Sure, it’s a much busier time on the financial services calendar than mid-July, but after listening to Amsden and Frankovich, one does get the sense that the timetable was fumbled from the beginning.