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IFIC CMSA/PCMA Submission Focusses on Systemic Risk Deficiencies

December 11, 2014

Toronto, ON - December 11, 2014 - The Investment Funds Institute of Canada (IFIC) has filed a submission on behalf of the investment funds industry that identifies a number of concerns with consultation drafts of the Capital Markets Stability Act (CMSA) and Provincial Capital Markets Act (PCMA).

The IFIC submission expresses serious reservations with a proposed approach to the assessment and designation of systemic risk when dealing with funds. The approach goes well beyond frameworks identified by other jurisdictions and international bodies. Among the concerns raised by IFIC are:

* Lack of definitional clarity regarding a number of important terms that are fundamental to determining the presence, degree, and threat level, including the terms/words: ‘systemic risk’ , ‘stability’, ‘integrity’ and ‘potential’, among others;
* A complete reliance on regulatory discretion rather than an objective framework for designations; and
* Lack of clarity on consequences of designation together with lack of due process, including the absence of any requirements for reliable impact analyses or safeguards for affected persons or entities.

"In light of the vague definition of systemic risk and the absence of any objective process, economic models or metrics, the proposed approach means that a practice can be designated as systemically risky simply if the CMRA opines that it is," states IFIC president and CEO Joanne De Laurentiis in the industry's submission.

The IFIC submission takes particular issue with the failure of both the CMSA and PCMA to recognize the fundamental strengths of investment funds that differentiate their risk profile from other financial services participants, such as banks. "Quite simply, mutual funds are beacons of stability within Canada’s capital markets, and should be viewed as dampeners rather than originators of systemic risk," comments De Laurentiis.

IFIC also raises concerns that key issues around transition, interface with non-participating provinces, and the future of the 'passport system' remain unaddressed.

As a final comment, IFIC recommends inclusion of sunset provisions for the CMSA and PCMA (consistent with federal financial institutions legislation), mandating a review of the legislation and regulations every five years. This would allow a full and considered discussion as to what is required to keep the legislation and regulatory framework modernized and responsive to market requirements.

The full submission can be found on the IFIC website at the following link:

About IFIC
The Investment Funds Institute of Canada is the voice of Canada’s investment funds industry. IFIC brings together 150 organizations, including fund managers, distributors and industry service organizations, to foster a strong, stable investment sector where investors can realize their financial goals. IFIC is proud to have served Canada’s mutual funds industry and its investors for more than 50 years.

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For more information contact:
Sara Clodman
Senior Manager, Public Affairs
The Investment Funds Institute of Canada (IFIC)
Phone: 416-309-2317

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