A legal analysis commissioned by the Canadian securities industry lobby groups, the Investment Funds Institute of Canada (IFIC) and the Investment Industry Association of Canada (IIAC), concludes that the Canadian regulatory system for financial advice is at least as stringent as regimes in other countries that are adopting their own forms of fiduciary duty for retail advisors.
IFIC and the IIAC, both of which have opposed the concept of adopting a statutory fiduciary duty for financial advisors in Canada, Monday released a report that they commissioned from Bay Street law firm, Torys LLP, which concludes that “Canada’s regulatory system is thorough, progressive and in many cases superior to those of the United States, the United Kingdom and Australia.”
The paper aims to address one aspect of a consultation paper published last year by the Canadian Securities Administrators (CSA) examining the question of whether it’s necessary to introduce a fiduciary duty on advisors in Canada. The CSA has yet to take a position on that question itself. It has promised to provide an update to its consultations at some point this fall.
The original CSA paper sets out five basic regulatory concerns that led it to initiate the discussion into whether there should be fiduciary duty imposed on advisors in Canada, including: that most investors already assume that advisors are required to act in their best interests; the current standard doesn’t account for the asymmetry of financial literacy and information between clients and advisors; and that the principles underlying the current standard may be inadequate.
Along with these fundamental regulatory concerns, the paper also discusses ongoing developments in the U.S., UK and Australia, where policymakers are in the midst of contemplating reforms to their own standards.
The paper released Monday, which was written by Torys partner Laura Paglia, argues that these efforts will not result in tougher investor protection standards in those countries. “When we looked at the content of the obligations of investment advisors in the U.S., the U.K. and Australia, we found that none of these jurisdictions have, or are considering, more onerous requirements than those already in place in Canada,” Paglia said.
It found that the UK does not impose a statutory “best interest” duty on advisors. “Their regulatory rules of conduct which require that financial advisors act ‘honestly, fairly and professionally in accordance with the best interest of their client’ are consistent with the crux or content of duties that apply to advisors in Canada through our existing regulatory system,” Paglia said.
Similarly, it argues that the standard being implemented in Australia, and the one being contemplated in the U.S., are not more stringent that what already exists in Canada.
“Our conclusion, after reviewing the content and source of the obligations of investment advisors in each of the jurisdictions the CSA has elected to consider and benchmarking them against Canada, is that the applicable rules, guidances and notices of the [Investment Industry Regulatory Organization of Canada] and the [Mutual Fund Dealers Association of Canada] fully inform investment advisors’ professional standards in manners consistent with, if not superior to, approaches in these other jurisdictions,” said Paglia.
As a result, it recommends that, “In looking to other jurisdictions for best practices, it is vital that the CSA fully appreciate the underlying substance and context informing the concepts that are being considered and analyse these jurisdictions judiciously against Canada’s regulatory system as a whole.”