Industry bodies embrace CSA's revised client-focused reforms
The reforms, which were subject to a 120-day public comment period, are designed to ensure clients’ interests come first. Firms have a couple of years to come into full compliance.
The rules include specific requirements to resolve material conflicts of interest in the best interest of clients, and to put their clients’ interests first when determining suitability.
The reforms also include new obligations on registrants to codify best practices, particularly with regards to “know your product,” “know your client,” considering specific suitability factors, and disclosing important information to clients.
Louis Morisset, CSA chair and president, and CEO of the Autorité des marchés financiers, said: “Taken together, these changes mean better protection for retail investors across Canada, and a high and uniform standard of conduct for all registrants. Both investors and the industry as a whole will benefit from these new requirements.”
The CSA added in a statement: “These reforms are based on the fundamental concept that clients’ interests come first in their dealings with firms and individuals that are registered to give investment advice and trade in securities.”
For dealers that belong to self-regulatory organizations, such as investment dealers and fund dealers, the SROs will be proposing their own reforms to adhere to the CSA’s proposed new requirements, enabling the regulators to exempt SRO dealers from the CSA’s rules.
The Investment Industry Regulatory Organization of Canada (IIROC) welcomed the reforms and said it will amend its rules and guidance accordingly.
Its statement read: “We share a commitment to requiring all registrants to promote the best interests of clients and put clients’ interests first. As a pan-Canadian public-interest regulator, IIROC believes that the proper management of conflicts of interest is critical to improving public confidence in our capital markets and financial system – and to overall investor protection.
“The provisions set out in [yesterday’s] reforms set out the fundamental obligations of registrants toward their clients, forming an essential pillar of the regulatory framework that protects Canadian investors.”
The MFDA also confirmed its compliance with the reforms.
While the changes will come into force on December 31, actual compliance is subject to a phased transition period. The reforms relating to conflicts of interest and relationship disclosure will take effect at the end of 2020; the other changes will take effect by the end of 2021.
The Portfolio Management Association of Canada (PMAC) welcomed the changes – and the fact the MFDA and IIROC will move in line.
Katie Walmsley, president, said: “These changes go a long way to better align the standard of conduct across the industry with investors’ expectations.
“While many of these obligations have always existed for portfolio managers, the scope of the amendments will ultimately impact all retail investors, by enhancing transparency requirements, client communication, and the management of conflicts of interest.
“It is clear that the amendments are intended to provide more versatility, respecting the realities of the market and reflecting different registration and client categories, versus the earlier one-size-fits-all approach.”
Changes to the original proposal include scrapping prescriptive restrictions on referral arrangements, adding a “materiality” qualifier to the conflict of interest provisions, and providing scope in the rules and guidance for firms to scale the reforms to their specific businesses.
The CSA added that the changes are designed to provide flexibility “in a way that reflects their business models and their clients’ needs and objectives”.