CSA report: divisions remain over “best interest”

Regulators in Ontario and New Brunswick are prepared to proceed with a “best interest” requirement for advisors, but their counterpartsin Quebec, Alberta, and Manitoba are now siding with British Columbia in explicitly rejecting the idea, according to a notice published today by the Canadian Securities Administrators (CSA). Nova Scotia and Saskatchewan remain open to the notion, pending the outcome of further work by Ontario and New Brunswick.

The CSA notice sets out the status of a consultation on both a best interest standard and a series of “targeted reforms” to client/advisor relationships. It indicates that regulators are aligned on the idea of adopting those reforms, including measures to beef up suitability, know-your-client and know-your-product requirements, bolstering disclosure and regulating business titles more closely. Reforms involving proficiency will be addressed in a separate project.

However, the idea of introducing a best interest standard remains a key point of divergence within the CSA. From the outset, Ontario and New Brunswick were in favour and B.C. was explicitly opposed to the idea, with the other regulators falling somewhere in the middle. Today’s notice makes clear that, in the wake of the consultations so far, Ontario and New Brunswick still want to adopt a best interest standard — but that the rest of the provinces remain unconvinced.

“The [Ontario Securities Commission (OSC)] and the [Financial and Consumer Services Commission (FCNB)] are committed to further work to articulate a regulatory best interest standard and will carry out further consultation with stakeholders and [self-regulatory organizations] in order to be responsive to comments received on this proposal during the consultation process,” the notice says.

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Regulators in B.C., Alberta, Quebec and Manitoba, however, are ruling out the idea. “In their view, in the current regulatory and business environment, implementing the targeted reforms to deal with specific harms identified will meaningfully and practically lead to better investor outcomes and advance the best interest of all investors,” the notice says.

Regulators in Nova Scotia and Saskatchewan are focused on finalizing the targeted reforms for now, but “may be open to further considering a regulatory best interest standard provided substantial revisions are made to add clarity and predictability,” the notice says.

The CSA indicates that it will continue working on many of the targeted reforms over the coming year, and aims to produce rule proposals that will then go out for public comment.

The best interest consultations “will continue on a parallel path,” it says.

Commenting on the status of the project, Grant Vingoe, vice chairman of the OSC, says, “While we are unanimous on raising the bar, fair to say, this was a challenging discussion, with different points of view across the country. We believe there was tremendous value in putting these perspectives on the table and giving investors and market participants the opportunity to weigh in. However, we’ve reached a fork in the road and are taking the route we feel is best.”

Vingoe says the OSC is prepared to “demonstrate leadership” on the issue of introducing a best interest requirement. “This is about doing the right thing and fulfilling one of our greatest responsibilities as a regulator: delivering effective investor protection to the public we serve,” he says. “It’s what investors expect and deserve.”

There’s more work that needs to be done to establish how the best interest standard would apply across the various business models in the market, Vingoe says, adding that the OSC will be undertaking further consultations along with regulators in New Brunswick.

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