The retail advisor-client relationship is front and centre in the Ontario Securities Commission's (OSC) plans for the year ahead, which include proposing a "best interests" standard and devising measures to address conflicts of interest in investment fund compensation structures.
The OSC published its draft statement of priorities on Thursday, which sets out the regulator's policy direction for the fiscal year ahead, which ends March 31, 2017. Although the plans set out in these documents are often not realized within the time frame regulators envision — and the plans are not yet final (a final version is submitted to Ontario's minister of finance by June 30) — the draft clearly puts advisor/client relationships in the regulator's crosshairs.
In the draft, the OSC indicates that it is "committed to achieving better alignment between the interests of investors and their advisors." To date, the regulator has focused efforts in this area on collecting data. In the year ahead, it looks to be promising some concrete action.
The paper lists "regulatory reforms that improve the advisor/client relationship" as its top priority. Specifically, the OSC is promising to "publish and conduct consultations on proposed regulatory provisions to create a ‘best interest' standard."
The OSC also plans to carry out consultations on reforms to the registration rules designed to "improve the advisor/client relationship" and to "develop regulatory proposals that address conflicts of interest created by compensation arrangements related to investment funds." The OSC has also reiterated its pledge to devise a policy direction on embedded commissions "and other types of compensation arrangements".
The paper doesn't spell out the details of the reforms that regulators may propose in the year ahead, but it clearly indicates that the client relationship model (CRM) reforms are not the end of the road for retail regulatory reform.
Indeed, the paper indicates that the OSC plans to launch an analysis of the impact of the second phase of the CRM reforms (a.k.a. CRM2) and the investment fund point-of-sale (POS) disclosure reforms, which take effect later this year.
Furthermore, the OSC will co-ordinate compliance work with the self-regulatory organizations (SROs) on issues such as "sales incentives and related conflicts of interest," the draft states.
In addition, the OSC intends to step up oversight of the exempt market in response to recent reforms in that area, such as the introduction of the new equity crowdfunding regime and the offering memorandum (OM) exemption that have expanded investor access to the exempt markets.
The OSC is also promising to finalize amendments to the Order Protection Rule (OPR), along with the rest of the Canadian Securities Administrators (CSA). This includes "establishing a market share threshold, trading fee caps, market data methodology and speed bumps," the OSC's paper says.
As well, the OSC intends to examine the investment industry's cybersecurity, including measures to protect client personal data. Its proposed new whistleblower policy will be introduced in the coming year, as will measures to enhance bond market transparency, the paper suggests.
"It is vital that we continue working with investors, industry participants and other stakeholders in determining where the OSC will focus its resources in the coming fiscal year," says Maureen Jensen, the OSC's chairwoman and CEO in a statement. "We must balance the evolving needs of investors and respond appropriately to market issues while avoiding over-regulation."
Comments on the draft are due by May 9.