Page 7 - Newcom

December 2020 NEWS
Concerns about regulatory burdens
rub some critics the wrong way
INVESTMENT EXECUTIVE | 7
credentialing bodies and other organizations to create the stan- dard of what is acceptable and unacceptable behaviour in this industry.”
Geller’s submission warned that the proposed regulations risk adding a compliance burden without providing “a minimal level of consumer protection.”
“The FSRA framework is not what Ontario’s consumers sought nor needed,” Geller’s let- ter stated. “The legislature has opted for a finger-in-the-dyke response to the demands of Ontarians.”
This patchwork approach to reform may be least disruptive for the sector — and that’s a problem for some.
“If SROs become approved credentialing bodies — thereby making individual registrants approved [financial planner] or [financial advisor] title hold- ers — this entire endeavour will have been a waste of time and resources,” warned the submis- sion from Dan Hallett, vice-presi- dent, research, and principal with Oakville, Ont.’s HighView Asset Management Ltd.
The Investment Industry Regulatory Organization of Canada’s (IIROC) submission raised concerns about new credentialing bodies creating “an un-level playing field” or duplicative oversight — a con- cern echoed by the Mutual Fund Dealers Association of Canada in its submission.
IIROC’s letter suggested the proposed regulations allow cre- dentialing bodies that “do not have appropriate established capabilities with respect to compliance and enforcement to rely on (i.e., delegate to) exist- ing regulatory compliance and enforcement regimes, where practical/appropriate.” IE
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instance, the ASC dismissed its proposed rule that sets out min- enforcement staff’s argument imum standards to qualify as that Cohodes’ negative tweets a “financial advisor” or “finan- about Calgary-based Badger cial planner.” The proposal also
Daylighting Ltd. had a signifi- cant impact on the company’s stock price.
In cases in which specific regulatory violations can’t be proven, Canadian regulators have declined to invoke their public interest jurisdiction to shut down activist short-sellers, fearing that such a meas- ure could suppress legitimate investor skepticism.
Not only has there been little regulatory action against activ- ist short-sellers, there also isn’t much recourse from the courts for issuers — or for investors holding long positions — to try to claim they’ve been hurt by short- and-distort campaigns.
For example, there’s no equivalent of secondary market liability — which enables inves- tors to sue issuers and their top executives for misrepresentations in their public disclosure — that can be applied to short-sellers. Instead, according to the CSA paper, most of the legal efforts against activist short-sellers in Canada have been brought as libel or defamation claims.
The CSA is contemplat- ing a need for a more effective way to hold activist short-sell- ers accountable. Among other things, the CSA’s paper floated the idea of adopting a new stan- dard for enforcement action — one that doesn’t require proof that a short-seller’s statements about a company had a material negative impact on its stock price.
The CSA paper also asked whether a new statutory right of action is needed to enable com- panies to sue problematic activ- ists more easily. However, the CSA paper cautioned that this could have unintended conse- quences, such as discouraging mainstream research analysts from being honestly critical of the companies they cover.
Ontario’s Capital Markets Modernization Taskforce is likely to address activist short-selling in its final report to the provin- cial government, which is due before the end of this month. The task force’s draft report pro- posed creating a specific legal prohibition against making false or misleading statements about public companies to com- bat both pump-and-dump and short-and-distort campaigns.
The task force is particularly concerned about the potential for social media to spread mis- information about a company. The draft report suggested cre- ating a specific provision in the law will give regulators stronger grounds for taking action against efforts to drive stock prices up or down with false information.
In a world that wants to see markets only rise, short-sellers have never been popular — and policy-makers may be about to make their lives tougher. IE
establishes requirements cre- dentialing bodies must meet in order to be recognized by FSRA as approved administrators of the titles.
Comment letters on FSRA’s proposed regime suggest the regulator isn’t having much more success than predecessors that sought to clean up the messy jumble of industry titles.
While the financial services sector has expressed support for the underlying goal of restricting who can call themselves a finan- cial advisor or planner, various factions are keen to avoid added costs and disruption to their existing practices.
The insurance industry wants the life license qualification pro- gram (LLQP) to meet the pro- posed standard for reps using the financial advisor title. Yet the LLQP was singled out in FSRA’s draft proposal as not meeting a sufficient standard for title protection.
The comment letter from the Canadian Life and Health Insurance Association stated that any perceived “gap” in the life licensing regime could be addressed “through updates to the LLQP continuing education requirements.”
Securities industry trade groups want their existing reps to be exempt from FSRA’s proposed regime — and the banks want to continue using an array of titles, such as wealth planner, banking advisor and estate planner.
The Investment Industry Association of Canada (IIAC) recommends exempting both investment dealers and fund dealers from FSRA’s require- ments “to avoid duplicative over- sight and unnecessary regulatory burden.” Self-regulatory organ- izations (SROs) “have rigorous proficiency requirements and business and financial conduct oversight of their registrants,” the IIAC’s letter stated.
FSRA’s notice detailing the proposed regime stated that the “primary objective of the frame- work is to create minimum stan- dards for title usage, without creating unnecessary regulatory burden for title users.” However, FSRA’s concern about avoiding additional burden is rubbing some critics the wrong way.
The comment from the
Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) stated that instead of focusing on concerns about duplicative oversight, “FSRA should prioritize con- sumer confusion and the poten- tial for uneven standards ... by the various credentialing bodies.”
FAIR Canada’s letter sug- gested the proposed regime is unlikely to deliver the basic con- sumer protection of accurately declaring what’s in the tin: “The regulatory framework appears aimed more at protecting the
credentialing bodies [that] will be authorized to grant use of the titles, financial planner and financial advisor, than on needed consumer protection.”
The bewildering array of titles used in the sector — and lack of basic proficiency standards behind those titles — has long been an investor protection con- cern. Clearing up that confusion is one of the central aims of title regulation.
A number of comments pointed out that FSRA’s pro- posal won’t do much to elimin- ate that confusion. The problem, they stated, is that the proposed regime seeks only to estab- lish requirements for using the “financial advisor” and “finan- cial planner” titles — and leaves open the continued use of num- erous alternative titles that hint at financial expertise without adhering to actual standards.
“There is a real and insidi- ous risk of a worse outcome for Ontarians if the ambit of [FSRA’s framework] does not capture titles that can be reasonably con- fused with the [financial advisor/ planner] titles,” stated a submis- sion from lawyer Harold Geller and his Ottawa-based firm, MBC Law Corp.
This concern was echoed in FP Canada’s submission: “[W]ithout strict regulation of
other misleading titles, individ- uals not meeting the approved credential requirements will simply use similar sounding, misleading titles, thereby per- petuating consumer confusion and undermining the efficacy of the framework.”
To prevent consumer confu- sion, FP Canada’s letter recom- mended that the regulator set out a list of potentially misleading titles to prohibit, similar to the approach used in Quebec, where use of the financial planner title has long been regulated.
Indeed, several comments, including that from the Ontario Bar Association (OBA), pointed to Quebec’s approach to oversee- ing financial planners as a model for Ontario to emulate.
The OBA warned that simply creating parameters to restrict the use of two popular titles with- out setting specific standards “will do too little to address the underlying issues with respect to protection of the public interest and instilling consumer confi- dence in the long term.”
The primary objective of the proposed regime should be consumer protection, the OBA’s letter stated. Failing to set regu- lations that include a code of ethics, a searchable database for consumers and a disciplin- ary process “allows employers,
The bewildering array of titles used in the financial services industry has long been an investor protection concern
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