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Canadian Securities Regulators Publish Revamped "Client Focused" Registrant Reform Proposals and Signal Policy Direction on Mutual Fund Embedded Compensation

Both of these projects are entering their sixth year of intensive regulatory analysis and review. Both arise out of principled concerns expressed by the CSA that the status quo is not serving retail investors appropriately, which requires changes to be made.

Although this is the first publication of actual draft amendments to NI 31-103 and the Companion Policy, the NI 31-103 Reforms are the third version of the CSA's proposals. It is clear that the CSA have considered the many thoughtful comments which were provided on the previous proposals and have made fairly significant — and, in our view, some positive — changes. Some of the earlier proposals from the April 2016 publication, including the most controversial, have been shelved for further consideration and review, either concurrently while moving forward with the NI 31-103 Reforms or at an indefinite future date. These include:

  • A "regulatory" best interest standard for all registrants will no longer be pursued and will not be considered further, at least as long as the CSA see that the NI 31-103 Reforms "achieve the outcomes they are seeking for investors". However, the CSA use the term "best interests of the client" liberally throughout the NI 31-103 reforms.
  • Proficiency requirements for registrants and their representatives will be developed in a separate track.
  • Titles and designations, including the use of the word "advisor", will also be considered in a separate track, although we note that the NI 31-103 Reforms touch on titles and designations.
  • Imposing a "statutory" fiduciary duty for discretionary asset/portfolio managers will be developed in those provinces where one does not already exist.
  • Clarifying the role of Ultimate Designated Persons and Chief Compliance Officers will be considered in a separate track.

Comments are due on the NI 31-103 Reforms by October 19, 2018.