Hot Regulatory Topics
Regulatory proposals are top of mind for many advisors as they have the potential to impact your business practices, your relationships with your clients and client investment options. In this section, we’ll feature the most active current proposals being considered by securities regulators and governments. If you don’t find the subject you’re interested in on these pages, look under Policy for the full list of issue topics.
In December 2010, a working group of provincial and territorial officials published a consultation paper on possible options for the incorporation of individual representatives of registered dealers and advisors in Canada. Consultation responses indicated a high degree of support for the adoption of a statutory incorporation model. In 2012, the working group released an incorporation model, a supporting draft legislative framework that could be adopted across Canada and a list of key elements of its proposed incorporation model and a supporting legislative framework.
As a provincial securities matter, each province would have to pass its own legislation. As of January 2017, Alberta is the only province to fully enact legislation permitting incorporation. Saskatchewan passed legislation in 2014 but has never taken it through the final step of royal assent. Quebec is the only province giving active consideration to incorporation at this time. Provinces that are participants in creating the Cooperative Capital Markets Regulatory System have indicated that they will not pursue incorporation individually but will consider it once the CCMRS is in place.
Best Interest Standard and Targeted Reforms
In June 2016 the Canadian Securities Administrators issued a consultation paper proposing a regulatory best interest standard (BIS) and a series of targeted reforms with the regulatory goal of addressing perceived shortcomings in the existing standard and rules governing the advisor-client relationship. However not all CSA jurisdictions were aligned on the consultation – B.C. in particular disagreed with the need for a BIS arguing that it will only create uncertainty for registrants and may be unworkable in the current regulatory and business environment.
The industry has always publicly supported the principle of placing the interests of the client ahead of the interests of the registrant but feels this is best met through reforms that address gaps in the existing regulatory framework. As such, IFIC supports reforms that improve the investment process but has cautioned against adopting new, overriding and vague concepts that may have detrimental effects on the client/advisor relationship.
IFIC Submission — CSA — CSA Consultation Paper 33-404 — Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives toward Their Clients (September 20, 2016)
IFIC Executive Summary — IFIC Response to CSA Consultation Paper 33-404: Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward their Clients
Beginning in 2012, the provincial securities regulators that make up the Canadian Securities Administrators have been considering whether current compensation practices, particularly the payment of trailers, pose unacceptable levels of potential conflict of interest. The review started with a consultation paper 81-407 issued in December 2012. The CSA has narrowed its concerns to focus solely on trailing commissions, issuing consultation paper 81-408 on January 10, 2017 in which the CSA is seeking comment on the potential impact of banning trailing commissions altogether.
Some regulators, at the prompting of investor advocates, argue that mitigating conflicts is insufficient investor protection and that the only acceptable course is to avoid conflict altogether by eliminating the source. The industry takes the position that every form of compensation contains some potential for conflict of interest and that in order to preserve access to advices for as many investors as possible, investors should have choice in how they pay for their advisors’ services. IFIC has consistently argued that better courses of action are to provide investors with meaningful disclosure of any potential conflict to interest and to enforce current rules vigorously.
Questions around the appropriate use of titles and their related qualifications are being posed in conjunction with several regulatory proposals and provincial government conducted reviews. Policy makers express concern that investors find titles confusing, at best, and misleading at worst. Discussions range from the fundamental – who should be allowed to call themselves a financial planner or advisor/adviser – to business titles such as vice president and marketing titles such as ‘retirement specialist”.
You’ll find up to date information here on the various reviews taking place.