Joint Forum calls for voluntary, industry-wide practice standards

(March 10, 2003) Universal practice standards should be adopted that would apply to all those working in Canada’s financial services sector, says the Joint Forum of Financial Market Regulators, the coordinating body for securities, insurance and pension regulators. Last week, the Joint Forum released an extensive consultation paper called “Principles and Practices for the Sale of Products and Services in the Financial Services Sector.”

Pointing to Canada’s fragmented system of regulation, the Joint Forum says cross-country practice standards would protect consumers and enhance the quality and consistency of regulation.

“The result of this project will be to provide a common language to express minimum obligations that should apply to the conduct of all financial intermediaries in their dealing with consumers of financial products and services,” the paper states.

A Joint Forum sub-committee examined current rules and codes of conducts in the financial services sector, both in Canada and other countries. The proposed standards cover nine areas, including client interest, professionalism, confidentiality, conflicts of interest, disclosure, client redress and compliance.

The standards are based on high-level principles, as opposed to detailed rules, an approach which allows for harmonization with existing industry codes of conduct, the forum says. In areas where more detailed and rigorous rules already exist, the standards would not apply.

Critics note that the majority of life insurance agents and mutual fund representatives do not belong to any association. In those cases, the Joint Forum points out, the standards would serve as a “best practices” guide.

For those working in the industry but not subject to regulation, the principles may result in a “raising of the bar,” the paper says.

Although preferring a voluntary approach, the Joint Forum says association codes could include consequences for non-compliance or require adherence to codes as a condition of membership. “Implementing rules and regulations to achieve the proposed principles will only be considered as a last resort,” the paper says.

In a section of the paper aimed specifically at financial advisors, the Joint Forum says planners should follow the six-step planning process and provide full disclosure of compensation arrangements.

The Joint Forum’s committee on practice standards includes representatives from the Canadian Securities Administrators, the Investment Dealers Association, the Mutual Fund Dealers Association and the Canadian Council of Insurance Regulators. The industry liaison group includes Advocis, the Investment Funds Institute, the Canadian Bankers Association and the Canadian Securities Institute. Quebec is not participating in the project. Final recommendations and an implementation plan are expected this summer.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca