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July 2016
FAIR Focus
FAIR Canada's Monthly Review
Shareholder Rights to Take Centre Stage this Fall
 
Shareholder rights will be under the microscope on October 28 as experts come together to examine what shareholder rights mean and how they are relevant in today's capital markets. FAIR Canada is excited to be working with the Program on Ethics in Law and Business at the University of Toronto Faculty of Law and the Canadian Coalition for Good Governance to co-host this conference. We look forward to sharing more information with you on the conference in the near future, including the great line-up of panelists that will be participating.

Best wishes for the month ahead. 

The Team at FAIR Canada 
Costs and Access to Market Data
FAIR Canada would like the CSA to take specific steps to address the issue of fees charged for market data to retail investors and the issue of data access. We call on the CSA to conduct research to determine the scope of market information that investors currently have access to in order to determine if there are material gaps that impact trading decisions and investment results. 

In addition, do Canadian investors and/or their financial advisors have access to a sufficient level of real-time market data (including data on previous trades and current bid-ask quotations) to make informed decisions? The CSA should assess not only current levels of access and costs but also likely needs of investors and intermediaries in the future based on the changing competitive landscape and in light of the multiple marketplace structure present in Canadian capital markets. 

While this review is being conducted, the CSA should required investment dealers to disclosure the sources of the different types of market data available at discount or order execution only firms and through their financial advisors, and the consequences of any limitations should be brought to the attention of clients. Disclosure should clearly identify, in plain language, the nature of the gaps between full access to the consolidated market data for all marketplaces and the level of access of data provided by the dealer.
 
Maker-Taker Fee Model
In addition, FAIR Canada continues to have concerns relating to the maker-taker fee model and recommends that the CSA consider a pilot study prohibiting the payment of rebates by marketplaces to be conducted in Canada at the same time as the pilot study being considered in the United States (if it occurs). This will allow the impact on our market to be assessed at the same time as the impact is assessed on the US equity market by their study. The two should be carried out in parallel and should apply to the same inter-listed stocks on both sides of the border. Click here to review the full submission.
FAIR Canada generally supports the eight high-level policy recommendations in the Expert Committee's Preliminary Report, however, we urge the Expert Committee to provide more specificity. Some recommendations are too open to interpretation and possible misinterpretation. Moreover, in light of how high level they are, there is a risk they will not be implemented without the Expert Committee providing more details as to how they are to be acted upon. FAIR Canada's submission makes the following key points:
  • The statutory best interests duty (SBID) - to which all financial planners and financial advisors should be required to adhere - must be a meaningful one requiring that client's interest be first, that they are paramount, and that conflicts ordinarily be addressed through avoidance. When, in exceptional circumstances, the conflict cannot be avoided it should addressed through management techniques so long as such mechanisms will protect the interests of the client.
  • Financial service providers not adhering to the SBID cannot provide unbiased advice and therefore should be prohibited from holding themselves out as financial planners or financial advisors. They should be limited to calling themselves "financial product sellers".
  • Financial planners and financial service providers will need to have the expertise and processes to carry out their duties effectively including having compensation structures that support the provision of objective financial planning services.
  • The Expert Committee must specify what proficiencies and qualifications are required for financial planning, and which of the existing credentialing programs do and do not meet those standards.
  • Financial planning activities of registrants should be overseen by their existing regulators, but we recommended that those who currently are unregulated should be governed by the OSC, not the proposed FSRA, as the OSC has the ability to broaden its area of expertise while the FSRA needs to be created.
  • Regulation will need to be coordinated so that consistent and adequate standards are set by each of the regulators. Regulation must also be interpreted and enforced consistently, including a coordinating mechanism, so that this occurs in practice.
  • An independent ombudservice that provides for a binding decision is an essential component of a well-functioning regulatory system and should be a specific recommendation in the Expert Committee's final report.
To see FAIR Canada's comments on each of the recommendation, please review our full letter.
The British Columbia Securities Commission (BCSC) recently released its2016 Annual Compliance Report Card (the Report Card) which summarizes the compliance strengths and weaknesses at BC-based portfolio managers, investment fund managers, and exempt market dealers. The BCSC directly regulates 114 firms (87 adviser/Investment Fund Managers and 27 dealer firms).

BC also has a number of market participants (issuers and finders) who are unregistered (given prospectus exemptions including the Northwest Exemption) that are reviewed. It does not specify how those reviews are conducted or what the findings were.

Thirty-five compliance reviews were conducted. The Report Card highlights some of the positive compliance practices observed at registered firms, which include implementing policies related to KYC programs and proactive CRM2 requirement assessments. The BCSC also looked at compliance deficiencies: of the 49 different deficiency categories tested, 58% of compliance deficiencies (87 of the 150 compliance deficiencies found) stemmed from (i) policy and procedural matters (19%), (ii) disclosure requirements (13%), (iii) registration administration (12%), (iv) issues related to compliance officer functions (7%), and (v) know-your-client and suitability matters (7%). The Report Card provides an example of the deficiencies found but does not provide a list of all types of deficiencies.  For example, compliance officer function deficiencies described are: (i) CCOs did not follow their own policies and procedures; and (ii) CCOs could not demonstrate they had performed compliance reviews under their policies and procedures manual - there was no documentary evidence; or they delegated compliance duties to others with no oversight.To read more click here.
EditorialsEditorials
Who benefits and who loses from keeping OBSI toothless?
A new independent report makes it clear that binding decisions are needed for full and fair compensation. Read the full editorial here.
MediaFAIR in the Media
EventsEvents
Save the Date for upcoming Shareholder Rights Conference:
Are Shareholder Rights Relevant in Today's Capital Markets?
FAIR Canada, The Program on Ethics in Law and Business at the University of Toronto Faculty of Law and the Canadian Coalition for Good Governance are pleased to co-host a conference examining shareholder rights in Canada. Friday, October 28th, 2016 from 9:00 am to 1:00 pm. Click here for more details. 
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