In the race between CSA and the Ontario government on tougher regulations for financial advisors, the government has taken the latest step.
Ontario’s Ministry of Finance again pledged to develop legislation in Tuesday’s fall economic update. In a section about protecting consumers, the update says: “Under the proposed framework, financial planners would be required to meet specified proficiency requirements. The government will also take steps to reduce consumer confusion created by the wide variety of titles used in the industry, by restricting the use of titles related to financial planning.”
In March, the expert committee that was mandated to come up with regulatory recommendations for the financial industry delivered its final report, and the ministry promised more details would be provided in the province’s 2017 budget. That budget, released in April, failed to lay the groundwork for new rules, but did address the potential introduction of tougher standards for financial planners.
Finance Minister Charles Sousa said he would like to see Ontario’s suite of financial industry reforms, under the new Financial Services Regulatory Authority, completed before the next provincial election.
During a Q&A Tuesday at Advocis’ Symposium 2017 on the potential regulation, expert committee member Lawrence Haber said the committee’s conversations with the government have been “positive” and that the committee has urged the government to move forward.
Haber says the ministry isn’t against considering advisor feedback during consultations, but the industry shouldn’t expect to get “a seat at the table” as legislation is developed. After all, says Haber, it’s tough to expect advisors to objectively and independently come up with rules for themselves. He added advisors have to “earn the right” to self-regulate.
Indeed, involving advisors more actively seems to have been an issue for CSA in its bid to enhance regulation. Little has been heard about CSA’s targeted reforms and proposed best interest standard since June, when the OSC published its final 2017-2018 priorities, one of which is to work with CSA on both the BIS and its targeted reforms. A month before that, CSA released an update that revealed only Ontario and New Brunswick are dedicated to developing a BIS, and that we likely won’t hear more about any of the reforms until the end of CSA’s 2017-2018 fiscal year.
Ontario’s fall update doesn’t mention the expert committee’s recommended statutory best interest duty (SBID). In an email response to Advisor.ca, ministry spokesperson Scott Blodgett also didn’t address the BIS.
Don’t discount a SBID, however. In June, spokesperson for the Finance minister Jessica Martin told Advisor.ca that such a standard would be in line with the consumer protection objective. And, during his Nov. 14 interview, Haber said “it’s the right way to go.” It also considers the SBID as the “unifying element” of its report on financial industry oversight. “You shouldn’t fight it,” he warned event attendees.
It’s unclear what Ontario’s coming legislation for financial planners will include precisely. But, as the fall update says, advisor titles and the confusion surrounding those will be the target as the provincial government consults “extensively” with stakeholders in the coming months.
Blodgett also says, “Stakeholder input will play an important role as we work to build a stronger regulatory framework to ensure the long-term financial well-being of Ontarians.”
Ontario’s commitment to advisor oversight is long overdue if you ask the Financial Planning Standards Council. Cary List, head of the FPSC, says the council has “been advocating for the need to distinguish financial planners in the eyes of the public for almost a decade.” He adds both governments and regulators need to know that “all financial advisors are not one homogenous group.”
To best protect consumers, advisors need to be “held accountable for the skills and knowledge they’re supposed to have.”
In List’s view, “we’re in the final phase” of the ministry’s plan to toughen rules for advisors. Under these rules, “only those who meet very specific proficiency requirements–and we would suggest that includes ethical obligations—are going to be allowed to call themselves financial planners […] It’s only by law that consumers are going to cease to be confused by multitude of various types of advisors and/or salespeople that are out there.”
List confirms the FPSC will “work tirelessly” with the government, saying that there’s much more work to be done to figure out which titles need to be scrutinized. He adds that other titles that suggest an advisor has an area of specialty could also be under the microscope in terms of whether they should be tied more tightly to proficiency and certification requirements. So far, he says, this is a “grey area,” but he’s hoping to see movement by spring 2018.
Regarding the SBID, while Haber suggests it’s the most pressing recommendation and would solve most of the concerns facing consumers, List says he respectfully disagrees. “I know what [Haber’s] view is and I’ve had those conversations directly with him, but we would respectfully disagree—and it seems so does the government.”
One thing to watch is how the ministry deals with the oversight of both the giving of advice and product sales. Haber finds the two activities are “inextricably linked,” so any legislation will have to address both.
When reached, the Investment Industry Association of Canada said it plans to comment when proposed legislation is provided. Until then, it stands by the comments it made in a 2016 CSA position paper that looked at how industry titles should be dealt with and whether a BIS is necessary.
The update also includes commentary on the Cooperative Capital Markets Regulatory System and the Capital Markets Regulatory Authority. It says, “Once implemented, the CCMR would enhance Canada’s stature and competitiveness in the global capital markets,” given Canada is the only OECD and G7 country without a national securities regulator.
In addition, the ministry plans to “expand the powers of the Ontario Securities Commission (OSC) to collect information to monitor systemic risk,” among other OSC-related measures.
To read the full fall economic update, go here.
Other fall economic updates
The Ontario Liberal government’s fall economic update also includes the following.
- a tax cut for small businesses as an offset for a minimum wage that will rise to $14 an hour on Jan. 1, and $15 an hour the following year.
- The corporate income tax rate for small businesses will be lowered from 4.5% to 3.5% on Jan. 1.
- Real GDP growth is forecasted to be 2.8% this year, up from the 2.3% projected in the spring budget.
- Net-debt-to-GDP ratio is projected to fall to 37.3% this fiscal year. Meanwhile, interest on debt, which is currently about $312 billion, is projected to grow from about $12 billion now to $13.3 billion in 2019-20.
- A moderating housing market has left the government with about $300 million less in land transfer tax revenues since projections in the spring budget.