On October 25, 2012, the Canadian Securities Administrators
(hereinafter the "CSA") published the Consultation
Paper 33-403 – Exploring the Appropriateness of Introducing a
Statutory Best Interest Duty When Advice is Provided to Retail
Clients. This Consultation Paper was prepared in light of the
recent reforms affecting securities regulations, including the new
Client Relationship Model.
The CSA conducted a review of the general principles applicable
to the legal duties and the standard of conduct imposed upon
investment advisers and dealers across Canada. Although said duties
differ in certain respects from one province to another, securities
legislation generally provides that advisers and dealers must act
in good faith, with honesty and fairness towards their clients.
There is currently no consensus as to whether advisers and dealers
should be obliged to act in the best interests of their clients
when providing investment advice. In certain circumstances,
Canadian courts may find that an adviser or dealer is bound by a
common law fiduciary duty toward his client, notably when the facts
indicate a relationship of trust and confidence with the client. In
Quebec, according to both the general civil law and the Quebec
Securities Act, as well as the Civil Code of Quebec
provisions relating to the mandate, advisers and dealers are
currently under a duty to act in the best interests of their
CONCERNS EXPRESSED BY THE CSA
The CSA has identified five key concerns with the current
standard of conduct of advisers and dealers:
There may be an inadequate principled foundation for the
standard of conduct owed to clients.
The current standard of conduct may not fully account for the
information and financial literacy asymmetry between advisers and
dealers and their retail clients.
There is an expectation gap because investors incorrectly
assume that their adviser/dealer must always give advice that is in
their best interests.
Advisers/dealers must recommend suitable investments but not
necessarily investments that are in the client's best
The application in practice of the current conflicts of
interest rules might be less effective than
COMMENTS OF THE CSA
The CSA is considering imposing a fiduciary duty, rather than
another policy tool, as this standard of conduct may be the most
effective way of addressing the concerns raised by the CSA while
providing enough flexibility to address most of the competing
considerations. This fiduciary duty, however, would need to be
qualified to take into account the circumstances and business
models of particular categories of dealers. The CSA suggests the
following formulation of the fiduciary standard:
Every adviser and dealer (and each of their representatives)
that provides advice to a retail client with respect to investing
in, buying or selling securities or derivatives shall, when
providing such advice,
act in the best interests of the retail client, and
exercise the degree of care, diligence and skill that a
reasonable prudent person would exercise in the
Although common law and civil law remain distinct legal regimes,
the CSA is exploring the possibility of harmonizing the standard of
conduct for advisers and dealers that should apply across
The CSA states in the Consultation Paper that no decision on
whether to introduce a fiduciary duty to respond to the
above-mentioned concerns will be made without broad public
consultation and discussion. However, the CSA notes that the United
States, the United Kingdom, Australia and the European Union have
either proposed or implemented a qualified legal standard which is
essentially the equivalent of the fiduciary duty. It is therefore
anticipated that these international developments will inspire our
national regulators to follow a similar policy direction in order
to harmonize financial regulations across the different countries
that are members of the International Organization of Securities
You can consult the CSA's Consultation Paper here.
1 Consultation Paper 33-403, p. 34
2 Ibid., p. 40
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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