Canadian Securities Laws

Registration Reform – the CSA publishes the proposals for a “Best Interests” Standard, April 28, 2016

On April 28, 2016, the Canadian Securities Regulators (CSA) published CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients (“CSA 33-404”) for a comment period ending August 26, 2016.

CSA 33-404 includes reforms to National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”) which are designed tobetter align the interests of registrants to the interests of their clients, better define the client-registrant relationship for clients and enhance various specific obligations that registrants owe to their clients.”

The proposed changes to NI 31-103 include expanded obligations with respect to conflict of interests, know your client, know your product, suitability, relationship disclosure, enhanced proficiency requirements, titles of representatives, use of designations, clarification of UDP and CCO roles and the introduction of a statutory fiduciary obligation for advisors with discretionary authority.

In addition, CSA 33-404 includes a proposed regulatory “best interest” standard, accompanied by guidance that would “form an over-arching standard and governing principle against which all other client obligations would be interpreted.”

The proposed “best interest” standard would require that a registered dealer or registered adviser or their representatives “deal fairly, honestly and in good faith”  with clients and act in their clients’ “best interests”. The standard of care would be that of “a prudent and unbiased firm or representative, acting reasonably”. In complying with the standard of care, registrants would be guided by the following principles:

  • Act in the best interests of the client,
  • Avoid or control conflicts of interest in a manner that prioritizes the client’s best interests,
  • Provide full, clear, meaningful and timely disclosure,
  • Interpret law and agreements with clients in a manner favourable to the client’s interest where reasonably conflicting interpretations arise,
  • Act with care

All of the CSA jurisdictions are consulting on the regulatory best standard, except for the British Columbia Securities Commission (BCSC) which is only consulting on the proposed changes to NI 31-103. The BCSC has declined to consult on the best interest standard as in its view it “may not be workable” and it is “vague and unclear and will create uncertainty for registrants.”

The remaining members of the CSA, with the exception of the Ontario and New Brunswick share some of the BCSC’s reservations on the benefits of the “best interest standard” but are interested in receiving and reviewing the comments.

Both the proposed targeted reforms of NI 31-103 and the best interest standard would apply to all advisers, dealers and representatives, including IIROC and MFDA members.

For more information, please call Barbara Hendrickson at BAX Securities Law 416.601.1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX Securities Law does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.