From the Regulators

Not all member regulators are in agreement

By James Langton |

The Canadian Securities Administrators (CSA) is proposing the introduction of a best interest standard, along with a series of so-called "targeted reforms" that seek to address concerns regarding the investment industry's treatment of its retail clients. 

The reforms, outlined in a consultation paper released Thursday, are intended to improve the management and disclosure of conflicts of interest, enhance suitability assessments, boost advisor proficiency and standardize the use of titles, among other issues.

While all of the provincial regulators are consulting on the package of targeted reforms, they are divided over the proposed best interest standard. 

The Ontario Securities Commission (OSC) and the Financial and Consumer Services Commission of New Brunswick (FCNB) are convinced that it is necessary to consider the adoption of a best interest standard. The paper notes that the OSC and the FCNB believe that a best interest standard "would materially enhance the effectiveness of the proposed targeted reforms and strengthen the principled foundation of the client/registrant relationship." They also suggest that adopting a principled standard would help guide industry conduct.

At the other end of the spectrum, the British Columbia Securities Commission (BCSC) has ruled out the proposed standard. It is not even prepared to consult on the idea.

According to the paper, the BCSC believes that "imposing an over-arching best interest standard may not be workable and may exacerbate one of the investor protection issues identified, that being misplaced trust and over-reliance by clients on registrants." Additionally, it warns that the proposed best interest standard "is vague and unclear and will create uncertainty for registrants."   

The remaining CSA member organizations indicate that they share the BCSC's concerns, and have "strong reservations" about the actual benefit of introducing a best interest standard, but are interested in consulting on the proposal. 

The proposals are out for a 120-day comment period, which closes Aug. 26.

"With the publication of this consultation paper, the CSA expect to open a dialogue with all market participants on improving the relationship between clients and their advisors and dealers," said Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a release accompanying the paper. 

If the reforms go ahead, including the proposed best interest standard, the CSA envisions that they would apply to all advisors, dealers and reps, including the members of the self-regulatory organizations, the Investment Industry Regulatory Organization of Canada  and the Mutual Fund Dealers Association of Canada, which would have to amend their own rules to harmonize with the CSA's requirements.

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