The regulator’s new plans were eagerly anticipated but what do they mean for advisors?
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The CSA’s recent announcement on its plans to introduce new rules to govern the sale of derivatives had been anticipated with bated breath by industry insiders. The proposed business conduct rules will aim to protect investors in over-the-counter (OTC) derivatives markets and create a uniform approach to derivatives business conduct regulation in Canada that is consistent with international standards and foreign requirements.
The new draft rules outline a fair dealing model that derivatives advisors are obligated to follow and includes a framework to identify and respond to conflicts of interest, know-your-derivatives party obligations, and compliance and recordkeeping requirements. For Julie Mansi, a partner at Borden Ladner Gervais LLP, the proposed business conduct rules are just the start of the CSA’s plans to tighten regulations in the derivatives space. “Following on from the business conduct rules, the CSA is also expected to release derivatives registration rules in early summer,” Mansi says. “It’s unique to see how this has evolved; with the first release being around business conduct. Regardless of how the registration regime materializes, the CSA has outlined very clear expectations around activities with regards to derivatives trading.”
Although the KYC and conflict of interest rules may seem familiar and reflective of the securities business conduct rules, Mansi encourages advisors to look at the CSA’s new draft rules a little more deeply. Mansi describes the new document (the 93-101 Derivatives: Business Conduct) as being ‘meaty’ and including some thoughtful analysis which all advisors and registrants should take the time to read.
“These rules put across the very unique and novel concept of the senior derivatives manager role, which emanated from the UK and Hong Kong,” Mansi says. “In the current environment, we have ultimate designated persons and chief compliance officers, but, in this case, we have a senior derivatives manager who shall be required to certify that the derivatives business unit is in material compliance with the law. That is very significant and harks back to true accountability.”
Derivatives are a very broad and complex instrument to begin with and advisors are encouraged to tackle the new business conduct and registration obligations head-on. “Spend time with your compliance departments to find out how your company’s policies and procedures read and are implemented,” Mansi says. “Ensure that your current account opening documents are in compliance with the business conduct rules and that relationship disclosure documents now address more expressively the derivatives you’re working with.”
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The new draft rules outline a fair dealing model that derivatives advisors are obligated to follow and includes a framework to identify and respond to conflicts of interest, know-your-derivatives party obligations, and compliance and recordkeeping requirements. For Julie Mansi, a partner at Borden Ladner Gervais LLP, the proposed business conduct rules are just the start of the CSA’s plans to tighten regulations in the derivatives space. “Following on from the business conduct rules, the CSA is also expected to release derivatives registration rules in early summer,” Mansi says. “It’s unique to see how this has evolved; with the first release being around business conduct. Regardless of how the registration regime materializes, the CSA has outlined very clear expectations around activities with regards to derivatives trading.”
Although the KYC and conflict of interest rules may seem familiar and reflective of the securities business conduct rules, Mansi encourages advisors to look at the CSA’s new draft rules a little more deeply. Mansi describes the new document (the 93-101 Derivatives: Business Conduct) as being ‘meaty’ and including some thoughtful analysis which all advisors and registrants should take the time to read.
“These rules put across the very unique and novel concept of the senior derivatives manager role, which emanated from the UK and Hong Kong,” Mansi says. “In the current environment, we have ultimate designated persons and chief compliance officers, but, in this case, we have a senior derivatives manager who shall be required to certify that the derivatives business unit is in material compliance with the law. That is very significant and harks back to true accountability.”
Derivatives are a very broad and complex instrument to begin with and advisors are encouraged to tackle the new business conduct and registration obligations head-on. “Spend time with your compliance departments to find out how your company’s policies and procedures read and are implemented,” Mansi says. “Ensure that your current account opening documents are in compliance with the business conduct rules and that relationship disclosure documents now address more expressively the derivatives you’re working with.”
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