1.01 - Regulation of the Financial Services Industry

Question 1

How are the powers of the financial services sector divided between Parliament and Provincial Legislatures in the constitution?

Answer 1

As a federation, Parliament (federal government) maintains authority to regulate trade and commerce, such as banks, whereas the Legislature (provinces) hold authority over property and civil rights.

Question 2

Why is Canada’s securities landscape considered inefficient?

Answer 2

It is the only major industrialized nation that does not have a national governing body for securities. As such, each province holds the power to regulate securities in the province and makes a national coordinated response to market changes more challenging than if regulation were unified and consistent at the national level.

Question 3

What is an SRO?

Answer 3

SRO = Self-regulatory organization. It is endowed with the power to regulate its members, such as mutual fund dealers. SROs allows the government to retain control over the regulations and keep the power to intervene, but gives the organizations the freedom to self-regulate.

Question 4

What is the CSRA?

Answer 4

SRA = Canadian Securities Regulatory Authority. It is the plan proposed by Parliament in 2010 to unify securities regulation under a single national body in order to bring efficiency and increase responsiveness in the industry.

Question 5

What is the SRA?

Answer 5

SRA = securities regulatory authorities. The SRA is the current set of 13 provincial and territorial securities regulators, that are members of the Canadian Securities Administrators (CSA).

Question 6

What is the CSA?

Answer 6

CSA = Canadian Securities Administrators. They seek to protect investors and foster fair and efficient access to capital markets. It seeks to reduce systemic risk and increase investor confidence by unifying provincial authority, policy and practices over securities under a single, national umbrella.

Question 7

What is the role of Provincial Securities Commissions?

Answer 7

To regulate and enforce compliance with provincial securities legislation, including complaint investigation and levying punishments for infractions, and to establish the qualifications and standard of conduct for individuals who provide investment services to the public.

Question 8

What is the difference between the Provincial Securities Commissions and the SROs?

Answer 8

Through legislation, Provincial Securities Commissions set the standards and qualification within their province, whereas the SROs have the delegated authority to enforce compliance with standards set by the province. This includes regulation of securities markets, trading and the business practice of members, firms and their employees.

Question 9

What is IIROC?

Answer 9

IIROC = Investment Industry Regulatory Organization of Canada. It is a national SRO responsible for regulating business activities of investment dealers and trading conduct in debt (bonds) and equity (stock) instruments.

Question 10

What is the UMIR and what 8 areas does it cover?

Answer 10

UMIR = Universal Market Integrity Rules: 1) Trade manipulation 2) Short selling 3) Front running 4) Order execution 5) Trading supervision 6) Surveillance of market participants 7) Compliance 8) Penalties

Question 11

What is the MFDA?

Answer 11

MFDA = Mutual Fund Dealers Association. The MFDA regulates the activities of its members in the sale and distribution of mutual funds.

Question 12

What are five principle areas the MFDA regulates?

Answer 12

1) Business structures (services, agents, employees) 2) Qualifications for membership 3) Business conduct 4) Financial / operational requirements 5) Insurance requirements

Question 13

What is the primary role of the Toronto Stock Exchange?

Answer 13

Acts as the primary senior exchange in Canada, and provides access to common and preferred shares of over 1500 Canadian companies.

Question 14

What is the relationship between the Maple Group and the TMX Group?

Answer 14

The TMX Group is the amalgamation of the Toronto Stock Exchange, the Canadian Venture Exchange and the Montreal Stock Exchange, which was acquired by the Maple Group in 2012. The Maple Group is a consortium of Canada’s leading financial institutions and pension funds.

Question 15

What is the TSX Venture Exchange (TSXV) and what is its role?

Answer 15

Formerly the Canadian Ventures Exchange, TSXV was formed through the merger of the Alberta and Vancouver stock exchanges in 1999, and the Winnipeg Stock Exchange in 2000. It provides access to junior equities, emerging companies and venture capital.

Question 16

What is the relationship between the CSE and the TSXV?

Answer 16

The Canadian Securities Exchange (CSE) and the TSXV both facilitate access to junior equities, emerging companies, and venture capital, however, the CSE competes with TSXV by offering simplified reporting requirements for emerging companies.

Question 17

What is another name for the Montreal Exchange, and what does it specialize in?

Answer 17

The Montreal Exchange is also known as the Canadian Derivatives exchange, and serves as market for options and futures.

Question 18

Describe the high-level dispute resolution process for securities complaints and its escalation path?

Answer 18

1) Consumer flags the complaint to the registrant / company; 2) Unresolved complaints can escalate to the regulator (MFDA, IIROC, Provincial Securities Regulator); 3) Unresolved complains can escalation to Ombudsman for Banking Services and Investments (OBSI); 4) Legal action

Question 19

What is the OBSI?

Answer 19

OBSI = Ombudsman for Banking Services and Investments. It is a third party Ombudservice for the financial services industry

Question 20

What are the levels of escalating enforcement available to the the MFDA, IIROC and Provincial securities commissions?

Answer 20

1) Reprimand; 2) Compliance agreement; 3) Fine up to 5M; 4) Temporary suspension of license; 5) Permanent termination of license; 6) Prosecution

Question 21

What is SEDAR?

Answer 21

SEDAR = System for Electronic Document Analysis and Retrieval. It is an electronic system used by public corporations to electronically file securities related information with Canadian Securities Administrators. It makes prospectuses, fund fact documents, financial statements, material changes reports, and other relevant documents available to the general public

Question 22

What are the two conditions that do not require providing ongoing fund facts documents (FFD) to a client?

Answer 22

FFDs are required to be provided to clients before an initial purchases, however, clients who purchases on a preauthorized contribution plan, or clients who purchase a managed solution that makes ongoing purchases for rebalancing, only need to provide the FFD once per year thereafter.

Question 23

What are four key areas encompassed by provincial insurance legislation?

Answer 23

1) Regulation and supervision of the market, 2) Licensing insurance companies to do business, 3) Define statutory requirements for insurance contracts, 4) Licensing of agents and brokers

Question 24

What are two examples of restrictions written into the Bank Act for banks that offer insurance products?

Answer 24

No sharing of customer information between bank and insurance arm; no selling of insurance products in branches.

Question 25

Which provinces have delegated regulation of the insurance industry to insurance councils?

Answer 25

BC, AB, SK, and MB.

Question 26

For provinces that have insurance councils, what responsibilities have they delegated?

Answer 26

Licensing and discipline of agents; establishing professional standards and codes of conduct; complaint investigation.

Question 27

What are the two classes of insurance licensed by each province?

Answer 27

Life insurance and property / casualty insurance (aka “other than life insurance” or P & C).

Question 28

What is the OLHI?

Answer 28

OLHI = OmbudService for Life and Health Insurance, and handles insurance disputes related to life, disability, health, travel and investment products (annuities and segregated funds)

Question 29

What is the GIO?

Answer 29

GIO = General Insurance OmbudService, and handles insurance disputes related to home, auto and business insurance

Question 30

What are the (6) high-level disclosure parameters required to license an agent?

Answer 30

1) Status as a licensed agent; 2) Insurance companies represented by the agent; 3) Nature of any relationship between the agent and insurance company; 4) Compensation structure; 5) Referral arrangements and associated compensation; 6) Prohibition against tied-selling

Question 31

What is the definition of tied selling?

Answer 31

Practice of making the sale of a product conditional to the purchase of another one, such as mortgage approval being contingent of buying / moving RRSPs to that same institution.

Question 32

What is relationship-based pricing?

Answer 32

Offering preferential pricing for on one product for bundling / consolidating other financial products with the same company.

Question 33

What are the escalating powers of provincial insurance regulators?

Answer 33

Reprimand -> License condition -> Fine -> License suspension -> License termination

Question 34

What is the CCIR and what is its mandate?

Answer 34

CCIR = Canadian Council of Insurance Regulators. It is made up of insurance superintendents across provinces, with a mandate to facilitate an effective insurance regulatory system in Canada.

Question 35

What is CISRO and how is it different from the CCIR?

Answer 35

CISRO = Canadian Insurance Services Regulatory Organizations. The CCIR is focused on harmonizing the regulation of the insurance industry holistically, whereas CISRO is primarily focussed on standardizing the qualification of insurance agents and brokers across Canada.

Question 36

What is CAPSA?

Answer 36

CAPSA = Canadian Association of Pension Supervisory Authorities, which has a mandate to facilitate an efficient / effective national pension regulatory system through setting pension policy, standards and capital adequacy.

Question 37

Who are the members of the Joint Forum of Financial Market Regulators and what is their mandate?

Answer 37

The joint forum is made up of members from CCIR, CAPSA, CISRO, CSA and Bureau des services financiers (QC) with a mandate to harmonize cross-sector / jurisdiction financial services.