After more than a decade in development and several years of implementation-related work, what’s another few months for critical investor protection reforms – new portfolio performance and investment cost reports for clients – to see the light of day?
Even by Canadian regulators’ standards, Phase 2 of the client relationship model (CRM2) reforms are taking an exceptionally long time to come to fruition. As the situation stands, the most important of these new requirements aren’t slated to take effect until July 15, 2016. The regulators have given the securities industry until then to develop new reports for clients that will do a better job of showing them how their portfolios are performing and how much they’re paying annually in fees and charges.
Now, there’s a suggestion that the industry should get even more time before it has to provide that information. The Investment Industry Association of Canada (IIAC) is recommending that regulators allow firms to deliver their first new performance and cost reports starting with calendar 2017. In effect, this would amount to a delay of less than six months because, although the requirement to provide these reports is scheduled to kick in on July 15, 2016, that initial reporting period would end in mid-2017. The IIAC is suggesting that firms be allowed to make Dec. 31, 2017 the end of the first reporting period, as that date represents a more logical ending date for clients.
As the IIAC explains in a letter to the Investment Industry Regulatory Organization of Canada (IIROC) recommending the change, the IIAC strongly believes that both investors and the securities industry would prefer reporting based on the calendar year. (Indeed, the July 15 date is simply a function of when the Canadian Securities Administrators (CSA) first began implementing its CRM2 reforms.) As a reporting date, July 15 doesn’t make a whole lot of sense, given that this date doesn’t even represent the end of a month or a fiscal quarter, let alone a year.
Of course, if securities firms are convinced that reporting based on the calendar year is critical, they could adhere to the existing deadlines by using calendar 2016 as their first reporting period. However, the other major issue for the industry is the time and expense involved with implementing these, and other, reforms.
Although the industry already has been given an unusually long, three-year transition period to adopt the CRM2 requirements, the implementation process has proven to be complex and costly. As a result, the IIAC suggests that the regulators provide one more accommodation to help the rollout of these reports go smoothly.
The IIAC suggests that allowing firms to start producing these reports for calendar 2017 will have two significant benefits: “It is both in the best interests of the investor and allows [firms] sufficient time to ensure data quality, report accuracy, quality advisor and investor education material preparation, effective training, and an orderly rollout to clients of the new reports.”
Of course, if the regulators allow a further delay, that means clients won’t start getting these reports until 2018. And, given that the industry has argued that other major reforms – such as the possible adoption of a statutory fiduciary duty or a ban on trailer fees – should wait until the regulators can assess the full impact of the CRM2 requirements, such a delay could push those fundamental issues even further into the future.
Extension not ruled out
That said, regulators aren’t ruling out the possibility of an extension for implementing the CRM2. Says Paul Riccardi, IIROC’s senior vice president, member regulation: “At this point, discussion of an extension would be speculative and premature, given that any decision would involve the CSA and the [Mutual Fund Dealers Association of Canada], as well.”
The most important opinion on this matter is the CSA’s because that regulatory body has been the driving force behind the CRM2 reforms. The CSA set the initial implementation deadlines and has said all along that the self-regulatory organizations’ rules and implementation deadlines must be substantially the same as those of the CSA. But it isn’t ruling out the idea of a delay.
“The CSA is aware of this request,” says Carolyn Shaw-Rimmington, manager, public affairs, with the Ontario Securities Commission. “However, it would be premature to comment.”
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