Self-regulator floats policy to replace provincial regulators' exemption order
The Mutual Fund Dealers Association of Canada (MFDA) is seeking comments on new policy to establish minimum standards of proficiency for its members to distribute alternative mutual funds.
The proposed MFDA Policy No. 11 - Proficiency Standards for the Sale of Alternative Mutual Funds, was approved at a meeting of the MFDA Board of Directors on September 29.
It aims “to set out minimum requirements … to ensure that advice and transactions in respect of alternative mutual funds satisfy the proficiency, experience, and related requirements under Rule 1.2.3, and Member responsibilities under Rule 2.5.1.,” according to a policy draft published last week.
The intended effect of the proposal is to adopt requirements consistent with the policy rationale behind exemption orders that the Canadian Securities Administrators published in January.
Those orders opened an option for registrants outside the Investment Industry Regulatory Organization of Canada (IIROC), including MFDA members, to distribute alternative mutual funds. The orders provided exemptive relief from certain requirements of NI 81-104 by allowing mutual fund dealers and dealing representatives to offer alt mutual funds, as long as they take certain bridge courses.
“[P]art of the purpose of proposed new Policy No. 11 is to codify the provisions of the CSA Exemption Orders,” the MFDA said.
The requirements of the proposed policy apply to both alternative mutual funds sold under a prospectus (liquid alts) and alternative mutual funds sold in pursuant to a prospectus exemption (hedge funds).
Under Policy No. 11, an approved person has to satisfy certain requirements before they can trade or advise in alternative mutual funds. Those requirements also apply to individuals designated by an MFDA member to oversee trading in alternative mutual funds.
According to the draft proposal from the MFDA, approved persons or individuals trading or advising in alt mutual funds, as well as the individuals designated to supervise them, must have:
- passed a bridge course exam;
- passed the Derivatives Fundamentals Course Exam administered by the Canadian Securities Institute;
- passed the Canadian Securities Course Exam administered by the Canadian Securities Institute; or
- passed the courses required to be registered as a Portfolio Manager – Advising Representative pursuant to section 3.11 of National Instrument 31-103.
The consultation on the proposed policy will run until January 24, 2022.
