Nearly a decade has passed since the 2008 financial crisis rocked the markets, led to significant losses, and in some cases, toppled long-standing financial institutions.
Even in the earliest days of the crisis, analyses on the financial situation were applauding Canada’s resilience and stability. It’s true that Canada avoided the devastating fallout we saw in the US and other countries, but the financial crisis still had a lasting impact on Canada’s investor confidence and market integrity.
The Rise of Investor Protection
In the decade since the crisis, investor protection – both formal processes and general sentiment – have played a larger role in industry regulation. Specifically, we’ve seen greater focus on:
- Increasing transparency in market activities;
- Consulting investors in policy-making; and
- Improving financial literacy among the public.
These priorities have resulted in stricter rules, better financial education and tougher enforcement.
Let’s have a look.
Stepping Up: Governments, Securities Regulators, SROs
Canadian governments, regulators and self-regulatory regulations (SROs) have put greater resources and focus on investor protection.
Shortly after the financial crisis, Canada’s national self-regulatory organization (SRO) for investment dealers and capital markets – the Investment Industry Organization of Canada (IIROC) – began developing the Client Relationship Model (CRM), a comprehensive package designed to enhance the relationship between investors and their financial advisors.
CRM provides investors with greater transparency about the cost and performance of their accounts, including greater disclosure of fees, clear language performance reporting and easy-to-read client statements.
The CRM rules have been implemented in two iterations. The first CRM came into effect in July 2013, and the second – Client Relationship Model II (CRM2) – took effect in 2017.
IIROC’s commitment to investor consultant has continued. The organization recently established its own proprietary panel of 10,000 Canadians, to conduct regular surveys to inform their policy deliberations.
It’s worth noting that Canada’s securities industry has long offered a unique investor protection program – the Canadian Investor Protection Fund (CIPF). Under CIPF, clients of IIROC-regulated firms have their accounts protected in case of a company’s insolvency. CIPF is not a recent initiative, but it’s still an example of Canada’s special investor protection framework.
In Ontario, the Ontario Securities Commission (OSC) has established an Investor Advisory Panel to solicit and represent the views of individual investors on its policy and rule-making initiatives. The OSC also runs its Investor Office to lead public education on financial services.
In Quebec, Bill 141 proposes a consumer committee that would present the views of financial services consumers to the province’s financial regulation, the Autorité des marchés financiers (AMF).
In the United States, the Dodd-Frank Act established an Investor Advisory Committee to advise the Securities and Exchange Commission (SEC) on regulatory priorities.
This overall trend has led to an overall increase in regulatory strength. Ontario is establishing the Financial Services Regulatory Authority to coordinate and harmonize consumer protection while fostering a competitive financial services sector.
Balancing Investor Protection and Industry Competitiveness
Like all good policy development, the influx of investor protection rules are measures and developed within a balanced approach. While regulators work to strengthen the regulatory regime, they balance those goals against their commitment to ensure the financial market remain dynamic, competitive and innovative.
What about self-regulation? Can it effectively protect investors? If the conditions are right, it can.
To create some of your own insightful content on the dynamic rules of investor protection, contact Lalonde Muller today.
Paul Lalonde is content lead for Lalonde Muller and a former public affairs specialist at the Investment Industry Regulatory Association of Canada (IIROC). Paul joined IIROC in December 2008, in the wake of the financial crisis, to help expand the outreach efforts on regulatory reform. He has maintained his interest in investor protection and market stability ever since.