PMAC outlines desired changes to CSA reforms

Association believes reforms are flawed, while IIAC requests greater clarity

PMAC outlines desired changes to CSA reforms

The Portfolio Management Association of Canada said it has “serious concerns” that the Canadian Securities Association’s Client Focused Reforms do not strike the proper balance between investor protection and fostering efficient capital markets.

In its official response to the proposed amendments to National Instrument 31-103, the PMAC welcomed the CSA’s plan to harmonize regulations and believes it will avoid jurisdictional fragmentation, regulatory arbitrage and increased regulatory complexity.

However, it also said the full suite of reforms is flawed and countered that, as drafted, the proposals will heap regulatory and financial burden on portfolio managers that will not improve investor protection.

It also stated that, as a workable alternative, the CSA reiterates – or clarifies - the fiduciary duty owed by portfolio managers to their clients and said this is an effective and efficient way to meet the CSA’s investor protection objectives while not “muddying” the waters with “overly prescriptive regulation”.

The PMCA said this approach would have significant benefits, including: addressing the investor harms set out in the consultation; striking a proper balance between proportionate regulatory burden; fostering the efficient functioning of the capital markets; and preserving investor choice.

It also believes this would help align with the US’s Securities and Exchange Commission, which would help sustain Canada’s continued competitiveness.

By reinstating the fiduciary duty, the PMCA believes this will be a more effective framework to implement certain aspect of the reforms, including enhanced KYC, suitability, conflicts of interest and disclosure proposals. However, it dismissed the KYP amendments as “unworkable” for portfolio managers and their clients.

The PMAC is advocating for the following with respect to specific Client Focused Reforms:

1, Carve-outs from certain aspects of the Client Focused Reforms for non-individual permitted clients, including for the managed accounts of those clients;

2, Far more tailored KYP requirements that reflect the realities of portfolio managers’ businesses, securities and clients. As currently drafted, most of the proposed KYP requirements are inapplicable or unworkable in this context and portfolio managers should be exempt from their application;

3, Enhanced KYC and suitability obligations which are more clearly scalable to portfolio managers’ business models and that account for limited mandates and specific client-types;

4, New and enhanced disclosure requirements should be more responsive to investor expectations and understanding. PMAC is concerned that the proposals simply amplify the amount of disclosure to be produced without a corresponding investor benefit.

5, Significantly more principles-based conflicts of interest provisions that include a materiality threshold would permit the reasonable implementation of these proposals and, we believe, promote investor understanding. The conflicts of interests provisions should, amongst other things, reflect PMAC’s concerns with respect to proprietary products.

6, A separate work stream for additional consultation on the referral arrangement prohibitions is required, as we believe those rules will have a material adverse impact on stakeholders. Our submission suggests alternative prohibitions and enhancements to referral arrangements for consideration by the CSA.

Meanwhile, the IIAC released its own response to NI 31-103, calling for greater clarity around the compliance process.

It said that over the summer, the IIAC Client Focused Reforms Working Group, comprising industry professionals, reviewed the proposals and identified impractical rules and suggested alternatives.


1, Requested further clarification around the description of the anticipated costs and benefits of the proposed amendments. The analysis is general in nature and as a result, does not provide practical reference points.

2, Is concerned with some of the language related to the Companion Policy and that its wording may be interpreted as prescriptive, suggesting it has the force of law. Without clarification, firms may incorrectly feel they must develop further policies and procedures to comply with the Policy.

3, Believes further clarity is required throughout the Companion Policy as it relates to the ability for firms to tailor the reforms to fit their specific business models.

4, Recommends the terms “best interest” and “putting their client’s interest first” be more clearly articulated, differentiated and defined.

5, Recommends a joint CSA/Self-Regulatory Organization Implementation Committee be struck to efficiently escalate issues and provide a central resource for industry to receive feedback and guidance. 

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