Portfolio managers should be generally exempt from CSA’s proposed derivatives rules, says the Portfolio Management Association of Canada (PMAC) in two recent comment letters.
This week, the association submitted a letter to the regulator regarding its second notice and request for comment on proposed derivatives business conduct rules. It also submitted a letter to CSA related to its derivatives registration proposals.
Both letters follow up on PMAC’s 2017 commentary on CSA’s move to meet the International Organization of Securities Commissions’ (IOSCO) standards for over-the-counter, or OTC, derivatives.
In its submissions this week, PMAC reiterates that it supports the CSA’s work to develop a harmonized derivatives registration regime across Canada.
However, the association says the issues that CSA has identified in relation to OTC derivatives relate to “dealing activities” versus “specific investor or market protection issues with respect to the activities of advisers, particularly portfolio managers […].”
For example, PMAC says, the regulator is looking to mitigate issues such as the “likelihood of loss through inappropriate transactions, inappropriate sale of derivatives and market misconduct,” all of which the association says aren’t related to portfolio managers.
“We are not aware of any significant enforcement action involving a portfolio manager advising in derivatives or derivatives strategies,” PMAC writes. Imposing “prescriptive and onerous requirements” on portfolio managers, who are already subject to “robust, principles-based regulation” and who have a fiduciary duty to clients, is not an effective solution to the CSA’s concerns, it says.
Instead, the association suggests that regulators require portfolio managers to show “general proficiency” in derivatives and to implement certain risk-management practices related to derivatives under National Instrument 31-101.
Read PMAC’s full letter on proposed derivatives registration and derivatives business conduct rules.