Culture of Resistance is the Problem, Not Regulatory Burden

Your proposition may be good

But let's have one thing understood
Whatever it is, I'm against it!
And even when you've changed it or condensed it
I'm against it!

In addressing the reform of Canada's securities laws, we all need to be careful lest these words from Groucho Marx become too true. Much of what's on the regulatory policy agenda these days is fundamental in nature and warrants careful, non-partisan consideration. This is long-view stuff. It challenges each side to be wise instead of clever and to give ground if necessary so that progress can be made.

Yet, look at the past 10 years. That's how long initiatives for plain disclosure of fees and investment performance have been under debate. Now, a decade later, the investment industry says it's still not ready for implementation. It's hard not to see this as simple foot dragging especially as, over the same decade, the industry's quibbled and quarrelled about a commonsense requirement that mutual fund investors be given a concise, plain language summary of key information at or before the point of sale.

Likewise, despite almost 20 years of criticism over conflicts of interest rife in mutual fund sales and compensation practices, the industry continues to fight tooth and nail against reform of this shabby aspect of its business model. Whole generations of regulators have come and gone while fund companies, dealers and their lobbyists filibustered on this issue.

And then there's the battle over whether advisors and dealers should be required to act in their clients' best interests. Industry pushback against this initiative has been extensive, making it clear they're prepared to dig in for a very long siege.

This story originally appeared as an Inside track op-ed in the online version of Investment Executive. To read the rest of the article on our website, click here.

Fundamental change to OBSI is needed

The Ombudsman for Banking Services and Investments (OBSI) has already named four firms this year that have refused to comply with its recommendations for client compensation payments. Two of those cases are particularly disturbing because the firms told OBSI in advance that their refusal to pay was final and wouldn't be changed no matter what OBSI concluded or recommended.

In effect, these two dealers unilaterally turned OBSI's review into an exercise in futility. This isn't just an escalation of the standoff that's developed over the past few years between several dealers and OBSI. It goes far beyond that, crossing the line from disagreement to non-compliance with securities laws.

Three years ago, the Canadian Securities Administrators, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada all affirmed that there was to be a single, national, independent dispute-resolution service for securities-related complaints - and OBSI was to fulfill that mandate. In this fashion the entire regulatory community served notice that it expected dealers to participate in the OBSI program and do so in a meaningful way.

This story originally appeared as an Inside Track op-ed in the online version of Investment Executive. To read the rest of the article on our website, click here.

OSC: Commit to Action on Investor Protection Priorities

At the beginning of June, FAIR Canada provided comments on the Ontario Securities Commission's (OSC) draft statement of priorities for 2014-2015. While FAIR Canada recognized the OSC for its commitment to investor protection to date, our letter expresses concern that the draft priorities focus more on capital formation and regulatory burden than investor protection.

Eliminate OM Exemption

FAIR Canada submitted a letter to several members of the Canadian Securities Administrators regarding their offering memorandum (OM) exemption on June 18, 2014. The letter expresses serious concern regarding the compliance record relating to the OM exemption. It also notes the absence of evidence that the OM exemption has reduced the cost or increased the amount of capital for start-ups or small and medium enterprises. FAIR Canada does not believe that proposed amendments (including investment limits and a risk acknowledgement form) will address the investor protection issues raised by this exemption. The letter recommends that more fundamental reform of the exempt market is required, including eliminating the OM exemption and replacing it with a reformed accredited investor exemption. If the participating regulators do not eliminate the OM exemption, we make several recommendations including a requirement for issuers to file OMs for review by the principal regulator prior to reliance on the OM exemption and risk-based audits of exempt market registrants at least every three years. We comment on the proposed amendments including proposed investment limits, the risk acknowledgement form and exempt distribution reports.

Proposed OSC Exemptions Pose Harm to Investors     

FAIR Canada provided  comments to the Ontario Securities Commission (OSC), in response to its request for comments on four proposed prospectus exemptions. In FAIR Canada's view, finite regulatory resources should be used to focus on initiatives that provide for strong investor protection as these are the initiatives that support true capital formation and fair and efficient markets.

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