The Canadian Securities Administrators (CSA) recently published two notices for a 120-day comment period regarding investor protection initiatives (Client Focused Reforms). Together, the goal of these reforms, states the regulator, is to provide a single set of harmonized reforms that would require registered firms and individuals to put the best interest of their clients first.
The CSA has taken a two-pronged approach to its Client Focused Reforms. The first set of reforms targets the obligations of registered firms and individuals (registrants). When implemented, they would result in changes that would require registered firms and individuals to promote the best interests of clients and put clients’ interests first.
The second set of Client Focused Reforms aim to better align the interests of registrants and investors, improve investor outcomes, and raises the bar for registrant conduct. The CSA, through the Proposed Amendments to National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations, is proposing changes that would require registrants to address conflicts of interest in the best interest of the client; put the client’s interests first when making a suitability determination; and provide clients with greater clarity on what they should expect from their registrants.
The reforms are the result of extensive consultations by the CSA as well as focused consultations conducted by the Ontario Securities Commission (OSC) and the Financial and Consumer Services Commission of New Brunswick (FCNB) on an overarching regulatory best interest standard. In the view of the CSA, the Client Focused Reforms ensure that registrants maintain their client’s best interests first regarding the conflicts of interest obligation and puts clients first in the suitability obligations of registrants. of interest obligation and puts clients first in the suitability obligations of registrants.
CSA Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps:
In a separate notice, the CSA published CSA Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps (The Staff Notice). In the Staff Notice, the CSA announced its policy decision on mutual fund embedded commissions. The CSA’s policy decision has three parts. The first is integrated into the Client Focused Reforms’ proposal to require registrants to address conflicts of interest in the best interest of the client, including conflicts of interest associated with embedded commissions and other third-party compensation. The CSA will address the other two components with a publication of rule proposals for comment in September 2018 to prohibit:
- all forms of the deferred sales charge option, including low-load options and their associated upfront commissions; and
- the payment of trailing commissions to dealers who do not make a suitability determination.
Together, the Client Focused Reforms and the Staff Notice are part of the CSA’s harmonized response to concerns with the client-registrant relationship as it exists today.
The Client Focused Reforms and the policy decision on mutual fund embedded commissions is available for download from the websites of participating jurisdictions.
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 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.