On April 28, 2016, the Canadian Securities Administrators (CSA) published a consultation paper seeking public comment on proposals to strengthen the obligations of registrants toward their clients. CSA Consultation Paper 33-404 serves up two separate but related initiatives. The first is a series of “Proposed Targeted Reforms” which will amend National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to better align the interests of registrants to the interests of their clients by enhancing the following registrant obligations: identification of and response to material conflicts of interest; know your client; know your product (firm and representative); suitability; relationship disclosure; proficiency; titles; designations, roles of Ultimate Designated Person and Chief Compliance Officer and the introduction of a statutory fiduciary duty when a client grants discretionary investment authority. The enhancements will include carve-outs for institutional and execution-only businesses. All CSA jurisdictions seem to endorse the Proposed Targeted Reforms and are seeking public comment on 35 questions related to the ten targeted reforms.

The second proposal is the introduction of a regulatory best interest standard which would require registered dealers, advisers and their representatives to deal fairly, honestly and in good faith with their clients and act in their clients’ best interests. The best interest standard would be that of a prudent and unbiased firm or representative, acting reasonably, and registrants would be guided by five principles: act in the best interests of the client, avoid or control conflicts of interest in a manner that prioritise the client’s best interests, provide full, clear, meaningful and timely disclosure, interpret law and agreements favourably to the client and act with care. Only the Ontario Securities Commission and the Financial and Consumer Services Commission of New Brunswick endorse this proposal, while the British Columbia Securities Commission opposes the proposal on the basis that the Proposed Target Reforms should advance the best interests of investors, while imposing an over-arching best interest standard may create uncertainty for registrants and exacerbate the current investor protection issue of misplaced trust and overreliance of clients on registrants. CSA members from the other five Canadian provinces have not yet formed a firm opinion on the proposal and are participating in the public consultation process, which poses 33 questions for public comment.

Both the Proposed Targeted Reforms and the best interest standard are the outcome of many years of public consultation, debate, focused research studies and international developments, all of which are summarized in the introductory sections of Consultation Paper 33-404. The paper also includes eight appendices which set out proposed regulatory guidance with respect to the proposals. Comments on all or part of the 68 questions posed in the paper are due on August 26, 2016.