The British Columbia Securities Commission (BCSC) has announced an advanced notice of adoption for a comprehensive regulatory framework aimed at governing the business conduct of dealers and advisers in the over-the-counter (OTC) derivatives market.
This new regulation, known as National Instrument 93-101 Derivatives: Business Conduct, is scheduled to come into effect on September 28, pending approval by BC’s Minister of Finance.
With the adoption of this instrument, BC will align itself with other Canadian securities regulators who published similar notices in September 2023. Implementing this rule and its companion policy will mark the transition of the framework into a National Instrument, ensuring a standardized approach across Canadian jurisdictions.
National Instrument 93-101 includes provisions specifically tailored to address the legislative differences between BC’s Securities Act and the securities legislation of other provinces. The framework establishes fundamental obligations for derivatives dealers and advisers that align with international standards, covering aspects such as fair dealing, managing conflicts of interest, suitability, non-compliance reporting, and meticulous record-keeping.
The primary objective of the business conduct rule is to enhance market participant protection by improving transparency, increasing accountability, and promoting responsible business conduct within the derivatives market. The rule was developed through an extensive three-stage consultation process, which included a public roundtable to discuss regulatory, implementation, and compliance issues. Feedback from the most recent consultation led to streamlining the final rule to mitigate potential negative impacts on market liquidity and reduce the implementation burden on firms by enabling them to leverage their existing compliance systems more effectively.
The BCSC collaborated closely with other Canadian Securities Administrators (CSA) jurisdictions, the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI), the Department of Finance (Canada), and the International Swaps and Derivatives Association (ISDA) in developing the Instrument and Companion Policy. This collaboration is expected to continue throughout the implementation phase.
The new regulatory framework will apply to any person or company that meets the definition of a "derivatives adviser" or a "derivatives dealer," including Canadian and foreign financial institutions involved in advising or trading specified derivatives. The instrument takes a two-tiered approach to investor and customer protection, applying certain provisions universally while imposing additional obligations on less sophisticated parties or those not classified as eligible derivatives parties (EDPs).
The adoption of this comprehensive business conduct rule aims to enhance the protection of market participants and ensure the integrity of financial markets in the province.