During 2016, the Canadian Securities Administrators (CSA) embarked on an ambitious consultation11 regarding proposed regulatory changes that would touch virtually every aspect of the retail investment industry that is carried on in Canada by registered dealers and advisers and their representatives. Proposed changes include extensive enhancements on the way in which conflicts of interest are managed and avoided and on fundamental concepts such as know your client, know your product and suitability obligations. Proposals to ban payments of any incentives by fund managers to distributors are also being considered. Much attention has been given to the proposal that firms and representatives be held to a "regulatory" best interest standard when working with non-discretionary clients. This standard would be added to the existing standard of registrants dealing fairly, honestly and in good faith with their clients and would require firms and representatives also to "act in his or her clients' best interest". The conduct required arising out of this standard is explained as being one of a "prudent and unbiased" firm or representative "acting reasonably", although it is not certain that these latter words and concepts would form part of the enumerated new standard.
The CSA states that it does not intend to establish a statutory fiduciary duty for all registrants, and that the proposed best interest standard does not necessarily imply that registrants would be held to a fiduciary duty. Notably not all CSA members consider that a best interest standard is a necessary addition to the Canadian securities regime.
Concerns raised by commentators, including BLG12, are that these proposals, and in particular the best interest standard, are setting impossible standards for registrants, without regard to the actual services being provided, the varying business relationships between clients and firms and investor expectations. We recognize that the CSA has stipulated that the proposed "best interest" standard of care is not intended to interfere with registration categories, guarantee that clients' securities investments will never lose value, result in the best or highest returns for the client or in the lowest risk to the client, or interfere with the courts' ability to apply common law principles. However, we strongly believe that it will inevitably have all of these unfortunate consequences.
Footnotes
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