The results are in: after more than a year of consultation, CSA has released feedback on Consultation Paper 33-404–and it seems we’re no closer to achieving regulatory parity across the country.
In a notice released Thursday, CSA reveals only the OSC and New Brunswick’s regulatory commission (the Financial and Consumer Services Commission, or FCNB) are open to working on a best interest standard (BIS).
While Nova Scotia and Saskatchewan are on the fence–those commissions “will consider the results of the OSC’s and FCNB’s further consultations”–Quebec, Alberta, B.C. and Manitoba “will not be doing further work on the proposed regulatory best interest standard,” says CSA. These provinces only want to implement the targeted reforms, such as title harmonization, saying that will “meaningfully and practically lead to better investor outcomes.”
Further, B.C. (which did not consult on the BIS) and Quebec say putting a BIS in place in the current regulatory environment “could exacerbate […] misplaced trust and over-reliance by clients on their registrants,” writes CSA in its release.
CSA says 85% of the more than 120 comment letters it received in response to Consultation Paper 33-404 were from industry stakeholders (the remaining 15% were from “investors, investor advocates, academics and others”).
In the industry letters, common concerns about the BIS were that it might “create legal and regulatory uncertainty” and that harmonization would be an issue. Plus, stakeholders are worried about how CSA will measure whether the BIS is being met, saying it’s unclear “how the standard would apply across all registration categories and business models.”
Of those that supported the BIS, says CSA, “some suggested that a regulatory best interest standard would be preferable to the proposed targeted reforms,” or that those reforms would need to be “more prescriptive.”
In contrast, non-industry stakeholders were largely supportive of the BIS. In fact, says CSA, “Some commenters suggest moving beyond a best interest standard to a fiduciary standard for all registrants.” Still, they conceded more information was needed on how the BIS would apply to different businesses.
Response to the targeted reforms
CSA says it remains “committed to […] raising the bar on what is required of registrants” through its targeted reforms, but it has trimmed its priority list for the near term. It will focus on reforms that address:
- conflicts of interest;
- KYC and KYP;
- relationship disclosure;
- and titles and designations.
CSA is delaying two priorities: clarifying the role of UDPs and CCOs, and imposing a statutory fiduciary duty when clients grant discretionary authority.
CSA will also reconsider several proposals, such as “the mandatory collection of basic tax information that was proposed as part of the know your client reforms,” as well as “the differentiation of know your product requirements based on whether a firm is proprietary or mixed / non-proprietary.” CSA will also revisit the wording of some proposals, and “look for ways to address concerns about a one-size-fits-all approach by incorporating the concept of scalability, where appropriate.”
Industry stakeholders commented that the proposed targeted reforms were “too prescriptive in nature.” Other concerns were that some of the proposed measures “would be difficult for registered firms to implement,” and “the proposed targeted reforms do not consider the value of advice and advisors and the value they deliver to clients.”
Non-industry stakeholders, on the other hand, advocated for the BIS in addition to the targeted reforms, commenting that “the proposed targeted reforms are not adequate to provide effective investor protection without an overarching best interest standard.”
Next steps for CSA
CSA says it will focus on its targeted reforms over the 2017-2018 fiscal year. It notes, “This work will culminate in rule proposals that will be published for comment.”
During that time, the OSC and FCNB will continue work on the best interest standard.
As a final note, CSA says it “recognizes the interrelationship between the issues addressed” in these proposals and its consultation on discontinuing embedded commissions, which is open for comment until June 9, 2017. It plans to “co-ordinate policy considerations on these initiatives going forward.”