The debate over CSA’s 33-404 consultation paper has been difficult. With major changes looming, including a possible best interest standard (BIS), industry players have grappled with uncertainty, frustration and fear.

Adding to the confusion, CSA released a 33-404 update on May 11, which showed that only two provinces are still working on a BIS.

The CSA also listed next steps, noting it “will prioritize the work on many of the targeted reforms” over the 2017-2018 fiscal year. The CSA plans to publish formal rule proposals at the end of that period and, it says, “For those jurisdictions undertaking further work on a regulatory best interest standard, this work will continue on a parallel path.”

Read: Only 2 provinces ‘committed’ to BIS, but work continues: CSA

While the CSA has shrunk its list of priorities for the year (it will still consider whether a statutory fiduciary duty should be applied when a client grants discretionary authority, but this is on hold), the industry is still largely dissatisfied.

One reason is “the industry has a lot to lose,” says Bernard Pinsky, a partner at Clark Wilson LLP in Vancouver. “To come up with all these rules and procedures is definitely going to increase the costs of advisor services—substantially. And it’s not like there’s no alternative for investors. They can just go online and get a trading account at an online broker and it costs them [less].”

A major industry concern is the CSA is changing the whole foundation of advice regulation.

“Canada’s securities regulators pride themselves on having a principles-based regulatory system, and certainly the targeted reforms have moved away from that,” says Prema Thiele, a partner at Borden Ladner Gervais in Toronto. “We have some very prescriptive requirements […] that will require a lot of retooling of compliance systems, and documentation of that retooling.”


We asked both Pinsky and Thiele to share their thoughts on the CSA update and potential challenges that might crop up.

Trouble with the BIS

CSA received more than 120 comment letters during the consultation period, and conducted several roundtables across Canada.

“There was some real effort and consideration put into [reviewing] some of the comment letters because [the update] really reflects, at least in my look at it, a lot of the consensus that was in those comment letters,” says Thiele.

But she’s surprised that CSA is still open to implementing the BIS. “Just with the release of the [CSA consultation] paper, we were already a position of no consensus, which is somewhat typical in Canada.” But, “moving forward first with Ontario and New Brunswick implementing, and the rest of the Canada having a clear pronouncement against [the BIS], is going to result in a difficult situation for firms that are [being held to] two different standards in Canada.

“That seems unworkable.”

Pinsky agrees that CSA listened to feedback on its paper, noting, “It’s a good sign to have the CSA first come up with [33-404] and then, when they got their responses, to have them back down and realize that they [were], to some extent, legislating in a vacuum.”

Still, he’s also dissatisfied with the split decision to pursue the BIS. “That actually surprised me a bit,” he says, about the split between the provinces. “One would think that securities regulators generally have a similar mindset even if they don’t agree on everything. […] To come up with the recommendation [for the BIS] in the first place, you’d think there have been some agreement. Many must have changed their minds.”

The main issue with fragmented implementation, says Thiele, is “many Canadian firms are pan-Canadian in their businesses, so this will lead to a very difficult task for those trying to plan their compliance programs and just carry on business.”

In the end, she adds, “what [could] be forced, unfortunately, is most firms are going to have to implement to the highest standard. This is an issue since, in effect, [there could] be a back door of this standard everywhere because firms [would be] forced to comply” across their businesses, assuming they conduct business in Ontario or New Brunswick.

Read: Investors want a best interest standard

Other reactions to the 33-404 update show industry and non-industry players remain on opposite sides.

Consider that the IIAC has urged all provinces to reject the BIS, which it says is “vague and uncertain” in a May 11 release. This is a change from its previous offer to help OSC perform a cost-benefit analysis of new reforms.

Meanwhile, the Canadian Foundation for Advancement of Investor Rights, or FAIR Canada, says provinces unwilling to introduce the standard are instead “willing to accept existing business models that harm consumers, rather than implementing meaningful reforms.” FAIR Canada adds, “The proposed targeted reforms will not properly address” all issues, so the BIS is also required.

Read: Worried about conflicts of interest? IIROC and MFDA are watching

Are targeted reforms more palatable?

There has been “less of an allergic reaction” to the CSA’s targeted reforms, says Thiele.

Still, she’s happy that CSA is reconsidering some of those reforms. For example, she explains, the CSA is “going to reconsider the extension of the KYC to tax positions and tax diligence on investors,” which was “a very difficult part of [the reforms] to understand.”

The issue with that particular item is “not all advising reps and dealing reps are tax experts, so to ask them to take into consideration things like that is a challenging ask from a training and compliance perspective.” Also, putting in place “additional proficiency requirements needs added thought as well.” That’s on CSA’s to-do list.

Thiele’s impression is that people are willing to consider titles reform, but she says the suggestion has elicited strong reactions. She would welcome standardization to minimize title inflation, but says the CSA “has to sit down with the industry and recognize titles that are contemporary […and] reflective of capital markets in 2017.” In other words, “there’s nothing wrong with being called a salesperson, but we speak differently than in 1992 when I started practicing law.”

Read: Only sell proprietary product? You’re a salesperson, argues CSA

Pinsky says the main goal of reform should be to serve the investor. “If they go to an advisor, titles might be confusing. […] But what investors mainly want to see is someone that’s doing well for them. When they don’t have that, they complain.”

Transparency is important, he adds, but he also cautions against overly prespcriptive regulation. “In the end, it’s going to come down to [a situation where] all of these rules are only for the regulators to be able to pin some advisors down and say, ‘You didn’t follow this [rule] and your client complained, and you lost money. Therefore, we’re going to say you did something wrong.’”

Pinsky would rather see principles-based regulation, which B.C. is experimenting with. “I think it’s worth a try,” he says. “It may well work and most advisors do act in their clients’ best interests—by far. There are a few rogues but you can see how they act and make trouble; it’s clear.”

Having more rules and, as a result, more regulation is a good thing, he concludes, but advisors could start to “think too much about ticking all the boxes” and not enough about the service and returns a client’s going to get. And, if investors are dissatisfied, “they’ll vote with their feet” and turn to other alternatives.

Read: Strengthening fintech must be top priority, says report

While critics will complain that meaningful regulatory change has been slow and fragmented, Thiele credits regulators with doing “a very good job of trying to harmonize our approaches” over the last 25 years, saying that’s led to positive change.

But here, she sees major disconnect. And, “Canadian regulation isn’t at its finest when we don’t have a pan-Canadian approach.”

Also read:

Another backward step for national regulator

Ontario wants to close advisor proficiency gaps in ‘coming year’

Katie Keir is Content Editor of Advisor's Edge. Email her at
Originally published on
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The BIS is like Canada, Socialist. A good place to be poor. It is something for the people who haven’t figured things out at the cost of the people who have.

“Best” can’t be defined and there are always risks. Everyone must take risks. There is a risk of doing something and not doing something. The regulators are proposing legislation which will prevent advisors from doing what’s best. An undefined “best”, after the fact will always put the advisor on the losing end of an argument. This will put dealers at extreme risk and which will in turn handcuff advisors.

The advisor will be found to be too conservative after a market has risen and found that he was too “aggressive” after a market has fallen.

People don’t understand risk or how they will react. Everyone is “conservative”. To some, this means that they don’t want all of their money in penny stocks. To others, this means that they want all of their money in cash and GIC’s.
Either case is probably not in their “best interest” so what happens when I can’t force them to do what I feel is best?

The regulators are like Canada in general where they take the position, “you people are idiots who can’t think for yourselves, so we must create rules to protect you”. You will no longer have to think, reason or learn and grow. We run big departments, so we are important, our decisions are right, our existence is justified and correct.

This is wrong. People are very smart and careful with their money. They need to understand what they are buying and why before they write the cheque. Regulators want to take away the ability of people to make decisions for themselves!

I do not write leverage loans for my clients because there is so much paperwork, disclosures upon disclosures, and it is highly frowned upon by my dealership. “Leverage is bad and extremely risky”. Almost everyone who has bought a home has used leverage.

It is often probably in someone’s best interest to use leverage. What should I do? Do I act in my best interest and comply with regulations and company rules, or do I act in the best interest of the client who would be better off and be more likely to achieve their objectives if they used some leverage?

Who wins if they sue me 10 years down the road, if they discover that I know about leverage, didn’t recommend it and they could have been further ahead? Can they name the regulators in the suit?

The small investors are the ones who need advice and need advisors to tell them what to do. However, all of this regulation is extremely expensive, so the smaller clients are money losing propositions for the advisors.

They are creating extremely huge compliance cost increases which are passed on to average investors.
Therefore the regulations are taking advice away from the people who need it and significantly increasing the costs for people who have things figured out and don’t need regulators’ “protection”. The effects of a best interest standard are directly opposite to what they should be.
How can they get it so wrong?

Friday, May 19, 2017 at 10:59 am Reply

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