The dissension within the Canadian Securities Administrators (CSA) over the proper path to retail regulatory reform doesn’t bode well for the future of investor protection.

In late April, the CSA released a crucial consultation paper on the regulators’ vision for the retail investment business. Unfortunately, the paper is marred by lack of consensus, in a way that only a fragmented, unaccountable organization like the CSA can produce.

At the heart of the paper is the question of whether there should be a “best interests” standard for retail financial advisors. Ontario and New Brunswick appear to believe strongly that there should. British Columbia maintains that there should not. Most of the rest of the provinces share some of B.C.’s concerns, but haven’t ruled out such a standard. Saskatchewan doesn’t quite fit into any of these three camps. The situation is all very CSA.

The most disturbing aspect of this mess is B.C.’s unwillingness to consult on the question of whether there should be a best interests standard. Among other things, the B.C. Securities Commission (BCSC) indicates it is concerned that retail investors already rely on advisors too heavily. The regulator is concerned that, if a best interests standard is introduced, clients will be even more trusting and vulnerable.

That position would be laughable, if it weren’t so sad. The idea that investor protection is going to be enhanced by making millions of investors sharper and better informed rather than by raising standards on a much smaller group of advisors (who actually are under regulators’ jurisdiction) simply ignores reality and defies common sense.

That the BCSC isn’t even prepared to consult on the issue looks bad for the future of a co-operative regulator. Ontario and B.C. are the two principal players in that effort, and lack of co-operation on such a fundamental policy issue suggests that a regulators’ merger will be hard to achieve.

This situation leaves investors with two equally unappealing options: a fractured CSA or a divided “co-operative” regulator. Neither option seems likely to be a source of sound, effective investor protection.


Read the response to this editorial from the Investment Industry Association of Canada: BCSC stance on “best interests” not divisive

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