Friday News Finds – October 4, 2019

By Danica Bennewies

We made it to the end of another week, which means its time for another instalment of Friday Finds. In this weekly series on the CBLB we share five of the top corporate and securities law stories that dominated the headlines, as well as our conversations, over the past week. We have stories on a wide range of topics this week, including regulatory reforms, enforcement actions and climate change. Keep reading to get caught up!

Let’s kick-off with regulatory news. On Thursday, the Canadian Securities Administrators (CSA) published a revised version of the Client Focused Reforms proposed last year. These reforms are aimed at ensuring that clients’ interests come first in dealings with advisory firms, thereby improving the client-advisor relationship. For example, the new rules would require advisory firms to resolve conflicts of interest in the best interests of clients and would codify best practices regarding client disclosure and know-your-client and know-your-product obligations. According to the CSA, these changes will set a uniform standard of conduct for all registrants across Canada and will be to the benefit of both investors and the industry as a whole. While these reforms were originally proposed in June 2018, the version issued on Thursday contained a number of substantial changes, such as adding a “materiality” qualifier to the conflict of interest provisions and removing prescriptive restrictions on referral arrangements. If the new rules receive ministerial approval, they’re expected to be implemented country-wide at the end of this year. However, actual compliance would be rolled out in phases, with all changes aimed to be in effect by 2021.

That’s not all the CSA was up to this week. On Wednesday, the regulators also published data about women on boards and in executive officer positions. Seven jurisdictions across Canada, including Ontario, participated in preparing the report, which reviews the disclosure of 641 issuers with year-ends from December 31, 2018 to March 31, 2019. The CSA’s report highlights a number of key trends. In particular, in 2019 the number of board seats held by women and the number of issuers who had at least one woman on their board both increased from 2015 (from 11% to 17% and 49% to 73%, respectively). The report also found that the number of women on boards varied by both industry and firm size, with larger firms and firms in the manufacturing, retail and utilities industries having the highest percentage of issuers with at least one woman on their board. While some of this data highlights positive trends, it also evidences a notable lack of women in executive positions. For example, according to the report, only 4% of the issuers had a female CEO and the percentage of issuers with at least one woman in an executive position has declined from last year. In the news release, the chair of the CSA, Louis Morisset, said that releasing this data reflects the regulators’ commitment to making sure investors are able to make fully informed decisions. You can view the full report here.

This week, the Ontario Securities Commission (OSC) announced that it has no plans in the foreseeable future to introduce legislation regulating ETFs. The announcement came at the second annual ETF Summit that took place this Tuesday in Toronto. In a speech at the summit, Raymond Chan, the OSC’s Director of Investment Funds and Structured Products, said that, to date, the ETF industry has done a good job of self-regulating. Recent years have seen a rapid growth in ETFs and this is expected to continue. According to PwC’s global ETF survey, Canadian ETF manufacturers expect assets under management to grow by over $280-billion by 2023. However, despite this rapid growth, ETFs still do not make up a large enough share of capital markets to pose a systemic risk. According to Chan, the OSC is currently evaluating whether the traditional market-making framework should apply to ETFs and recognizes that there may ultimately be a need to implement a regulatory framework for the unit creation process. At this point though, it is not evident that there are any issues necessitating the creation of regulations.

Moving away from regulatory news now, the past few weeks have seen a number of enforcement headlines involving Canadian banks. A few weeks ago, we talked about RBC and TD; now its BMO’s turn. At the end of last week, the Securities and Exchange Commission (SEC) announced that it reached a settlement with two BMO firms over allegations of failed disclosure. BMO Harris Financial Advisors Inc and BMO Asset Management Corp agreed to pay over US$37-million, the majority in disgorgement, to settle allegations that they failed to disclose how funds were selected for one of their retail investment advisory programs called the managed asset allocation program (MAAP). According to the SEC’s order, the BMO firms invested nearly half of MAAP client assets in proprietary funds, resulting in clients paying additional asset management fees to BMO Asset Management Corp, without disclosing the conflict of interest. The allegations also highlight a number of other instances where the BMO firms allegedly put their own interests ahead of their clients’ without disclosing the conflicts or the additional costs arising from their actions. Both firms settled without either admitting or denying the allegations.

With the impending elections in both Canada and the US, the UN General Assembly and the worldwide protests, climate change has been in the news lot lately. Some of the largest US publicly traded corporations are starting to feel the pressure too. Recently, 200 institutional investors with a combined US$6.5-trillion in assets-under-management published a letter calling on the 47 largest publicly traded firms in the US to align their climate lobbying with the goals of the Paris Agreement – namely, to limit the global average temperature increase to below 2°Celsius. In their letter, the investors point to climate change as one of the biggest risks that long-term investors face and believe that achieving the Paris Agreement goal is essential. The 47 companies targeted were identified by Climate Action 100+, a global investor initiative, as some of the largest corporate greenhouse gas emitters. With this letter, investors hope to drive improvements in governance and accountability for corporate climate lobbying. You can read the full letter here.

Those were your major headlines for this week. Thanks for getting caught up with us on the CBLB! Be sure to check back next week for another batch of corporate and securities law news.