Submissions to Government

PMAC response to CSA Notice and Request for Comment – Proposed Amendments to National Instrument 31-103 – Client Focused Reforms


The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is pleased to provide comments on the Canadian Securities Administrators’ (CSA) notice and request for comment on proposed amendments to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and to Companion Policy 31-103CP – Registration Requirements, Exemptions and Ongoing Registrant Obligations (the Companion Policy and, all together, the Consultation or the Client Focused Reforms). Capitalized terms in this letter have the same meaning as those given to them in the Consultation.

PMAC represents over 260 investment management firms registered with the CSA to do business in Canada as portfolio managers. PMAC members encompass both large and small firms managing total assets in excess of $1.8 trillion for institutional and private client portfolios.

PMAC advocates for the highest standard of unbiased portfolio management in the interest of the investors served by our members. In fact, that is PMAC’s mission statement: advancing standards. The integrity of the client-registrant relationship is of crucial importance to confidence in the markets, a healthy Canadian economy and access to investment advice for all Canadians. To us, ensuring broad access to investment advice that is provided with the highest levels of integrity and skill is in the best interest of Canadians as a whole.

We would thank the CSA for the work done by its members to draft the Consultation and for the opportunity to participate in discussions on the important proposals in this Consultation. Our response is focused on the implications that the Client Focused Reforms may have for firms registered with the CSA as “portfolio managers”, for their registered individuals, and on the resulting impact of these proposals on their clients.

General Comments

We consistently support measures that elevate industry standards and improve investor protection. While we remain concerned about the net beneficial impact to investors and the applicability of some Client Focused Reforms to portfolio managers and their clients, we view several proposals in the Consultation as welcome opportunities to improve the registrant regulatory framework, as well as the CSA’s enforcement capabilities, for the benefit of all stakeholders.

PMAC values the extensive work done by the CSA to respond to the comments received on CSA Consultation Paper 33-404 – Proposals to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients (Consultation Paper 33-404).

In particular, PMAC applauds the CSA for proposing a set of nationally harmonized reforms to NI 31-103. The harmonized proposals represent a very positive and important development vis-a-vis the proposals in Consultation Paper 33-404. We believe that this unified approach will avoid jurisdictional fragmentation, regulatory arbitrage and increased regulatory complexity.

Our submission proposes what we believe to be workable alternatives to achieving the CSA’s Consultation goals. We are doing so because PMAC has serious concerns that the imposition of the full suite of Client Focused Reforms on portfolio managers does not strike the proper balance between investor protection and fostering efficient capital markets.

PMAC is concerned that, as drafted, the Client Focused Reforms will result in significant regulatory and financial burdens that may not improve investor protection, or effectively satisfy the CSA’s stated policy concerns. We also believe that without a carve-out for non-individual permitted clients (including for their managed accounts), there will be a negative impact on the competitiveness of Canadian asset managers.

Our primary recommendation to more effectively address the main investor protection concerns associated with the portfolio manager registration category is as follows:

We request that the CSA reiterate the fiduciary duty owed by portfolio managers to their clients. This will provide the duty of care and professionalism framework within which certain of the enhanced Client Focused Reforms can be implemented. For example, we support the application of titling and holding out reforms, as well as certain aspects of the enhanced KYC, suitability, conflicts of interest, and disclosure proposals.

More principles-based guidance that has been tailored to the portfolio manager registration category is required with respect to the remaining proposed Client Focused Reforms. For instance, we believe that, as drafted, the proposed KYP requirements and amendments to referral arrangements are unworkable for portfolio managers and their clients.

Read the letter