Risk Management and Crisis Response Blog

Movement towards financial title regulation expands across Canada

Sep 28, 2021 6 MIN READ
Authors
Lawrence E. Ritchie

Partner, Disputes, Toronto

Paperwork

To investors and consumers of financial services, titles used by professionals can be confusing and, to date, have been largely unregulated — but this is starting to change.

In July 2020, Saskatchewan passed the Financial Planners and Financial Advisors Act (the Saskatchewan Act), which was closely modeled on Ontario’s Financial Professionals Title Protection Act, 2019 (the Ontario Act) with a goal of creating consistency across jurisdictions and streamlining compliance for industry members. When both regimes come into force, anyone who uses the Financial Planner (FP) or Financial Advisor (FA) titles in Saskatchewan and Ontario will be required hold appropriate credentials from a credentialing body approved by the regulator. Each regime delegates primary administration and oversight of the FP and FA credentials to approved credentialing bodies, with only basic threshold criteria set out for each title.

In July 2021, the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) published a Notice of Proposed Regulations and Request for Comment [PDF] under the Saskatchewan Act. As expected, the proposed regulations (the Saskatchewan Regulations) closely mirror Rule 2020-001 – Financial Professionals Title Protection under the Ontario Act (the Ontario Rule). Both the Saskatchewan Regulations and the Ontario Rule establish baseline competency profiles for FA and FP title holders, while permitting individual credentialing bodies to meet or exceed the floor established by the regulatory regime, and both broadly require FA and FP title holders to meet minimum criteria pertaining to financial services knowledge, ethics, client outcomes and technical knowledge.

While the Ontario and Saskatchewan regimes are very similar, the Saskatchewan Regulations make an important departure from the Ontario Rule: under the proposed regime in Saskatchewan, credentialing bodies must hold individual FP and FA credential holders to a minimum standard of client treatment, including: “address[ing] material conflicts in the best interests of their clients” and “put[ting] the clients’ interests first when making a suitability determination.” In its Notice of Proposed Regulations and Request for Comment, the FCAA observed that “some parties have indicated a preference for a higher minimum standard to apply to individuals who are using the FP or FA titles” and that it had addressed this concern by explicitly incorporating the Client Focused Reforms project carried out by Canadian securities regulators and the Conduct of Insurance Business and Fair Treatment of Customers Guidance adopted by insurance regulators (which we have previously written about here).

This is in contrast to the Ontario Rule, which only requires credentialing bodies to ensure that FP and FA credential holders “deal with the [credential holder’s] clients competently, professionally, fairly, honestly and in good faith”, and meet certain broad educational requirements pertaining to conflicts of interest. The Ontario Rule does not prescribe a best interest standard — or any particular standard — for client conflicts, and is silent with respect to suitability determinations in the course of advice given by an FA or FP.

The bottom line is that if Saskatchewan’s proposed regulations come into force, credentialing bodies for FAs and FPs will be required to ensure that credential holders in that jurisdiction are governed by the minimum requirements regarding conflicts and suitability; credentialing bodies therefore will either need to institute stricter rules for Saskatchewan-based credential holders and accept any resulting cross-jurisdictional inconsistencies, or will need to implement heightened rules across the board in all jurisdictions to accommodate the Saskatchewan requirements.

Meanwhile, Ontario’s title regime continues to move forward following a second public consultation. During that consultation, the Financial Services Regulatory Authority of Ontario[1] (FSRA) sought stakeholder input regarding shorter proposed transition periods for holders of existing credentials, additional requirements for approved credentialing bodies to provide FSRA’s CEO with information posted to their websites in order to establish a consolidated registry of title holders, and a proposed approach to establishing a FP/FA fee structure. FSRA’s stated aims in implementing such a fee structure would be to enable the recovery of costs incurred to design and implement the framework, to enable the recovery of ongoing regulatory costs for overseeing the FP/FA sector, and not to introduce undue burden on individual credential holders and potential credentialing bodies. The fees proposed in the consultation include

  • application fees of $10,000 for an application for approval of a credentialing body, and $5,000 for each application for approval of an FP/FA credential to be offered by a credentialing body
  • fixed annual fees of $25,000 for credentialing bodies
  • variable annual fees to cover remaining budgeted costs associated with oversight, to be calculated according to a proposed formula and dependent on the number of credential holders associated with the credentialing body. The proposed ranges for variable fees range from $1,050 for credentialing bodies with 100 credential holders, up to $318,700 for credentialing bodies with 30,000 credential holders.

New Brunswick seeking consultation on FP/FA legislation

Following the lead of Ontario and Saskatchewan, the New Brunswick Financial and Consumer Services Commission (FCNB) has now also begun a public consultation [PDF] on a framework for the protection of titles used by financial professionals, which commenced on August 10, 2021. The FCNB is considering recommending that the New Brunswick legislature adopt FP/FA legislation in a model similar to Ontario and Saskatchewan, and has asked the public to comment. In its Notice of Public Consultation, the FCNB describes the differences between the Ontario and Saskatchewan regimes, including differences between the proposed penalties and enforcement provisions. The Saskatchewan legislation, for example, contemplates fines and offences for violators of the title requirements, whereas the title legislation in Ontario only contemplates compliance orders against title violators. The FCNB also noted that the Saskatchewan legislation adopted a simplified approval process for credentialing bodies already approved in other jurisdictions, whereas Ontario’s law will require all credentialing body applicants to go through the same process. The FCNB has solicited feedback regarding which approach its stakeholders would prefer. Comments are requested in writing on or before October 25, 2021.

Takeaway

Momentum continues to build towards the regulation of FA and FP title users across Canada, with Ontario, Saskatchewan and Quebec all having passed title protection measures, and New Brunswick now following close behind. FA and FP title users, as well as the self-regulatory organizations that credential FAs and FPs, should keep a close eye on further developments as the Ontario and Saskatchewan regimes approach finalization and as New Brunswick designs its own legislative and regulatory approach. With these frameworks being considered, it will be seen if other provinces and territories enact their own measures to regulate the use of FA and FP titles and whether those programs complement each other.


[1] Lawrence Ritchie is currently a member of the Financial Services Regulatory Authority of Ontario’s (FSRA) Board of Directors. The views expressed in this article are those of the authors and do not necessarily reflect those of FSRA’s Board of Directors, its leadership, or staff.