FAIR Focus: Investor Perspective is Crucial

August 2017

FAIR Canada's Monthly Review

Investor Perspective is Crucial

FAIR Canada continues to speak out about investment products that do not serve investors' interests. This past month we spoke out against the proposal to permit alternative investments to be sold to retail investors in the absence of a best interest duty and provided comments in support of regulators in their proposal to ban binary options.

In addition, we provided comments to securities regulators on the need for regulators to focus on improving the quality and accessibility of information to investors and cautioned against reducing regulatory burden in the absence of empirical support that it will be beneficial to the capital markets including investors, a key stakeholder in our capital markets.

FAIR Canada believes that providing the investor perspective to regulators and other capital market stakeholders is crucial when they consider ways to make capital markets more efficient and address issues related to fraud.

FAIR Canada has been busy as it conducts consultations on its vulnerable investor project in partnership with the Canadian Centre for Elder Law (funded by the Law Foundation of Ontario Access to Justice Fund). We are looking at developing a conduct protocol and practical mechanism for Canadian financial services firms and their investment representatives to take urgent, short-term protective action for the benefit of vulnerable consumers.

Finally, FAIR Canada is also busy in partnership with Osgoode Hall Law School (funded by the Law Foundation of Ontario Access to Justice Fund) in setting up Canada's first Investor Protection Clinic. The Investor Protection Clinic is scheduled to open in September.

The Team at FAIR Canada

FAIR Canada submitted comments to the Canadian Securities Administrators in support of its proposal to prohibit the advertising, offering, selling or otherwise trading of binary options. FAIR Canada reiterated in its comments that binary options are harmful for investors by their very design and not just in cases of fraud. FAIR Canada would also like to see: 1) Greater coordination of enforcement with other jurisdictions; 2) Extending the ban for binary options as presently outlined in the proposed National Instrument, to those that have more than a 30 day period for meeting the pre-determined condition ; and 3) Improving the system for checking registration and other background information of registrants.

FAIR Canada has submitted comments with respect to CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers. FAIR Canada believes that reducing regulatory burden may not be in investor interests. Before regulators move forward with any reforms, they must demonstrate with empirical evidence that further steps to reduce regulatory burden are beneficial for the capital markets, which includes investors as key stakeholders.

Regulators should clearly set out what goals are to be achieved through reducing regulations, as presently, the goal of the initiative is unclear. FAIR Canada does not support less regulations for smaller issuers in light of available empirical evidence. FAIR Canada does however believe that consolidating financial information can be useful, and would also benefit investors - but only to the extent that any overlap in disclosure requirements are eliminated or reduced. Ongoing disclosure should not be reduced but its quality and accessibility can be improved. Finally, electronic document delivery should not occur without prior notice or consent with access not equaling delivery. Indeed requirements mandating where regulatory documents are located electronically would improve their accessibility and use by investors. In short, the focus should be on meeting the informational needs of investors.

Anita Anand, Andrew Green and Matthew Alexander write in the Globe and Mail about the recent no-contest settlements by the Ontario Securities Commission and whether these are in the public interest: (i) given the lack of transparency over the facts; (ii) the impact on the law's development and (iii) possible perverse incentives that no-contest settlements may create .

Leo Almazora of Wealth Professional reports on a letter written by Ken Kivenko of Kenmar Associates to the Canadian Securities Administrators on internal ombudsmen at the banks, particularly their level of independence and transparency. The letter takes issue with the "two-step" process for launching complaints (through an internal ombudsman and OBSI) and asks that the CSA end use of the term "internal ombudsman" within banks, as has been done in other jurisdictions. To read the letter, click here .

FAIR Canada in its submission to the independent reviewer of OBSI also argued that Participating Firms should not be able to confuse consumers by calling any of their internal complaint handling procedures "ombudsman" as such processes do not meet international criteria to be called an "ombudsman" nor can be said to be "impartial" in accordance with international criteria. We agree with the recommendations contained in the previous two independent reviews of OBSI "[t]hat OBSI meet with participating firms that have an internal Ombudsman's Office function to discuss this naming problem and to suggest a re-naming/redescription of the internal function to reduce confusion by consumers between the firm's internal function and OBSI." Calling the internal resolution person an ombudsman adds to consumer confusion and should be prohibited. FAIR Canada also recommends that OBSI set out detailed requirements for how Participating Firms inform customers about OBSI.

Battle brewing over proposal to loosen Canada's hedge-fund rules

Colin McClelland of Bloomberg News discusses proposals to allow retail investors to move into hedge funds and other alternative products as soon as next year. Marian Passmore, FAIR Canada Director of Policy and COO is quoted as saying, " There's no evidence from the regulators that retail investors will be better off when most will have difficulty understanding the different characteristics and risks."

Fierce resistance to ban on Canadian commission fees

Chris Flood of the Financial Times reports on the CSA's consultation paper to ban embedded commissions, and some responses from industry and investor advocates. The article cites Marian Passmore, FAIR Canada Director of Policy and COO, as saying that it was "astounding" that regulators had not already banned commission payment on mutual funds, particularly for brokerages that collect commission even though they do not provide any advice to investors.

Final 2017-2018 OSC Statement of Priorities

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