The Canadian Securities Administrators (CSA) has published for comment a paper which proposes regulatory action to improve the client-registrant relationship.

The IIAC’s preliminary observations are as follows:

– The IIAC shares the grave reservations of the provincial regulators in BC, Quebec, Alberta, Manitoba and Nova Scotia. The proposed client best interest standard would lead to uncertainty and confusion on the part of advisors and clients, with some advisors and firms restricting products and services, and some clients having unrealistic expectations. Litigation and increased legal costs will likely arise. 

– The IIAC agrees with the BCSC that an overarching client best interest standard is not necessary. The Client Relationship Model (CRM) rule framework and Point of Sale disclosure rule, the results of an extensive and collaborative rulemaking process, together with targeted reforms of specific rules, will deliver a high standard of advisor conduct, and enable advisors to comply effectively with obligations to deal honestly, fairly and in good faith with their clients. This will boost investor confidence and strengthen investor protection.

If the regulators decide to move forward with sweeping client best interest standards, this decision should be preceded by cost-benefit analysis to determine whether there is “net benefit” to this course of action.

The IIAC’s Committees and Working Groups will join the consultations and provide extensive input on the targeted reforms. It will be important that regulators provide greater clarity and specificity in the rules without imposing overly detailed requirements, resulting in a “box-ticking” exercise that limits compliance flexibility for firms.

Finally, the IIAC reaction to the CSA proposals is reflected in a Globe and Mail article by Clare O’Hara titled “Regulatory changes aim to improve relationship between advisers, clients”. I stress in the article: “If the targeted reforms are introduced the implementation of a best interest standard may not be necessary.” The article can be assessed by clicking here.