A concerning trend in reporting among portfolio managers that partner with dealer members has prompted the CSA to issue updated guidance for such registrants.
The newly released CSA Staff Notice 31-347
is meant to guide portfolio managers on how to administer portfolio manager-dealer member service arrangements (PMDSAs) in a way that is acceptable and complies with regulations. Under PMDSAs, a dealer member (DM) holds an investor’s cash and securities in an account that a portfolio manager (PM) has discretionary trading authority over; the PM would give instructions to the DM on execution and settlement of trades in the account.
Since the investor is a client of both the PM and DM, they are both obligated to submit reports to the client. “Nonetheless, practices have developed whereby some PMs operating with PMDSAs look to the delivery of a statement by a DM to satisfy the PM's statement delivery obligation, and rely on a DM's records to satisfy the PM's books and records obligation,” said the notice.
Other concerns that the CSA has identified include inconsistent agreements between the PM and DM and inadequate or inconsistent disclosures to clients.
There is no regulatory framework that applies specifically to PMDSAs, but there are different rules with provisions that affect them. Generally, these include requirements that a PM has to maintain records separately from the DM; the PM and the DM must have a written agreement on the PMDSA, with terms, roles, and responsibilities defined; and the PM must deliver statements separately from the DM.
“The notice will help portfolio managers understand and comply with their regulatory obligations when they have these service arrangements,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers. “We encourage portfolio managers to use the information and guidance in this notice as a self-assessment tool to strengthen their compliance.”
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