Across Borders

Global Trends in Financial Services Regulation

Comparing ‘best practices’ globally illustrates broader understanding of fiduciaries, transparency, advisor proficiency

TORONTO, June 2, 2017 /CNW/ – As Canada’s financial sector regulators increasingly look abroad for examples of best practices, it has become important to understand the measures undertaken by regulators in other countries.

The Investment Funds Institute of Canada has produced a table that summarizes the approaches taken by financial services regulators around the world to improve investor protection and the reasons behind them.

The report, Global Regulatory Developments and Impacts (April 2017), focuses on key measures implemented in 16 countries1, including whether to: impose a statutory best interest or fiduciary duty on advisors, enhance transparency and disclosure, improve advisor proficiency, or ban embedded commissions.

The summary reveals considerable variations and inconsistencies in the types of products being regulated, with some jurisdictions only imposing restrictions on investment products, while others cover virtually all deposit, insurance, investment, mortgage and other commission-driven products.

Different jurisdictions also have approached the issue of potential conflicts of interest in different ways reflecting differing market characteristics and suggesting that there is no “silver bullet”. The analysis reveals a number of significant trends:

1. Few jurisdictions have banned embedded commissions

The option of banning embedded commissions has been evaluated by securities regulators in many jurisdictions. Only four (Australia, the Netherlands, the U.K. and South Africa), representing just 13% of total worldwide mutual fund assets of $39.4 trillion, have opted to proceed. In three of these countries, the decision to ban embedded fees was triggered by unique local circumstances. In both the U.K. and the Netherlands, a commission ban was introduced following a number of miss-selling scandals in the insurance and mortgage sectors. The Australian reforms were established in reaction to the collapse of three major financial firms.

Securities regulators and governments in seven countries have explicitly ruled out a total ban on embedded commissions (Denmark, Ireland, Sweden, Hong Kong, Germany, New Zealand and Singapore).

Enhanced disclosure initiatives have been implemented in every country reviewed except the U.S.

While Europe proposes to prohibit independent advisors from accepting commissions, the summary notes that the independent advice channel is one of the smallest channels in the European funds industry, representing just 11% of assets. The vast majority of fund sales are made through banks, where the prohibition does not apply.

2. Few jurisdictions have created a fiduciary or best interest standard

Australia is the only country that has adopted a broad statutory best interest standard for advisors in the sale of retail funds.

In the U.S., the Department of Labor (DOL) has adopted a rule that expands the definition of “fiduciary” under the Employee Retirement Income Security Act by requiring investment advisers who provide advice to retirement accounts—including broker-dealers and insurance agents—to abide by a fiduciary standard. Compliance with the rule is scheduled to come into effect on June 9, 2017.

3. Enhanced disclosure is the favored regulatory option in most jurisdictions

The majority of markets have made enhanced disclosure a key element of newly developed financial principles and policies. Enhanced disclosure initiatives have been implemented in every country reviewed except the U.S. The majority of disclosure has come in the form of detailed information on fees and commissions to improve transparency.

4. It is too early to evaluate success in the markets that have made sweeping changes

Most of the foreign regulatory changes are recent (or in the case of the DOL rule, and the European MiFID II rules, not yet in effect) with little independent research available to evaluate their impact. However, early evidence can serve as a guide to other regulators that are considering similar changes.

Two years after banning commissions, the U.K. Treasury and Financial Conduct Authority launched a Financial Advice Market Review (FAMR). The FAMR found that there have been major improvements to the quality of financial advice but that accessibility has been reduced such that advice is primarily available and affordable only for the more affluent.


1 The 16 markets studied in the report are: Australia, Canada, Denmark, European Union, Germany, Hong Kong, India, Ireland, Japan, Netherlands, New Zealand, Singapore, South Africa, Sweden, United Kingdom and United States.
SOURCE The Investment Funds Institute of Canada