One of the arguments from the financial services industry against some of the more radical reforms currently under consideration is that regulators should wait and see whether changes already in the works will solve their concerns. If so, some suggest, more invasive interventions may be unnecessary.
For example, at an industry roundtable hosted by the Ontario Securities Commission (OSC) in June to examine the fiduciary duty issue, several participants called for a “wait and see” approach. It would be better, they argued, for regulators to assess the impact of the Canadian Securities Administrators‘ (CSA) cost and performance reporting reforms – known as the second phase of the client relationship model, or CRM-2 – before deciding on further changes.
But this position has some investor advocates concerned. “We still have three more years before CRM-2 is fully implemented,” noted Connie Craddock at the OSC roundtable. Craddock, a former executive with the Investment Industry Regulatory Organization of Canada (IIROC), now sits on the OSC’s Investor Advisory Panel. “By the time we get through that, and then we start to study the impact, we’ll be through another generation of investors.”
Although CRM-2 came into force on July 15, most aspects of its rules will be phased in over the next three years. And it may take even longer than that, given that the self-regulatory organizations (SROs) charged with implementing these reforms for most retail firms (investment dealers and mutual fund dealers) have yet to propose their own versions of these rules.
Jill Homenuk, director of communications and public affairs at the OSC, notes that the SROs are preparing their amendments, and their changes “are expected to be implemented on approximately the same timetable as the CSA amendments.”
However, when the first phase of the CRM rules was introduced, both SROs lagged the CSA. The provincial regulators passed their initial set of reforms in 2009, the Mutual Fund Dealers Association of Canada’s (MFDA) reforms were approved in 2010 and IIROC finalized its rules in early 2012.
Regarding the CRM-2 reforms, IIROC declines to say when its proposals are likely to be published. The MFDA expects to propose its own reforms in two stages, with the first phase dealing with relatively minor changes and a second set of proposals covering the more significant aspects.
Mark Gordon, the MFDA’s president and CEO, indicates that that SRO is hoping to have its first set of amendments – which would include changes to the existing relationship-disclosure and fee-disclosure requirements – in front of its board for approval by the end of the year.
Bigger changes, such as new performance-reporting requirements, changes to client account statements and the introduction of new cost-reporting obligations, will follow some time after that.
The fact that the SROs have not gone through their rule-making processes yet also poses the risk that their proposals could differ from the CSA’s rules, particularly given how contentious the initiative has been to date. (The industry strongly opposing certain aspects of the CSA’s proposals.)
The CSA stresses that it expects that “the SRO rules will be materially harmonized” with its CRM-2 requirements.
The MFDA says it expects its requirements will be substantially the same as the CSA’s, although, says Gordon, “The language and the format of these amendments will need to be altered somewhat from [the CSA’s requirements] in order to customize and make them relevant for our members’ operations.”
To that end,” he continues, “the MFDA published a notice in late May, inviting fund dealers to highlight areas in which the rules may need clarification. [The MFDA] will then bounce these issues off the CSA before it drafts its own amendments.”
Gordon calls it “early days” for dealers pointing out aspects of the CSA rules that will need modifications, as dealers are still in the process of familiarizing themselves with the new requirements.
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