Canadian Lawyer - sample

w w w . c a n a d i a n l a w y e r m a g . c o m M A Y 2 0 1 9 57 L E G A L R E P O R T But despite the view by proponents that a national regu- lator will be a more robust and concentrated force against financial criminals, Geller worries it may be a step back for investor protection if the provincial governments are able to harmonize their objectives to create it in the first place. "Between different participants, it's hard to see how that's going to move forward," he says, adding that the move to a country-wide regulatory scheme could downgrade con- sumer protection. The cost for industry of manufacturing investment products may go down, but the risk to consum- ers appears to have gone up because there may be "watering down" of standards in some provinces, he says. "And it also appears that any changes in the future are going to be held ransom to political issues that may not be as associated with the securities industry. That's because the final decision-makers will be the council of ministers, all political elected officials," he says. If agreement cannot be achieved among the provincial players in the pan-Canadian regulator — for example, they have disagreed over consumer initiatives in the past — "noth- ing can change," he says. Waitzer has been involved in the initiative to establish a pan-Canadian regulator since the 1970s and says public offi- cials are unlikely to make a federal regulator happen given the necessary expense of political capital it would require. If it did happen, the "theoretical benefit," he says, is not just harmonization of provincial frameworks but the integration of financial regulation with other major policy concerns. "It kind of makes sense to be dealing with the whole financial sector together, rather than carving out securities from banking and insurance," he says. "It kind of makes sense dealing with them as a national problem, because these are national issues." Because most Canadians are not investing to grow a for- tune but are saving for retirement, for a home and for their kids to go to university, financial regulation should be con- nected to education policy, health policy and social security, he says. Another recent regulatory development is a February rul- ing by the Supreme Court of Canada, which means lawyers now should be especially careful when they refer clients to financial advisors. In Salomon v. Matte-Thompson, Kenneth Salomon, a lawyer, referred his client to and gave an enthusi- astic endorsement of financial advisor Themis Papadopoulos and his unregistered firm Triglobal Capital Management Inc. Papadopoulos disappeared with $5 million of the cli- ent's money and Salomon and his firm, Sternthal Katznelson Montigny LLP, found themselves sued for breaching his duty to advise his client and placing himself in a conflict of interest. Salomon won the trial, but the Quebec Court of Appeal and then an eight-to-one Supreme Court found the lawyer to be liable for the losses. In Ontario, there are divergent objectives between a deregulation-intent provincial government and the securi- ties commission. In September 2018, the Canadian Securities Administrators, an umbrella group of provincial regula- tors including the OSC, announced its intention to ban certain embedded fees in mutual funds, which the regu- lators said have an inherent con- flict of interest and "give rise to investor protec- tion concerns." The CSA released the proposals for a 90-day comment period to gain feedback, but the day it was announced, Ontario Finance Minister and Chair of Cabinet Victor Fedeli publicly stated the government did not support these changes. In a statement delivered by his press secretary, Robert Gibson, Fedeli said he is "an advocate for choice for investors," meaning he wants a "fair and open capital market system." He said the embedded commissions "enabled Ontario families and investors to save towards retirement and other financial goals." The OSC has been pushing for the rules suggested by the CSA since when he was chairman, says Waitzer, adding that it is not a Liberal or Conservative issue but a difficult one for any government. "You have highly concentrated industry interest on one side and so-called retail investors on the other side, who don't have a strong voice," he says. What was surprising was not the government's opposition, he says, but the fact it announced this opposition on the day the comment period began, "which defeats the purpose of the comment process." "Given the present deregulation, buyer beware, businesses- first approach of the present Ontario government, further watering down of consumer protections are likely and no progress toward transparency or fairness is anticipated," Geller says. The regulatory situation in Ontario is "almost a little bit schizophrenic," Cowdery says. On the one hand, the OSC had initiated a project called "client-focused reforms" — an investor-protection, regulatory initiative that would have been "quite costly" to industry, she says. But pivoting to the opposite direction, it more recently launched what the OSC calls an "unprecedented consultation" aimed at cutting the "regulatory burden." Frazer says the consultation is for "identifying new actions we can take to save time and money for market participants, while maintaining investor protections." And having already received 65 comment letters from "industry associations, market participants and investors," the OSC hopes to "elimi- nate requirements that are outdated or unduly burdensome." "We're in a bit of a state right now of regulatory uncer- tainty. . . . It's an interesting time to be a lawyer in this in this field," she says. "The challenge for us as lawyers and for the businesses themselves and the regulators, to a certain extent, is how to tailor the regulation to fit the specific product." Rebecca Cowdery, Borden Ladner Gervais LLP

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