Fair dealing model to be simplified, says OSC chair

(June 22, 2004) The Ontario Securities Commission’s (OSC) controversial fair dealing model will be simplified and refocused, says commission chair David Brown, following input from working groups and some negative industry reaction.

Six working groups, including 160 volunteers, have been studying the fair dealing concept — a fundamental shift from product-based to relationship-based regulation — for the past couple of months.

“We’re gaining valuable insight, which has enabled us to consider refining the initiative, focusing more on key issues and abandoning others that are not as important,” Brown said last week during a regulatory panel discussion at the IDA’s annual conference in Mont Tremblant, Quebec.

“We’re looking at a much simpler approach, focusing on four issues, then working with the self-regulatory organizations (SROs) to implement change through existing regulatory structures,” he added. “The SROs will be the vehicle to implement these changes.”

The four key principles involve the clarity of the relationship between clients and advisors, management of potential conflicts of interest, transparency of compensation and transparency of promise against performance, Brown explained. “Much of this is designed to ensure that the client has the necessary tools and information to be able to measure the value proposition, to know that the client is getting what he or she expects to get.”

The modifications also come in the wake of some mixed reaction to the fair dealing model from industry participants. Although most respondents supported the principles and objectives of the model, a number of concerns were raised.

Greg Traversy of the Canadian Life and Health Insurance Association offered a fairly typical response. “The broad principles outlined in the concept paper are admirable,” he wrote. “However, the proposals for implementing these principles seem needlessly prescriptive.”

“Fundamentally, adopting a prescriptive approach tends to minimize accountability and responsibility resting with market participants. It encourages a mentality characterized by dotting ‘i’s and crossing ‘t’s as opposed to one that is characterized by doing what is right,” added Peter Bailey of Raymond James.

Others expressed concern about the OSC’s “go it alone” approach on fair dealing, worrying about the lack of involvement by other provincial regulators. “An overall concern is how unilateral provincial initiatives such as fair dealing and the British Columbia Securities Commission’s B.C. model might undermine and potentially weaken the national registrant proficiency standards in place today,” said Marc Flynn of the Canadian Securities Institute.

“We are concerned that the fair dealing model is not a Canadian Securities Administrators initiative and that it will bring another layer of requirements in only one jurisdiction — Ontario,” added Don Panchuk of Phillips, Hager and North.

However, Brown has said that the fair dealing model concept cannot work unless implemented on a national basis.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com