On December 14, 2017, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 23-320, Consideration of the Markets in Financial Instruments Directive (MiFID II) Unbundling Requirements on the Regulatory Requirements in Canada (Staff Notice 23-320), regarding the unbundling of research inducements from trading fees under MiFID II (the MiFID II unbundling requirements) which are expected to be effective on January 3, 2018.

CSA staff has engaged in consultations with key industry participants and other regulatory authorities to better understand their views and to assess the potential impact of the MiFID II unbundling requirements on the current Canadian regulatory regime under National Instrument 23-102 Use of Client Brokerage Commissions (NI 23-102). The CSA has published Staff Notice 23-320 to provide an update on the work that has been completed to date and to outline next steps. The CSA notes while no changes to NI 23-102 are currently forthcoming as a result of the MiFID II unbundling requirements, it will continue to monitor developments in this regard.

On April 7, 2016, the European Commission issued a Delegated Directive, which proposed a complete separation of research and trading fees charged to clients by investment firms, commonly known as “unbundling of commissions.” The new MiFID II unbundling requirements are expected to apply to all European Union (EU) and third country investment firms providing investment services or activities in the EU.

In Canada, the use of client brokerage commissions is governed by NI 23-102. NI 23-102 and its Companion Policy 23-102CP set out requirements pertaining to brokerage transactions involving client brokerage commissions that are directed to a dealer in return for the provision of order execution goods and services or research goods and services. The payment for research and order execution can be bundled into a single transaction commission and may be done pursuant to a commission sharing agreement.

In response to the MiFID II unbundling requirements, CSA staff engaged in a series of consultations with asset managers, dealers, pension plans, and other regulatory authorities. Based on the feedback from these discussions, CSA staff has determined that MiFID II requirements do not create an immediate need to amend the current regulatory regime in Canada and changes to NI 23-102 are unnecessary at this time, since the MiFID II requirements will not directly conflict with NI 23-102. CSA staff note that when a market participant is obliged to comply with both MiFID II and NI 23-102, if they comply with MiFID II, then they could also comply with NI 23-102.

CSA staff will continue to monitor the situation regarding the MiFID II unbundling requirements and any potential impact on NI 23-102.

For further information, the European Securities and Markets Authority, which is responsible for MiFID II implementation, maintains a Question and Answer document on the subject.

CSA Staff Notice 23-320 Consideration of the Markets in Financial Instruments Directive (MiFID II) Unbundling Requirements on the Regulatory Requirements in Canada, is  available for download from the websites of participating member jurisdictions.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.