The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is making this submission to the Ontario Securities Commission (OSC) to assist in the formulation of priorities for the OSC’s regulatory burden reduction taskforce.
On behalf of PMAC’s 260 investment management firms registered with the Canadian Securities Administrators (CSA) to do business in Canada as portfolio managers, we are providing the following feedback on registrant-specific regulatory burden. We believe this industry-informed perspective is valuable for the OSC to consider as part of your policy making.
Regulatory burden represents an existential concern for many of our member firms who collectively manage assets in excess of $1.8 trillion for private and institutional client portfolios. Ultimately, higher regulatory burden and compliance costs facing portfolio managers have a negative impact on their end investors as well as on the Canadian capital markets.
We applaud the OSC for recently taking a leadership role in exploring the opportunity for regulatory burden reduction. Your efforts to stem the negative impacts of this burden while maintaining high standards are both necessary and welcome.
This letter outlines some specific recommendations that we would be pleased to explore further with the OSC and our members in greater detail in the New Year.
Regulatory burden reduction required for portfolio managers
PMAC was pleased to have the opportunity to participate in discussions regarding the Rationalization of Investment Fund Disclosure Project (Project RID). We believe that 2019 marks an opportune time for the OSC to turn its focus to the regulatory burden facing registrants. Two of our recommendations could be instituted by the OSC early in 2019 with great effect in easing the regulatory burden. The other seven recommendations, while no less pressing, require the OSC’s continued leadership, along with consensus building with your CSA colleagues in order to be implemented.
As further background to our submission, we have included Appendix A showing survey results from our membership which illustrates the significant costs and staffing supporting compliance. We believe the rising costs of compliance, particularly for small and mid-sized firms, present a barrier to entry and stifle industry growth and investor choice. Small firms managing under $1B in AUM currently represents 59% of PMAC’s membership.
PMAC believes that Canadians and the Canadian markets are best served by ensuring broad access to investment advice that is provided with the highest levels of integrity and skill. To do so, firms have the time and resources to focus on the most meaningful aspects of investor protection, on their highly professional skills, and on building relationships with and serving their investors. Portfolio managers do so in the context of the fiduciary duty they owe their clients.
PMAC’s Recommendations
PMAC’s key recommendations are set out below, with each recommendation discussed in greater detail in the body of this submission. At a high level, the over-arching vision behind our recommendations falls into five themes. These themes are woven throughout each of PMAC’s recent advocacy submissions and are directional principles through which the OSC can reduce regulatory burden while maintaining investor protection.
- More principles-based regulation – Securities regulation needs to be more principles-based and less prescriptive;
- Portfolio managers are fiduciaries and professionals – Overly prescriptive regulation impedes professional and ethical judgement and is inappropriate and ineffective in the management of discretionary client accounts;
- Institutional/sophisticated clients do not need retail client protection – Securities regulation should provide carve-outs, where appropriate, and avoid a one-size-fits-all approach to different client types and business models;
- International competitiveness is critical – Securities legislation should preserve and strengthen – not hinder – the industry’s international competitiveness. Investment jobs and capital can easily move to other jurisdictions if the domestic regulatory burden remains significant and misaligned with that of other international jurisdictions; and
- Regulatory burden has particularly adverse impacts on smaller businesses and new entrants – Securities legislation should ensure the imposition of proportionate regulatory burden and should not be unworkable for small businesses or a deterrent to entry for new businesses.
We recognize that the proposed amendments to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) referred to as the Client Focused Reforms and the proposed derivatives instruments are on-going consultations being considered by the wider CSA and have provided comments below based on the most recently proposed amendments. We stress the critical opportunity these still-developing rules present for striking the right balance between regulation, efficiency, and investor protection.
PMAC would appreciate the opportunity to share further commentary and examples on each of the topics set out below. We have included Appendix B which summarizes each specific issue, requested action, the parties involved, and our assessment of the potential timeframe for each request.