Comment letters to CSA call for representation, stronger enforcement, and greater clarity
In letters submitted on the October 23 comment deadline to the CSA’s SRO framework consultation, the Investor Protection Clinic at Osgoode Hall Law School and the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) urged regulators to ensure that retail investors’ interests are upheld.
In its comment letter, the Investor Protection Clinic, which is dedicated to providing free legal advice and services to retail investors who have suffered investment losses, stated that a single SRO will benefit investors, particularly if it were to incorporate best practices for investor protection from both IIROC and the MFDA.
“[I]f their investments are mishandled, a confusing registration and regulatory regime creates unnecessary hardship for already-harmed individuals,” the clinic said. “We support the principle of rule harmonization between SROs and the CSA, so long as the harmonized rules are not reflective of a ‘race to the bottom.’”
It pointed to a persistent state of investor confusion, exacerbated by a lack of harmonization of rules between organizations, including with respect to know-your-client and suitability requirements. In line with that, the clinic welcomed the CSA’s comments on multiple titles and their impact, noting that unregulated titles add to confusion and raise potential investor-protection issues.
“[T]here are suitability concerns when retail investors do not understand the registration categories and view their advisers as akin to fiduciaries … when in fact the advisers are salespeople,” the clinic said.
Meanwhile, FAIR Canada strongly urged the CSA to give the greatest weight to investor issues as it conducts its SRO framework review. Some pressing areas, it said, concern governance, transparency, and enforcement practices currently maintained at SROs.
“SRO governance must be reformed to be more inclusive and representative of the broader public interest,” the group said, highlighting its importance in ensuring an SRO’s effective management and operation, minimizing conflicts of interest, and bolstering public confidence and trust in regulated markets.
With respect to enforcement, FAIR Canada stressed the need for enforcement programs to better address responsibility for failures in firms’ supervision and compliance systems, noting that SRO enforcement actions are rarely taken against investment firms or senior executive management. SRO enforcement programs, it added, should make compensating investors harmed by industry misconduct a priority.
“SROs should have the power to order disgorgement of profits and to direct payment of disgorged profits to harmed investors where appropriate,” it said.
In addition to calling for the CSA to regularly assess how effectively an SRO is able to meet its public interest mandate, the group echoed the clinic’s emphasis on reducing confusion, inefficiencies, and obstacles that investors face within the current SRO system. It also encouraged the CSA to squarely address the proposed merger of SROs in its review.
“In considering a potential merger of the SROs, we urge the CS A to first propose a new self-regulatory model and SRO organization for public feedback and discussion,” FAIR Canada said. “Rather than simply integrate IIROC and MFDA as they currently exist, FAIR Canada believes that a new and different SRO based on updated principles and conditions of recognition by the CSA is required.”
