As with all other professions handling assets or resources, mutual funds licences are a must before firms and individuals engage in such business. This is based on the relationship between client and professional as one of a fiduciary in character.
What is a mutual funds licence?
Firms, businesses, or financial institutions that engage in these activities must be registered with the appropriate government regulatory body:
- trading in or advising on securities or investments, commodity futures options, and commodity futures contracts
- serving as an underwriter or as an investment fund manager
Individuals who engage in these activities must also be registered:
- trading, advising, or underwriting on behalf of a registered dealer or adviser
- acting as the designated person or chief compliance officer of a registered firm
As for individual licensing, all persons working for these firms must also be separately licensed – and this includes having a mutual funds licence.
Mutual Funds Licence
A mutual funds licence will permit you to advise on and sell mutual fund investments in Canada. This flows from the rationale that the mutual fund industry – and everything related to investments and securities – is highly regulated.
As a mutual funds dealer, you must have the necessary educational background to be registered. You may also be tested on your ethical and work experience before getting licensed.
Exclusion of other licences
A mutual funds licence is an exclusive licence. This means that you’re only permitted to engage in businesses related to mutual funds. It also means that the other licences needed are excluded from this license, such as those for investment fund managers or investment dealers.
Who issues mutual funds licences in Canada?
Mutual funds licences are lodged under provincial or territorial securities commissions such as:
- Ontario: Ontario Securities Commission
- Québec: Autorité des marchés financiers
- British Columbia: British Columbia Securities Commission
- Alberta: Alberta Securities Commission
- New Brunswick: Financial and Consumer Services Commission
This is in relation with the Canadian Investment Regulatory Organization (CIRO). The CIRO consolidated the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) effective January 1, 2023.
Previously, the MFDA regulated mutual fund dealers, while the IIROC regulated investment dealers. All of these are now under the oversight of the CIRO.
How do you get a mutual funds licence in Canada?
In Canada, acquiring a mutual funds licence involves enrolling with the required pre-licensing courses.
After passing these courses and exams, you must be sponsored by a financial institution to complete your registration.
After having your mutual fund licence, it must be maintained by enrolling in continuing education courses.
There are instances where your application may be denied on certain grounds.
Pre-licensing Courses
The CIRO sets out the necessary courses to take:
- Canadian Securities Course (CSC), or
- Investment Funds in Canada (IFC)
Additional courses are prescribed for those who are applying as chief compliance officer or as branch manager.
The CSC and the IFC are offered by the Canadian Securities Institute (CSI). Upon registering with the CSI, the exams must be taken within 1 year. According to CSI, studying for these courses may take up to 135-200 hours.
These courses are completed through self-study, in addition to webinar sessions and other online support tools.
Watch this video to know more about the CSC:
Consult with a lawyer in your area for questions on the CSC and how to get your mutual funds licence. If you’re from Toronto, contact a Lexpert-Ranked investment funds and asset management lawyer in Ontario.
Examinations
There are two exams that must be written to pass the CSC or IFC, which are called Exam 1 and Exam 2.
Each Exam will be 2 hours each, with 100 items in a multiple-choice form, and will have its corresponding topics. The passing rate per Exam (not average) is 60%.
Each examinee can have three attempts to pass the examination.
If you’re interested in enrolling with the CSI, you can do so by checking their enrollment process online.
Sponsorship by an Institution
After writing and passing the examinations, you would now need the sponsorship of a financial institution or dealer firm to receive your mutual funds licence. It may usually be your employer.
Otherwise, you would have to look for an institution to sponsor you.
Your sponsoring institution will complete and file the necessary form and submit your application to your provincial or territorial securities regulator.
Upon approval, your sponsoring institution will also be required to ensure that you complete a 90-day training program to better understand the mutual fund industry.
Fees
Fees vary per province and territory. Usually, it is composed of application fees and system fees.
If you’re registering in more than one province or territory, additional regulatory fees will be charged. Once registered, your firm will also be paying its annual participation fee with your securities regulator.
Approval or Denial of Application
According to the provincial or territorial laws on securities, there are three actions that a provincial or territorial securities regulator may take regarding your application:
- Approve your application
- Refuse your application
- Approve your application subject to certain terms and conditions
A securities regulator may refuse an application or impose some terms and conditions if:
- the applicant is not suitable for registration under the provincial or territorial securities law
- the proposed registration would be objectionable based on public interest or regulations on proficiency, solvency, and integrity
An appeal can be filed with the securities regulator through a process outlined in provincial or territorial securities law.
Terms and Conditions
Certain terms and conditions that may be imposed are:
- the restriction of the registration’s duration
- the restriction of the registrant’s trading, underwriting, or advising activities only to specific securities, or to certain classes of issuers
To hear more about getting your mutual funds licence in Canada or other related regulations by your securities regulator, contact any of the Lexpert-Ranked investment funds & asset management lawyers.