Slow down on standard of conduct rules, CSA told

Those five concerns include:

1. An inadequate foundation for the standard of conduct owed to clients;

2. A lack of understanding by retail clients about financial products;

3. An expectation gap between investors and advisors, as clients assume advisors/dealers always give advice that is in the clients best interest;

4. Advisors/dealers recommend suitable investments but not necessarily an investment that is in the clients best interest;

5. The application of current conflict of interest rules might not be sufficient.

Before taking additional steps to address these concerns, the Canadian ETF Association (CETFA) writes in its submission that the CSA should first wait to see how current legislation and regulation will affect current standards once fully implemented.

“There’s various initiatives underway that should improve both disclosure and transparency,” says Howard Atkinson, chair of the CETFA in Toronto, “and many of our members feel [they want to] see how those initiatives will change the landscape.”

For example, CETFA believes that once implemented initiatives, such as CRM2, new point of sale disclosure requirements, potential new rules from the Toronto-based Investment Industry Regulatory Organization of Canada (IIROC) paper on business titles and financial designations, as well as the federal government’s bill-C28, may help to clarify the responsibilities of advisors and dealers to a client.

If problems or concerns remain about industry conduct standards after these initiatives are implemented, then regulators need to research the matter further, according to Atkinson. The research could be in the form of the report released by Securities and Exchange Commission in January 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Like the CETFA, the Toronto-based Investments Funds Institute of Canada (IFIC) also believes that the CSA needs to do more research in regards to the five investor concerns listed by the CSA to discover whether or not those issues are being addressed by current regulation.

Other areas from the CSA’s proposal that require more research, according to IFIC, include:

• Expert analysis of whether conditions exist in Canada with the potential to market failure
• Thorough understanding of the conditions and comparative regulatory environments that prompted foreign regulators to implement versions of a best interest standard – and exactly how these standards are being defined and implemented
• Monitoring outcomes in foreign jurisdictions for unintended negative consequences, for example, limiting access to advice or increased costs to low wealth investors
• Collaboration with Canada’s self-regulatory organizations to assess the effectiveness of current and incoming rules as alternatives to a statutory best interest standard
• Comparative analysis of the standard of care currently in place across all financial services and products
• A thorough, analytically valid cost-benefit assessment of the impact of all changes that are contemplated