WealthManagement Magazine

SEC Action Leaves Canadian Snowbirds in Limbo

A cross-border dispute between U.S. regulators and the Canadian investment industry is leaving thousands of Canadians who live in the United States unable to manage their retirement accounts. The problem, which has been simmering for several years, exploded last month when the SEC refused a no-action letter submitted by the Investment Dealers Association of Canada (IDA).The no-action letter sought

A cross-border dispute between U.S. regulators and the Canadian investment industry is leaving thousands of Canadians who live in the United States unable to manage their retirement accounts. The problem, which has been simmering for several years, exploded last month when the SEC refused a no-action letter submitted by the Investment Dealers Association of Canada (IDA).

The no-action letter sought to exempt Canadians, living full or part time in the United States, from provisions of the Securities Act of 1933 and the Investment Company Act of 1940 that make it illegal to trade mutual funds whose underlying securities are not registered for sale in the United States.

Many of the equities within the mutual funds contained in Registered Retirement Savings Plans (RRSPs), the chief retirement savings vehicle for Canadians, are not U.S.-registered.

"What this means is that the growing numbers of Canadians residing in the United States cannot manage their retirement plans," says Greg Clarke, vice president of member services for the IDA.

The SEC's crackdown came after years of ongoing discussions between U.S. state and Canadian provincial regulators. Operating chiefly through a cross-border trading committee of the North American Securities Administrators Association, a compromise was worked out earlier this year that would have exempted broker/ dealers servicing existing accounts from many state registration requirements. That solution, which would have been reciprocal between the two countries, was under state-by-state review with a strong measure of support offered up by industry trade groups including the U.S.-based Securities Industry Association.

"It appeared we had this whole thing worked out, and then this came along," says Clarke.

Because of the SEC action, Canadian companies are now advising their U.S.-dwelling clients that they are no longer able to mail them information circulars, newsletters or make transactions on their behalf.

It is estimated by the Investment Funds Institute of Canada that some 20,000 to 25,000 RRSP holders and fund customers live in the United States.

Although the SEC informed the IDA that Canadian fund companies could get around the restriction by registering under U.S. jurisdiction, the Canadians say they are unable to comply because their own tax laws permit RRSP investments to function as tax shelters chiefly because of their Canadian-only content.

According to several officials from Canadian securities firms, the IDA will have to carry the standard for the industry on this issue. Individual firms, they say, are too concerned about their own growing business relationships in the states to enter into a direct tussle with the SEC.

The IDA says it wants further talks on the issue. Retaliation is not out of the question, either. The Canadian trade group says its provincial regulators, who have been considering provisions that would ease entry of U.S. firms into Canada, will take the SEC action into consideration.

"At this point, any pressure they can bring to bear can only help," Clarke says.

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