The Canadian Securities Administrators (CSA) should create an Investor Advisory Council (IAC): a long overdue protection for Canada’s retail investors.
The CSA is an umbrella organization of Canada’s provincial and territorial securities regulators was established to improve, co-ordinate and harmonize regulation of the Canadian capital markets. Although it is not accountable to government, the CSA constitutes the closest thing to a national securities regulator in a country that does not have one.
The financial services industry is replete with well-financed lobby groups that regularly petition the CSA to advocate on behalf of the industry. Retail investors lack both the access and the resources to make similar representations to the CSA. Instead, the CSA has typically relied on public consultations and ad hoc meetings to solicit investor input. This is no longer sufficient or even appropriate. It contributes to a situation where legislators and regulators, while well-meaning, inappropriately substitute their judgment for that of retail investors.
An IAC would not only allow retail investors to speak on their own behalf but would also provide a forum to promote active dialogue between regulators and investors.
The proposed Investor Advisory Council must have a clear mandate: adequately remunerated members, an independent budget for research, and timely access to all relevant information, including research conducted by the regulator or others. The CSA jurisdictions would nominate members. The scope of the mandate would inform the composition and size of the IAC.
The Council would help the CSA establish socially responsible regulatory priorities, influence investor protection approaches, assist the CSA in the formulation of consultations and play an important role in the framing of National Instruments.
At a time when the concepts of empowerment and engagement are so highly valued, it is important that retail investors participate more actively and directly in the forum responsible for setting national regulatory policies protecting their investments. In addition, investor protection needs to be highlighted as governments and regulators turn their attention toward regulatory burden reduction and promotion of market growth.
As an additional benefit, the IAC will be well-positioned to identify and advocate for opportunities to broaden and improve investor financial competency across key demographics across the country. Such education should include “Street-proofing” to help investors better understand how investment firms operate so they can better protect themselves. The Council would launch valuable investor research on topics that any one CSA Member might not otherwise conduct.
In the U.S., Section 911 of the Dodd-Frank Act established the Investor Advisory Committee to advise the Securities and Exchange Commission (SEC) on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the Committee to submit findings and recommendations for review and consideration by the SEC. This Committee has made a valuable contribution to investor protection in the United States.
The U.K.’s Financial Consumer Authority (FCA) Consumer Panel represents the interests of all groups of financial services consumers. It provides advice and challenge to the FCA on the extent to which the FCA’s general policies and practices are consistent with its general duties, as required under the U.K. Financial Services and Markets Act 2000. The Panel focuses on the FCA’s strategic and operational objectives, together with the expectations on the FCA to discharge its general functions in a way which promotes competition in the interests of consumers.
The Australia Securities and Investments Commission’s (ASIC) Consumer Advisory Panel (CAP) advises ASIC on current issues faced by retail investors and consumers in the financial services and credit industries. CAP also informs ASIC’s surveillance, enforcement, policy and financial education initiatives.
A Council could act as a neutral source helping bring the sometimes disparate views of CSA Members closer together in the best interests of all Canadians.
Given Canada’s provincial-based regulatory regime, rapid technological change and unrelenting industry product innovation, a CSA IAC is an invaluable mechanism for bringing about better national reforms faster through deeper investor insights. An IAC can serve as a bulwark of financial consumer democracy in troubled times, protecting Canadians and helping government, regulators and industry to improve in the face of a challenging economy and difficult fiscal trade-offs.
The establishment of an IAC would send the message that the CSA values the input of the retail investor, adding to CSA credibility, investor confidence in regulators and investor trust in capital markets.
It’s time for a national investor voice.
Ken Kivenko is president of Kenmar Associates, an investor advocacy organization based in Toronto.