The Canadian Investment Regulatory Organization (CIRO) is proposing reforms to its Arbitration Program. The Investment Industry Regulatory Organization of Canada (IIROC), one of CIRO's predecessor organizations, had previously sought comments on the program, which were based on recommendations made by an independent working group. Comments on the proposal are due on January 31, 2025.
The Arbitration Program is available now to claims by clients of investment dealers under $500K and is relatively flexible in terms of its rules and procedures to suit the parties involved. Arbitration awards are final, and the program is like a court's fact finding and adjudication process, including discoveries, examinations, expert evidence and legal arguments. Parties must pay both the administrator and arbitrator fees, typically split 50% between the parties. The Arbitration Program has had low uptake, which the working group speculated was a result of the lack of awareness of the program and its costs. CIRO believes the program still has value for complex disputes that typically require more formal and adversarial procedures, and if it were to be closed, investors may not have any option but go to court.
CIRO is proposing to make several changes to the existing Arbitration Program, in response to the working group recommendations and comments received on the original IIROC proposal. It proposes, for example, to make the Arbitration Program available to clients of both investment dealers and mutual fund dealers.
The consultation describes the potential interaction between the Arbitration Program and the dispute resolution available through the Ombudsman for Banking Services and investments (OBSI). OBSI staff usually investigates complaints and makes compensation recommendations based on documents and interviews with the parties and can make non-binding recommendations up to $350K (there is a proposal to increase this limit to $500K). CIRO is currently proposing to limit access to the Arbitration Program to claims below the OBSI compensation maximum, to ensure that investors are aware of and try to resolve their claims through OBSI first. CIRO has posed specific consultation questions relating to access to the Arbitration Program for claims outside of OBSI's mandate or that have been withdrawn from OBSI. The upper award limit of the Arbitration Program would be raised to $1 million, or higher on consent of the parties.
CIRO also poses questions relating to the appropriate limitation period, which is currently set at two years. It also proposes to set the ultimate claim resolution limit to 12 months.
As costs have been identified as a factor in contributing to low usage, CIRO proposes to:
- fund reasonable costs of case management and mediation (available for all claims);
- set reasonable arbitrators' fees and offer fixed fee arbitration options; and
- refer unrepresented litigants to legal clinics and lawyers offering pro bono services.
Finally, as a transparency measure, CIRO proposes to publish enhanced statistics about the usage of the Arbitration Program, including case volumes by region, type of dealers involved, time to resolution and detailed key issues, as well as select anonymized case studies.
In Brief
Navigating the Proposed SEDAR+ System Fee Increases Without Falling Apart
The Canadian Securities Administrators (CSA) except for the British Columbia Securities Commission (pending governmental approval post-election) have published proposed amendments (Proposed Amendments) to Multilateral Instrument 13-102 System Fees (MI 13-102). As a response to accelerating IT labour costs, the CSA is proposing an updated fee regime with annual increases in system fees over a five-year period, commencing later in 2025. The Proposed Amendments will increase system fees, intending to better align system fee revenues with projected national systems operating costs over the next five years.
The CSA has proposed a 60% system fee increase in November 2025 and 3% increases in each of the following four years. The Proposed Amendments note that the increase will be less than $2,500 for 95% of filing and registrant organizations and less than $1,000 for 85% of filing and registrant organizations, in the first year. However, we note that larger organizations with multiple SEDAR+ filings will tend to bear the bulk of the increased costs. These system fees are separate from any regulatory or other fees a user may be required to pay in any particular Canadian jurisdiction for various filings.
The CSA also note that they are considering whether they can develop and operate national systems more effectively and efficiently.
The consultation closes on February 19, 2025, and we would be pleased to assist you in determining the impact, if any, on your firm.
From Threads to Seams: Delegation of Certain Registration Functions to CIRO
The Canadian Securities Administrators (CSA) announced on November 20 that as part of an effort to create efficiencies and reduce regulatory burden its members are considering delegating select registration functions to the Canadian Investment Regulatory Organization (CIRO). More specifically, certain regulators are considering delegating the routine applications of firms in the category of investment dealers and of mutual fund dealers (both firms and individuals) in certain jurisdictions.
The announcement indicated that for now, portfolio managers, investment fund managers, exempt market dealers, scholarship plan dealers and restricted dealers would continue to be registered and overseen by the CSA.
Simultaneously, the Ontario Securities Commission (OSC) announced that it intends to delegate these expanded registration functions to CIRO which, subject to regulatory approval and an appropriate oversight framework, will be effective very shortly in spring 2025. The OSC has already delegated the registration of individuals acting on behalf of investment dealers to CIRO. As a second phase, the OSC is considering delegating additional registration functions to CIRO, which is part of the OSC's 2025- 2026 draft statement of priorities. The Statement of Priorities indicated the OSC will examine the roles and interactions among Canadian regulatory authorities that oversee the capital markets to support optimal allocation of responsibilities and streamlined experiences for Ontario investors and businesses.
Making Adjustments – Summary of CIRO Exemptions Granted
Earlier this month, the Canadian Investment Regulatory Organization (CIRO) released its summary of rule exemptions granted by CIRO in 2023. Some common exemptions granted included:
- exemptions from UMIR provisions granted by CIRO staff from the rules relating to trading off-marketplace during a regulatory halt or a statutory hold period;
- exemptions granted by the CIRO board relating to dual registration to allow the operation of an investment dealer and mutual fund dealer within a single legal entity;
- exemptive relief pertaining to trading in crypto assets, relating to the requisite financial bond insurance and acceptable securities locations;
- relief regarding account opening requirements in relation to bulk account movements; and
- exemptions to allow certain approved persons to use corporate officer titles when interacting with clients.
With respect to proficiency and continuing education requirements granted by CIRO staff, it was noted that most applications related to the following courses:
- Canadian Securities Course;
- Partners, Directors and Senior Officers Course;
- Wealth Management Essentials; and
- 90-Day Training Program.
Usually, the applicants were required to demonstrate that their industry experience and education with respect to the first three listed courses were an acceptable alternative. The applications with respect to the 90-Day Training Program were mostly filed in connection with a transfer of individuals from a mutual fund dealer to a related investment dealer that was still providing the requisite training.
It is helpful to be familiar with the conditions imposed by CIRO in any particular exemptive relief granted, to assist in future if relief from the same rules is sought.
Important Reminders
Meeting the Deadline to File Reports of Exempt Distribution with Precision
Investment funds that utilize the option in National Instrument 45-106 – Prospectus Exemptions (NI 45- 106) to file Reports of Exempt Distribution on Form 45-106F1 (Reports) once a year should start to consider populating the required information now.
As you may recall, to rely on many of the exemptions in NI 45-106, issuers must report prospectusexempt distributions to every securities regulator where a distribution of securities was made in that jurisdiction. Generally, the filing deadline is ten days after the date of distribution. Investment funds, however, can file their forms once a year by January 30 for distributions made in the preceding year in reliance upon the accredited investor, minimum amount, or additional investment in fund units exemptions. Distributions made by an investment fund in reliance on other prospectus exemptions may need to be reported to the relevant securities authorities within ten days of the distribution.
An investment fund that is required to file the Report must file it electronically through SEDAR+. If the investment fund does not currently have a SEDAR+ profile, it must create one prior to filing Form 45- 106F1 on SEDAR+. Each securities regulator charges a separate filing fee for the Report and the filing fees are paid electronically through SEDAR+.
We recommend that you start to collect the required information and prepare your forms well in advance of the deadline.
Delivery is Not Decorative – Guidance Regarding Disruption of Mail Services
At the time of this publication, there is an ongoing postal strike across Canada. Various regulators have issued statements or other guidance, reminding market participants that securities law contains various requirements with respect to the filing of documents with regulators and the delivery of documents to security holders. As an example, the Ontario Securities Commission (OSC) has stated that registrants must make reasonable efforts to meet their obligations to clients with respect to trade confirmations and delivery of other client documentation, and that information required to be filed with the commission should be delivered (via courier, for example), or faxed (yes, they still exist).
The OSC has also indicated that to the extent an application for relief from the delivery requirements is needed, they would attempt to deal with the applications as quickly as possible in urgent circumstances.
The Canadian Investment Regulatory Organization has also indicated via bulletin that its dealer members must ensure that document delivery requirements continue to be met. CIRO suggests that dealers take a number of actions, including providing clients with alternative methods to receive trade confirmations and account statements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
