Securities

Toronto – The Canadian Securities Administrators (CSA) today published CSA Staff Notice 33-318 Review of Practices Firms Use to Compensate and Provide Incentives to their Representatives. The notice identifies compensation arrangements and incentive practices that firms use to motivate their representatives’ day-to-day behavior and sets out potential conflicts of interest that could arise, if not properly controlled, from some of these practices.

This research is part of the CSA’s ongoing work to address regulatory issues and concerns arising in the client-registrant relationship, including the proposed reforms to enhance the client-registrant relationship (CSA Consultation Paper 33-404 – Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives toward their Clients) and its upcoming consultation on the option of discontinuing embedded commissions. In CSA Consultation Paper 33-404, CSA Staff indicated they would publish a notice, summarizing the results of their work on compensation practices impacting representatives by the end of 2016.

The survey found that firms use a wide range of practices to compensate their representatives, including direct tools such as commissions, performance reviews and sales targets, as well as indirect tools such as promotions and valuation of representatives’ books of business for various purposes (for example, retirement and awards). The survey findings highlight potential conflicts of interest that could arise from some of these practices.

The CSA considers a conflict of interest to be any circumstance where the interests of different parties, such as the interests of a client and those of a registrant, are inconsistent or divergent. The CSA considers the identification of, and response to, conflicts of interest to be fundamental regulatory obligations.

The survey was conducted in 2014 and focused on incentive practices in use for retail representatives at large financial institutions that serve clients in the Mutual Fund Dealers Association and Investment Industry Regulatory Organization of Canada channels, and high net worth clients in the portfolio manager channel.

The CSA may issue further guidance and/or proposed regulation related to compensation arrangements and incentive practices in light of its ongoing work to enhance the client-registrant relationship.

The notice can be found on CSA members’ websites.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

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For more information:

Kristen Rose
Ontario Securities Commission
416-593-2336

Nicole Tuncay
Alberta Securities Commission
403-297-4008

Alison Walker
British Columbia Securities Commission
604-899-6713

Sylvain Théberge
Autorité des marchés financiers
514-940-2176

Jason (Jay) Booth
Manitoba Securities Commission
204-945-1660

Andrew Nicholson
Financial and Consumer Services Commission
New Brunswick
506-658-3021

David Harrison
Nova Scotia Securities Commission
902-424-8586

Janice Callbeck
Office of the Superintendent of Securities
P.E.I.
902-368-6288

John O'Brien
Office of the Superintendent of Securities
Newfoundland and Labrador
709-729-4909

Rhonda Horte
Office of the Yukon Superintendent of Securities
867-667-5466

Jeff Mason
Nunavut Securities Office
867-975-6591

Tom Hall
Office of the Superintendent of Securities
Northwest Territories
867-767-9305

Shannon McMillan
Financial and Consumer Affairs
Authority of Saskatchewan
306-798-4160

 

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