When some of the world’s most prominent securities regulators declare, “Disclosure doesn’t work,” it’s time for Canadian regulators to pay attention.
This year, the Ontario Securities Commission’s (OSC) annual conference in Toronto happened to coincide with meetings of the umbrella group of global regulators, the International Organization of Securities Commissions (IOSCO). This convergence meant that the OSC’s annual regulatory jamboree featured much more foreign content than usual – allowing the Canadian investment community to get some insight into current global thinking on investor protection.
The community heard that traditional disclosure-based models don’t work. Both Martin Wheatley (outgoing head of the U.K.’s Financial Conduct Authority) and Greg Medcraft (chairman of both IOSCO and the Australian Securities & Investments Commission) flatly declared disclosure isn’t an effective form of investor protection. Wheatley compared investment disclosure to software licensing agreements, which almost universally go unread.
None of this should come as news to the Canadian Securities Administrators (CSA). The regulators have long recognized that traditional disclosure models are not effective. Yet, so far, the CSA has been reluctant to undertake more substantial reforms.
Instead, the CSA has struggled to make disclosure more useful to investors. To combat the fact that traditional disclosure often is far too lengthy and far too dense, the CSA has developed shorter, plain-language documents, such as Fund Facts for mutual funds and, more recently, ETF Facts for exchange-traded funds. In the year ahead, investment firms also will have to start revealing the costs of their services to clients in dollar terms and provide more meaningful portfolio performance information.
These disclosure overhauls have been a huge, costly exercise. Yet, overcoming the massive information asymmetries that exist between the investment business and retail clients seems unlikely. Leading global regulators have already thrown in the towel on disclosure – it’s time that Canadian authorities did, too.
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