The federal government has proposed new regulations that would require advisors and financial institutions to step up their disclosure practices for deposit type instruments and registered and prescribed products.

In mid-June, the Department of Finance published a notice in the Canada Gazette outlining new proposed regulations for federally regulated financial institutions. The regulations are part of a broader package of financial services legislation introduced by the government in 2006, which aims to enhance the interests of consumers, increase regulatory efficiency and modernize regulations.

The newly proposed disclosure requirements follow similar regulations for principle protected notes that came into force in 2008 as part of the same package of financial services legislation.

“This set of regulations that has come out basically extends the same type of disclosure, the same type of timing to provide it, to these other products,” said Rebecca Chan, a partner at Borden Ladner Gervais LLP in Toronto.

A key aspect of the proposed requirements for registered plans and deposit instruments is that disclosure must be “made in language, and presented in a manner, that is clear, simple and not misleading.”

The standard partly reflects the fact that financial products are becoming increasingly complex and challenging for investors to understand, according to Chan.

“The disclosure has to reflect the fact that they’re more complex, but still has to be given in a way that is understandable to your average Canadian,” she said.

But deciphering and meeting this standard could prove challenging for advisors and firms in the industry.

“I think it’s going to be scrutinized even more carefully,” Chan said.

Deposit type instruments

Under the proposed rules for deposit type instruments, which pertain to guaranteed investment certificates and term deposits, financial institutions would face new requirements around the disclosure they provide clients at the point of sale. For example, before a client makes a purchase, firms would be required to outline the interest rate and fees associated with it, the dates on which the investment period specified in the instrument begins and ends, and whether the instrument may be redeemed prior to maturity, among other details.

“The proposed Deposit Type Instrument Regulations would ensure that consumers receive the appropriate disclosure that is specific to the type of product they are purchasing,” the notice says.

Firms would also be required to provide information on request to help consumers monitor their investment, including the value of the instrument on a specified day.

Any amendments to the terms or conditions of a deposit type instrument would also need to be disclosed to clients, along with their potential impact on the interest payable.

In addition, advertisements for deposit-type instruments would be required to include certain product details.

Registered products

The legislation pertaining to registered plans, meanwhile, aims to bring disclosure requirements in line with those facing deposit accounts. This includes a requirement to disclose all charges applicable to an account, and to provide notice of any increases in these charges.

“It is important that customers are provided the same level of transparency for registered plans as for deposit accounts,” the notice says.

Under the new rules, advisors and firms offering registered products such as RRSPs, RESPs, RDSPs and TFSAs would be required to provide customers with details about account fees either orally or in writing, depending on the sales channel used, before the customer opens the account.

The firms would also be required to make a list of fees applicable to these products publicly available. And, when considering amendments to the terms and conditions of a registered product, firms would first have to provide customers with information in writing about the proposed changes.

Prescribed products

The government also proposed a number of technical changes to the regulations facing prescribed products, which it defines as either deposit type instruments or principal protected notes.

Comments on the proposals from interested parties are due within 30 days of the publication of the June 12 Canada Gazette notice.

Canada Gazette Notice:

http://canadagazette.gc.ca/rp-pr/p1/2010/2010-06-12/html/reg1-eng.html