New anti-spam law could hurt advisors

Industry groups are urging policy-makers to reconsider these restrictive rules. They argue that it’s critical for the rules to accommodate legitimate electronic communication practices at a time when advisors are relying more and more heavily on the Internet in communicating with clients and prospects.

“We think the government has gone too far,” says Greg Pollock, president and CEO of Toronto-based Advocis. “We think this is just adding another layer of regulatory compliance on the backs of small businesses and — in particular, in our case — on the backs of financial advisors.”

The Fighting Internet and Wireless Spam Act, a.k.a. Bill C-28, was passed by the federal government in December 2010. This bill aims to increase consumer confidence in electronic commerce by protecting consumers and businesses from unwanted spam and related threats.

Specifically, the legislation prohibits the sending of commercial electronic messages — including emails, text messages, instant messages and messages through social-networking sites — without the prior consent of the recipient. And it lays out other rules governing the sending of those types of messages.

It’s expected that the legislation will come into force early next year. In the meantime, the government has been collecting feedback on draft regulations that outline some of the specific steps businesses will have to take to comply with the legislation.

The Canadian Radio-television and Telecommunications Com-mission, one of the bodies responsible for enforcing the act, published one set of proposed regulations in late June. Industry Canada, which will oversee and manage the anti-spam legislation in general, published additional rules in early July.

“[The proposed rules are] mostly clarifying certain specific aspects of [the act],” says Charles Lupien, a lawyer with Fasken Martineau DuMoulin LLP in Montreal who specializes in technology and intellectual property. “They’re a bit technical, but it’s very important to have this information that we didn’t have before.”

For instance, the Industry Canada draft rules define the types of personal relationships, family relationships and non-business relationships that, if they exist between the sender and the recipient of commercial electronic communications, will exempt those messages from the anti-spam legislation.

The proposed regulations from the CRTC, meanwhile, outline the specific information that must be included in any commercial electronic message under the new legislation, as well as the information that businesses must provide when requesting consent to send emails.

Although the financial services industry generally supports the government’s efforts to fight spam, some of the specific rules are viewed as being overly restrictive.

“We support the goal of the federal government in boosting confidence in the electronic marketplace and protecting Canadians from spam,” Pollock says, “but we think, really, what these regulations are doing is just casting too wide a net. At the end of the day, they’re only going to restrict or catch those conducting what we consider to be legitimate business activities.”

Among the most contentious are the “request for consent” rules that require anyone sending commercial emails to give the recipients a written request for consent form first. This form would have to include the name, address and telephone number of the person seeking consent — and details on how the recipient could withdraw their consent, among other information.

This means that when advisors meet prospects at trade shows or social events, they’d have to hand them a comprehensive request form in order to contact them via email at a later time. And advisors who have spoken to prospects over the phone but haven’t met them in person technically wouldn’t be able to email those prospects at all under the new law — even if a prospect verbally gives consent.@page_break@The requirement for prior consent also would present problems in referral situations. Advisors who are referred to a prospect from someone at another company wouldn’t be able to contact that prospect over the Internet without first meeting him or her in person and giving them the required form.

This rule, in particular, is unnecessarily cumbersome for advisors, says Neil Taylor, vice president of marketing with Winnipeg-based Investors Group Inc. : “While that may deter a lot of the real big international spammers, it’s rather impractical for people in a real work context that are doing really legitimate business through the Internet.”

Taylor suggests that policy-makers eliminate the requirement for the request for consent to be delivered in writing. Rather, he says, verbal consent should be sufficient — on the condition that the first email includes the prescribed request for consent information.

“If somebody has actually given you consent,” he says, “then, as long as that information is contained in the first email, it really does get to the intent of what [the government is] trying to do through the legislation. We think that would be much more reasonable and much more practical in the business setting.”

The comment submitted by Advocis urges the government simply to create an exemption under the anti-spam act for all emails resulting from referrals through advisors.

Toronto-based Investment Funds Institute of Canada‘s comment proposes similar exemptions in order to enable advisors to continue engaging in “responsible communication” via the Internet. For instance, IFIC is urging Industry Canada to add an exemption for electronic communications conveying employment opportunities.

“One way our members grow is by recruiting new financial advisors, and electronic communication is a very effective way to make people aware of employment opportunities in the financial services sector,” says IFIC’s submission. “However, neither the act nor the regulation makes provision for such communication.”

In cases in which these types of messages are individually addressed and are sent as a result of a referral, IFIC’s submission argues, they should be exempt from the anti-spam rules.

The IFIC comment also expresses concern regarding the social-networking limitations resulting from the proposed rules. Although the regulations would permit individuals who are members of clubs, associations and voluntary organizations to send commercial emails to other members, the rules specify that these clubs and associations must be non-profits.

This suggests that advisors using for-profit social networks such as Facebook and Twitter would not be able to make other participants in these networks aware of their services, the IFIC comment says. It urges the government to expand this exemption to include these websites: “A failure in the act and the draft regulation to define and permit what have become ubiquitous electronic social-networking facilities and legitimate business practices would create a major impediment to the viability of innumerable small businesses across Canada.”

The penalties for failing to comply could be hefty. The CRTC will be able to impose administrative monetary penalties as high as $1 million for individuals and $10 million for firms.

In addition, the law provides a private right of action, which allows individuals to sue those who send them commercial emails without consent, either individually or on a class-action basis. Plaintiffs could collect $200 per infraction.

Says Lupien: “$200 doesn’t look like much. But since this private right of action can be used in a class-action procedure, it adds up astronomically in terms of the amount that can be reached.”

Firms will face penalties only in situations in which individuals who receive emails file complaints. Still, financial services firms will probably have to implement new compliance measures to avoid facing potentially sizable penalties for infractions. Says Pollock: “They’re going to have to track all of this, and they’re going to have to demonstrate how they went about contacting or not contacting individuals, potential clients.”

Indeed, Pollock suspects most advisors are likely to be unprepared to comply. “I think what’s going to happen is that once these [rules] are put in place and people begin to understand what’s involved, we’re going to get a huge reaction [from] advisors,” he says, adding that he hopes industry members begin taking notice of these looming changes. “The time to address it is now.” IE