Legal experts at an OSC panel sparred vigorously today, differing sharply on whether a proposed ‘best interest’ fiduciary standard for advisors was a legal necessity.
Anita Anand of University of Toronto Faculty of Law took the point that a new national rule was required to clarify a mishmash of regulations across the country. John Fabello, a partner of international business law firm Torys, argued that existing law was already sufficient and that the proposed standard would benefit lawyers rather than retail investors.
“Inconsistent legal standards across the country exist,” said Anand, who is director of UofT’s Program on Ethics in Law and Business. “A clarification of law is in order regardless of the stance that the CSA adopts.”
The Canadian Securities Administrators (CSA) is considering introducing a statutory fiduciary, or ‘best interest’, standard for securities advisors when they provide advice to retail clients. The panel discussion was part of its consultations to determine whether such statutory standard should be adopted, whether another policy solution would be more effective, or whether the current Canadian regulatory framework is adequate.
Anand said that other jurisdictions – specifically the US, EU and UK – had already moved forward, and that Canada was behind the curve on investor protection. “Other jurisdictions coming out of a severe financial crisis have seen fit to amend their laws.”
Fabello, Torys' senior member in its securities defence practice, said that a new standard would be superfluous as investor protection has been evolving in common law and in regulation for over 100 years.
“Common law affords legal protection that does cover client interests,” he said, arguing that the ‘20 word’ definition of ‘best interest’ currently being recommended would be of far greater benefit to lawyers than it would be for investors.
“This will be a bonanza for compliance and legal professionals,” said Fabello. “There will be lots of job security for people like me who do what I do.”
The UofT professor, however, argued that the fact that people were arguing over the consequences of the proposed standard was evidence in itself that one did not exist.
“Current common law does not embody the standard we are considering,” said Anand. “The reason that people are [now] discussing the consequences of best interest should indicate that we don’t have a standard.”
Fabello, however, argued if there were deficiencies in the current system, it was not in the content of the but in the lack of enforcement and lenient penalties. He suggested that regulators need to fortify existing standards and increase penalties and damages for violators. “Deter these people from doing this bad stuff.”
Regardless of the legal need for a new standard, there would likely be significant costs, an industry representative said earlier in the panel.
“It sounds like lawyers, sounds like courts, sounds, expensive,” said John Kershaw, a senior vice president at TD Wealth Private Investment Advice. “Who among us believes that a standard would come without costs?”