Fair dealing model update: OSC considers single licence for advisors, firms

(February 5, 2004) Many industry participants are still digesting part one of the Ontario Securities Commission’s (OSC) fair dealing model, released last week, but the regulator is already looking ahead to a second concept paper, which will focus on the licensing of financial firms and individuals.

“A number of costly inefficiencies and gaps arise because we now license financial service providers on the basis of rigid product silos or artificial distinctions between advice and trading,” the OSC says.

For example, different regulatory requirements apply to firms and individuals engaged in a similar business and many are forced to obtain multiple licences to provide what is essentially an integrated service offering, the regulator says, noting that the OSC tracks over 50 different categories of registration.

“At the employee level, many people have a mutual fund and an insurance licence and maybe a couple of others,” says the OSC’s senior legal counsel Julia Dublin. “But they’re really delivering a coordinated set of services when they sit down and talk to clients.”

The solution, Dublin believes, is a single licence for financial services providers, based on common business practices and the principles outlined in the fair dealing model.

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The idea is to establish two kinds of licences: one for firms and one for individual representatives. Beyond that, a “ticket” system would be used to determine proficiency in certain areas, such as securities, insurance or financial planning. “If you’re providing comprehensive financial planning advice, you would have to be proficient to do that,” Dublin says.

But who determines proficiency? That will be up to the industry, Dublin says, adding that the commission will be inviting proficiency experts to join an advisor work group to “talk about how to link all the existing accreditation bodies and proficiency tests into this idea of defining services up front.”

Establishing proficiency standards is not a new idea for the commission. Dublin also spearheaded the financial planning proficiency project, which actually led to the fair dealing model. The OSC went as far as to create a financial planning proficiency exam, which Dublin says could still be used as a blueprint for future proficiency standards.

As for the initial fair dealing model concept paper, reaction has so far been mixed. The IDA said it supports the core principles behind fair dealing but the model was blasted by Advocis as an “unjustified power grab” and “regulatory opportunism.”

David Barber, president of the Independent Financial Brokers of Canada, says he sees no need for the fair dealing model. “The industry did not ask for the fair dealing model,” he says. “The industry did not ask the OSC to extend their reach into the relationship between the advisor and the client.”

Dublin notes that the OSC has no jurisdiction over insurance, but she claims the insurance industry has shown interest in the model.

“Although you can argue that insurance investments are similar to securities, they have their own language,” she says. “They would have to go through a similar exercise to find out how transparency and conflicts would be managed.

“Insurance agents shouldn’t be afraid of this,” Dublin adds.

Still, the insurance issue points to the larger question of fragmentation — a serious concern in a country with a patchwork of provincial securities and insurance regulators. The system could be further splintered if Ontario adopts fair dealing on its own.

The ultimate goal, the OSC says, is to have the model implemented on a national basis. Dublin concedes that won’t be easy. “You do it one step at a time,” she says, by working with the Canadian Securities Administrators.

“We plan to have roundtable sessions in different provinces coordinated with the regulators,” Dublin says. The first session is in Halifax on Friday.

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What do you want to say about the fair dealing model? Will the OSC’s plan fly with the other jurisdictions? Share your thoughts and opinions about this issue with your fellow advisors in the Talvest Town Hall on Advisor.ca.

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

(02/05/04)

Doug Watt