Last month, provincial securities regulators approved Policy No. 8 (Policy) of The Mutual Fund Dealers Association of Canada (MFDA). The Policy establishes proficiency standards for mutual fund dealing representatives (Representatives) who wish to sell exchange-traded fund (ETFs).

Although Representatives are legally permitted to sell certain types of ETFs (which are a type of mutual fund), to date, the number of Representatives actually doing so has been limited. Representatives have been restricted both in their access to systems permitting the settlement of an ETF sale, as well as educational opportunities that would allow for required proficiency standards to be met.

Under MFDA rules, in order to sell any mutual fund security, Representatives must ensure they have the education, training and experience necessary to perform such activity competently. Historically, however, educational courses available to Representatives in order to sell conventional mutual funds did not include material pertaining to ETFs.

As ETFs differ from conventional mutual funds in a number of respects, the Policy, and its approval by provincial securities regulators, provides important regulatory guidance as to the minimum training standards required for Representatives to sell ETFs. As outlined in the Policy, such training must at a minimum include:

  • detailed product information in respect of ETFs approved for sale by the Representative’s firm
  • how market quotes will be obtained
  • the types of trades accepted and the information required for each trade accepted
  • the disclosure information required for each transaction
  • how evidence of trade instructions, whether executed or unexecuted, and disclosures will be maintained
  • how trade orders will be processed.

The Policy, and the approval of the minimum training standards it describes, is expected to provide clarity to Representatives as to how to meet their proficiency standards. Combined with technical advances relating to the settlement of ETF trades, Representatives should be optimistic about increasing their access to the ETF market.