Regulators publish reforms aimed at reducing conflicts of interest
The Canadian Securities Administrators (CSA) intend to eliminate all forms of deferred sales charge (DSC) options for mutual funds and the payment of trailing commissions to dealers who do not make a suitability determination. However, they do not intend to ban all forms of embedded commissions.
These proposals follow a CSA consultation paper issued in January 2017 on discontinuing embedded commissions, which was followed by extensive consultations.
In a notice released June 21, CSA Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps, the regulators say that these changes will “better align the interests of investment fund managers, dealers and representatives with those of investors, and provide greater clarity on the services provided to investors and their associated costs.”
The CSA says it believes these measures will minimize “potential adverse consequences to both market participants and investors.”
The regulators anticipate publishing a CSA Notice and Request for Comment in September, which will include rule proposals.
Putting the client's interests first
In a separate notice also released June 21, Proposed Amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, the regulators propose changes that would require registrants to: address conflicts of interest in the best interest of the client; put the client's interests first when making a suitability determination; and provide clients with greater clarity on what they should expect from their registrants.
Strengthening fundamental obligations
The CSA says these reforms, which would be harmonized among provincial regulators and are supported by the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada, would require registered firms and individuals to promote the best interests of clients.
"These initiatives propose core changes that focus on the client's interests in the client-registrant relationship," said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. "The reforms strengthen the fundamental obligations that registrants owe their clients and are essential to investor protection."
The proposed amendments to National Instrument 31-103 are open for comment until Oct. 19.