With regulators at odds over whether to adopt a best interest standard for the retail investment business, the Ontario Securities Commission (OSC) signals that it is prepared to go it alone to address regulatory concerns where national consensus remains elusive.
The OSC published its final statement of priorities on Thursday, which spells out the primary issues that the country’s biggest securities regulator aims to tackle in its current fiscal year (ending March 31, 2017).
According to today’s statement, the issue that attracted the most attention in comments on the regulator’s draft statement of priorities was the prospect of introducing a best interest standard (BIS).
Since the OSC’s draft priorities were released for public comment in March, the Canadian Securities Administrators (CSA) published a consultation paper on a series of proposed targeted reforms, and a best interests standard. The CSA consultation paper revealed that although the provinces agree on the so-called “targeted” reforms, they don’t agree on whether a BIS is necessary.
“We continue to believe that the pursuit of targeted amendments … and a BIS to enhance the advisor/client relationship are top priorities that we need to complete,” the OSC says in today’s statement. To that end, the regulator pledges to develop recommendations on reforms to improve the advisor/client relationship including, an implementation plan, in the current fiscal year
Whether the CSA can come to a common view on these reforms remains to be seen. The OSC will continue to seek national solutions, but “where necessary” it may need to “introduce Ontario only solutions if consensus cannot be achieved that addresses the issues in a timely manner,” today’s statement says.
Today’s statement notes that the OSC is carrying out a review advisor compensation practices, with the aim of identifying practices that “appear inconsistent with current regulatory expectations”. Ultimately, it expects to publish a staff notice that sets out its expectations for compliance and best practices.
On the question of whether regulators should intervene with mutual fund fee structures and compensation arrangements, the OSC “remains committed to achieving an evidence-based resolution” to concerns in this area, today’s statement says.
In the year ahead, the OSC will “communicate a policy direction on embedded commissions and other types of compensation arrangements”, and will develop regulatory proposals that address conflicts of interest created by compensation arrangements related to investment funds.
Additionally, the final statement of priorities indicates that the commission will: launch a post-implementation analysis of the impact of the Client Relationship Model (CRM2) and mutual fund point of sale (POS) requirements; publish research that “identifies opportunities to achieve better investor outcomes through the application of behavioural finance”; and implement its planned whistleblower program, in the current fiscal year.
Today’s statement also acknowledges concerns about the recent expansion of the exempt market, and indicates that the OSC intends to “vigilantly monitor compliance in the newly expanded prospectus-exempt market”.
The OSC is also monitoring work to improve climate-related disclosure. “Once our assessment has been completed, we will determine whether additional rules are required,” the today’s statement says.
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