FAIR Canada welcomes the Proposed Securitized Product Rules as a key step in restructuring the regulation of securities in Canada and a necessary response to the recent financial crisis.  FAIR Canada supports the introduction of new rules that narrow the class of investors who can buy securitized products on a prospectus-exempt basis.  FAIR Canada makes a number of recommendations to further improve these rules for the benefit of retail investors.  Most importantly, we believe that securitized products should only be permitted to be sold to persons meeting a minimum proficiency level of objective, active knowledge about the specific products they are purchasing and their attendant risks. The existing exemptions are too broad and leave the category open to many investors who are not sophisticated.  Wealth is not an approximate criterion to substitute for knowledge, experience or sophistication.  The existing exemptions encourages promoters of poor products to target investors with sufficient wealth and/or assets and such promoters are subject to a low level of scrutiny.  We urge regulators to reform the entire exempt market on the same basis as our recommendations for securitized products.  In addition, FAIR Canada recommends that the Northwestern exemption orders, which exempt individuals and firms from the dealer registration requirements of National Instrument 31-10-3, be revoked given the significant investor protection concerns that have arisen as a result.

 FAIR Canada recommends that the CSA implement credit risk retention requirements for securitization transactions at or above the standards of the leading jurisdictions.  If such requirements are not imposed, there will be a significant increase in the risk that Canada may be used as a “dumping ground” for securitization.

FAIR Canada also recommends that the CSA implement informational requirements related to assets, loans and payments at or above the level of detail required in the leading jurisdictions for the disclosure of securitized assets and payment structures.  If such requirements are not imposed, there will be a significant increase in the risk that Canada may be used as a “dumping ground” for securitization transactions that do  not meet international standards.

For more details on FAIR Canada’s submission to the CSA, click here.