RE: Inside Track: Culture of resistance is the problem, not regulatory burden, by Neil Gross,, June 23, 2014.

The Inside Track column by Neil Gross, newly appointed CEO of Canadian Foundation for the Advancement of Investor Rights (FAIR Canada,) contains so many misperceptions and misleading comments that it simply demands a response. In his criticism of the role of the Canadian investment industry in the regulatory reform process, Gross claims that minimal progress has been made – a “pile-up of unfinished regulatory business” reflecting industry foot-dragging, an insistence “that everything be adjourned for further study” and “stifling all forward progress on the pretext that any change might bring unintended consequences.” These erroneous conclusions and unfounded allegations actually undermine investor confidence in the regulatory process – a process that has actually been addressing the needs of investors.

In fact, substantive, effective reforms have been put in place in all aspects of the investing process, and investors are far better off as a result. The regulators deserve credit for the vision to set out the reforms, the openness for fulsome consultations to get the reforms right, and the perseverance to hold to the reform agenda and timelines. And, contrary to the accusations in the opinion piece, the investment industry has played a constructive role helping the regulators ensure the extensive rules are properly designed and cost-efficient.

First, consider the progress on the reform agenda. CRM 1 rules related to disclosure of the investment process, management of conflicts of interest and enhanced suitability are now effective and fully implemented. The CRM 2 rules mandating disclosure of advisor compensation and fees, and requirements for portfolio performance reporting are also effective, with implementation phased in over the next two years. The CRM rules were first presented for stakeholder consultation by the regulators 10 years ago.

The 10-year period to establish rules for CRM 1 and CRM 2 was not about industry prevarication or foot-dragging, but about the regulators’ extensive consultative process to solicit opinion from investors and other market participants. During this time, the IIAC prepared nine Comment Letters on various technical aspects of the proposed CRM rules. In the same period, the industry responded with five comment letters on proposed rules for enhanced mutual fund disclosure under the point of sale initiative (POS), with the Fund Facts document effective January 1, 2011.

The industry responded pro-actively to proposed rules on CRM and POS within defined timelines to ensure eventual rules are as practical and cost-effective as possible. And regulators have been receptive to comments from the industry and from others. Surprisingly, Gross makes no reference to the importance of getting the balance right between investor protection and rule efficiency, failing to recognize it is investors that pay the unnecessary cost of inefficient rules. Regulators invest considerable resources to get the most practical and effective rules possible. Even efficient rules impose a regulatory burden on investment dealers, but I have never heard, as Gross inaccurately claims, an “air of apology” from the regulators, from any quarter, ever.

The industry supports the need for effective regulation, despite some unavoidable costs – and has an incentive to be pro-actively engaged in the consultative CRM and POS rule-making process. After all, better transparency and disclosure of the investing process, better explanation of fees and advisor compensation, and clearer reporting of portfolio performance results in more confident and engaged clients. Indeed, much of the CRM framework was informally in place at many firms before the project got underway.

The industry has an obligation to help regulators get the right rules, and the rules right – an obligation it routinely fulfils. It is too bad Gross doesn’t understand that.

Ian Russell,
President and CEO,
The Investment Industry Association of Canada

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