On April 28, 2016, the Canadian Securities Administrators (CSA)
published a consultation paper seeking public comment on proposals
to strengthen the obligations of registrants toward their clients.
CSA Consultation Paper 33-404 serves up two separate but
related initiatives. The first is a series of "Proposed
Targeted Reforms" which will amend National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant
Obligations to better align the interests of registrants to the
interests of their clients by enhancing the following registrant
obligations: identification of and response to material conflicts
of interest; know your client; know your product (firm and
representative); suitability; relationship disclosure; proficiency;
titles; designations, roles of Ultimate Designated Person and Chief
Compliance Officer and the introduction of a statutory fiduciary
duty when a client grants discretionary investment authority. The
enhancements will include carve-outs for institutional and
execution-only businesses. All CSA jurisdictions seem to endorse
the Proposed Targeted Reforms and are seeking public comment on 35
questions related to the ten targeted reforms.
The second proposal is the introduction of a regulatory best
interest standard which would require registered dealers, advisers
and their representatives to deal fairly, honestly and in good
faith with their clients and act in their clients' best
interests. The best interest standard would be that of a prudent
and unbiased firm or representative, acting reasonably, and
registrants would be guided by five principles: act in the best
interests of the client, avoid or control conflicts of interest in
a manner that prioritise the client's best interests, provide
full, clear, meaningful and timely disclosure, interpret law and
agreements favourably to the client and act with care. Only the
Ontario Securities Commission and the Financial and Consumer
Services Commission of New Brunswick endorse this proposal, while
the British Columbia Securities Commission opposes the proposal on
the basis that the Proposed Target Reforms should advance the best
interests of investors, while imposing an over-arching best
interest standard may create uncertainty for registrants and
exacerbate the current investor protection issue of misplaced trust
and overreliance of clients on registrants. CSA members from
the other five Canadian provinces have not yet formed a firm
opinion on the proposal and are participating in the public
consultation process, which poses 33 questions for public
Both the Proposed Targeted Reforms and the best interest
standard are the outcome of many years of public consultation,
debate, focused research studies and international developments,
all of which are summarized in the introductory sections of
Consultation Paper 33-404. The paper also includes eight appendices
which set out proposed regulatory guidance with respect to the
proposals. Comments on all or part of the 68 questions posed in the
paper are due on August 26, 2016.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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