The CSA must fol­low through on client­fo­cused re­forms.

Investment Executive - - FRONT PAGE -

Se­cu­ri­ties regulators’ new pro­posed pack­age of re­forms prom­ises to be a bold ef­fort to im­prove the treat­ment of re­tail in­vestors. Now, the regulators must fol­low through. On June 21, the Cana­dian Se­cu­ri­ties Ad­min­is­tra­tors (CSA) sided with the in­vest­ment in­dus­try and against in­vestor ad­vo­cates when the CSA de­clared that it would not be ban­ning em­bed­ded com­mis­sions or in­tro­duc­ing a reg­u­la­tory “best in­ter­est” stan­dard. Yet, at the same time, the CSA won in­vestor ad­vo­cates’ sup­port for propos­ing a set of sub­sti­tute re­forms that would in­cor­po­rate best in­ter­est re­quire­ments into var­i­ous as­pects of ex­ist­ing rules.

If adopted, the pro­posed “client-fo­cused re­forms” ef­fec­tively will re­quire the in­dus­try to pri­or­i­tize clients’ best in­ter­ests when assess­ing suit­abil­ity and con­fronting con­flicts of in­ter­est. The re­forms also will re­quire the in­dus­try to pay greater at­ten­tion to the im­pacts of cost and com­pen­sa­tion on clients. Fur­ther­more, the CSA prom­ises to in­tro­duce mea­sures in the au­tumn that will ban de­ferred sales charges and out­law the pay­ment of trailer fees to dis­count bro­ker­ages.

At this point, though, the salve to in­vestors re­mains purely hy­po­thet­i­cal. The only con­crete ac­tion that the CSA has taken so far is to back down on two ma­jor in­vestor-friendly pol­icy pro­pos­als.

Whether the client-fo­cused re­forms will ever be en­acted re­mains to be seen. They could be al­lowed to wither and die in the slow­mov­ing ma­chin­ery of reg­u­la­tory pol­icy-mak­ing. Or they could be­come so de­layed and wa­tered down that they are ren­dered ir­rel­e­vant. Al­low­ing ei­ther to hap­pen would be a shame­ful be­trayal of regulators’ duty to pro­tect in­vestors and to fos­ter fair and ef­fi­cient cap­i­tal mar­kets.

The client-fo­cused re­forms must not prove to be sim­ply an empty prom­ise de­signed to cover up the regulators’ lat­est ca­pit­u­la­tion.

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