Category: Client-Focused Reforms (CFRs)
In early March, a number of registrants were selected by staff at the Ontario Securities Commission (OSC) to undergo a focused review on their conflict of interest policies and procedures. The OSC is searching for information on how firms have operationalized the amendments introduced through the Client Focused Reforms initiative, the first part of which came into force on June 30, 2021. We plan to keep you updated on guidance and commentary that comes out of this focused review but, in the interim, the information request itself and the questions it contains may provide some helpful guidance in reviewing your own conflicts regime:
- The OSC is going beyond confirming the existence of policies and procedures concerning conflicts of interest. They are looking for evidence of:
- employee training;
- client disclosure; and
- the creation and maintenance of an inventory/matrix that identify, assess, and address material conflicts.
- The OSC is specifically requesting information on conflicts that firms previously dealt with through disclosure and, post CFR implementation, now avoid outright. It is possible that the OSC may be looking to collect trend information to develop an industry standard on what conflicts should be avoided. We anticipate that staff will provide disclosure of any such trends in future guidance, and firms should look out for any such information if such guidance is released.
- The OSC questions appear to focus around the two main thematic conflicts of: i) proprietary conflicts (i.e. selling related products); and ii) compensation arrangements. Firms should be reviewing their approaches to these conflicts to ensure they are robust.
As always, if you wish to better understand the questions contained in the OSC information request or want to generally discuss your conflict of interest compliance regime, please contact your usual lawyer at AUM Law.
April 29, 2022
On April 21, the Investment Industry Regulatory Organization of Canada (IIROC) released another version of proposed amendments to its rules relating to the futures segregation and portability customer protection regime. As noted in our August 2021 bulletin, the changes are required as a result of expected changes to the rules of the Canadian Derivatives Clearing Corporation (CDCC) which themselves are changing to comply with international standards for the protection of clients in the event of a default by a clearing participant. The proposed amendments will make it easier to port client positions and the value of any posted collateral if there is such a default. The purpose of the amendments remains in part to reduce the linkages between a dealer’s futures business and securities business (i.e. which could otherwise force a dealer to use margin from other accounts to post the higher margin required under the new CDCC rules, which are based on a gross customer margin model). This republication aims to clarify the original amendments and increase the likelihood that client positions would be ported in a default situation.
Among other changes, the new proposed amendments would now require a dealer’s client to acknowledge the dealer’s porting disclosure document, which is to include disclosure on the risks, benefits, conditions and requirements of porting futures positions to another dealer member as well as a requirement for a client identification record. The acknowledgement requirement is intended to make clients aware of the need for them to pre-arrange a replacement clearing member. The proposed amendments include draft guidance as an appendix, with guidance on the information to be included in both the disclosure document and client identification record. IIROC is accepting comments on the proposed amendments until May 24, 2022.
IIROC also republished its Proposed Derivatives Rule Modernization, Stage 1 earlier in April. The purpose of the proposed rule changes remains to modernize and simplify IIROC’s derivatives related requirements such that there is a harmonized framework for securities and derivatives, whether they are listed or traded over-the-counter. Most the amendments have not changed from IIROC’s earlier proposal in November 2019, except to reflect updates to other IIROC rules (for example, changes that have been made to reflect the client-focused reforms). A few new changes have been proposed to address suggestions made in comment letters. For example, new risk factors will be added to a dealer’s risk disclosure statement, and dealer members offering order execution only accounts to trade OTC derivatives will now need to disclose the percentage of accounts that were profitable for clients for each of the 4 most recent quarters. In addition, dealer members will have a new requirement to have records indicating they have made an assessment of their clients’ qualifications as a hedger and an institutional client for purposes of the rules relating to derivatives trading. The comment period will end on June 13.
April 29, 2022
You just got a formal request from the Ontario Securities Commission (OSC) that they would like to come by for a visit, accompanied by a request for all the inner workings of your firm, what do you do?! First, respond. Second, get ready, any regulatory review will be much smoother if you are prepared. Below are a few frequently asked questions we receive from firms.
Question: Why Me? Why is the OSC Targeting Our Firm?
Answer: The OSC is required to review each registered firm on a regular basis. With more than 1000 registered firms, it is impossible to review all firms each year. To narrow their focus, one technique employed by the OSC is to send out risk assessment questionnaires (RAQ) to the industry, and firms are then risk ranked based on their responses. Selections are then made from each registration category. Registrants can also be subject to a targeted review or “sweep”, specific to an issue/trend in the industry. Over the last three years the OSC has focused their sweeps on issues such as the following: seniors/vulnerable investors, crypto currency use, continuous disclosures, marketing/sales practices, and derivatives use. Registrants could also be selected due to a complaint received, a referral from another regulatory body, or randomly.
Question: What Do They Typically Ask For and Do During a Compliance Review?
Answer: The OSC will send a written notice to the CCO requesting the firm’s Books and Records (lists per registration category are posted on the OSC website), for a specified period. The OSC will schedule a kick-off meeting with senior management. A typical OSC review can take six weeks to conclude (especially if the firm has branch offices) but in our experience can go on for even longer depending on the complexity of the organization. During the review the OSC will want to interview senior management and key employees, assess the firm’s compliance systems, disclosures, internal controls, marketing materials, and all policies and procedures, as well as any outstanding deficiencies noted during a previous review.
Question: What Happens After the Review?
Answer: Once the OSC has completed the assessment portion of the review, they will schedule an exit interview with senior management to go over their preliminary findings. The OSC typically takes about three to five weeks to send their final written report. If they have identified significant deficiencies during their review, they will inform the firm immediately. There will usually be a deficiency report advising the firm of the deficiencies that have to be addressed, and the time within which the firm must either correct and/or correct and send proof of the required changes. If the deficiency is significant (i.e. a material breach of securities law) then OSC staff can take stricter action, such as impose terms and conditions on the firm’s registration or activities, refer the matter to the Enforcement Branch, or even suspend or revoke the registration of the firm or impacted individual.
Question: What Are the Top Deficiencies Identified by the OSC?
While each audit and audit results are unique, firms that require some remediation of their compliance activities could expect at least some of the following deficiencies to be noted on an audit report:
Compliance Systems and Supervision
- Out of date, or inadequate compliance manuals/policies and procedures;
- Inadequate disclosures, no or insufficient internal mechanisms to report and address conflicts of interest;
- Misleading or inaccurate statements in marketing materials and inappropriate sales practices, or materials lacking appropriate approvals from management; and
- Insufficient oversight over service providers.
Registration and Business Operations
- Inadequate monitoring for insider trading and early warning reporting (e.g. with respect to personal trading monitoring); and
- Client confusion regarding services provided by the firm and services provided by a referral agent.
Know Your Client (KYC), Know Your Product (KYP) & Suitability
- Missing or inadequate collection and documentation of KYC information and financial circumstances resulting in the inability to truly assess suitability;
- Missing proof that client is an accredited investor to qualify for the accredited investor prospectus exemption (if applicable);
- Missing or incomplete Investment Policy Statement (IPS) or Investment Management Agreement (IMA) or an incomplete suitability assessment;
- Missing or inadequate relationship disclosure information (RDI); and
- Missing or inadequate disclosure to clients in respect of referral arrangements.
AUM Law has extensive experience helping firms prepare for and respond to regulatory audits. Please contact your usual lawyer at AUM Law for more information.
April 29, 2022
Earlier in March, the Investment Industry Regulatory Organization of Canada (IIROC) released its 2021/2022 Compliance Priorities Report, outlining its past actions and current issues that are impacting IIROC-regulated firms that should be a compliance focus for those firms in 2022. The report notes that these initiatives, including those related to cybersecurity, client focused reform sweeps and proficiency requirement updates, are in the context of the ongoing SRO consolidation with the Mutual Fund Dealers Association of Canada (MFDA), which is currently scheduled to occur by year-end.
In connection with the work of the Financial and Operations Compliance group (FinOps), the report noted that cybersecurity remains a key risk for all dealer firms and thus FinOps looks at how such risks are managed during regularly scheduled reviews. The importance of self-assessments is mentioned, as is the fact that IIROC has engaged Deloitte to create a cybersecurity self-assessment checklist for firms to assess their own risk and identify potential improvements. The reliance on technology and associated risks has also been incorporated into the FinOps risk model. It is noted that FinOps intends to review supply chain risks, and systemically important vendors to the industry, with a view to identifying and managing these risks.
The report indicates that IIROC, together with the Canadian Securities Administrators (CSA) and the MFDA, is conducting reviews to look for compliance with the new conflict of interest requirements that were enacted in connection with the client focused reforms back in June 2021. The objective of the review is stated to be to determine if dealers have met the “spirit” of the new rules and implemented controls to address material conflicts in the best interest of clients (rather than disclosure alone, which is not sufficient). IIROC (and we suspect, the CSA), will focus next on KYC and suitability requirements. IIROC, along with the CSA, has a prohibition on using a corporate officer title unless a person has been appointed as an officer pursuant to corporate law. In its reviews, the Business Conduct Compliance (BCC) group of IIROC will also look at the substance and nature of the relationship between an Approved Person and the dealer where the person uses a corporate officer title in dealing with clients to ensure it is appropriate – such as whether the individual is really part of the mind and management of the dealer. In its exams, BCC staff will also assess compliance with the amended rules regarding older and vulnerable clients, which are intended to address issues of diminished mental capacity and/or financial exploitation of clients.
Dealers are required to have a supervisory framework to ensure management of all significant areas of risk within a firm. IIROC has existing guidance to help dealers with these policies and procedures, and it is expected to publish additional guidance regarding permitted delegation of the responsibilities of executives to manage these risks shortly. IIROC will also be focusing in on order-execution-only firms and any advertising done through social media platforms.
Finally, the report notes that IIROC is working on amendments to some of the registration and proficiency provisions within the IIROC rules, to clarify expectations. In addition, while draft competency profiles have been released for Directors, Executives, UDPs, CCOs and CFOs, IIROC is continuing to work on all other approved person categories (i.e. supervisors, associate PMs, PMs and traders). There is a lot for dealers to focus on in 2022, in addition to any forthcoming changes in advance of the SRO consolidation.
March 31, 2022
At a Glance: Earlier this month, the Ontario Divisional Court decision in Boal v. International Capital Management Inc. provided some clarity on the scope and nature of the duty owed by financial advisors to their clients, and their obligations under the client focused reforms (CFRs), introduced by the Canadian Securities Administrators (CSA) in 2019 (and subsequently integrated into the rules and policies of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada) (IIROC and MFDA, respectively). Specifically, the court re-affirmed that a fiduciary duty between financial advisors and their clients is ad hoc, established on an individual, case-by-case basis, and is dependent on a multi-factorial analysis as required by common law. As such, a fiduciary duty does not arise solely due to regulatory standards and professional rules which require advisors to act in the “best interest” of the client.
Background: The plaintiff, a former client of the defendant, a registered member of the MFDA, commenced a class action against the investment advisor claiming breach of fiduciary duty, knowing receipt and knowing assistance, stemming from losses sustained from an investment in promissory notes. The certification judge denied the motion, holding that the Statement of Claim did not establish the material facts necessary to support a finding of a fiduciary relationship between the class members and the financial advisor. Further, it would not be possible to establish an ad hoc fiduciary relationship with the class, unless it could be shown on an individual, case-by-case examination that each individual of the class evidenced the traditional common law hallmarks of a fiduciary relationship. The plaintiff then appealed the decision to the Divisional Court.
Issue: On appeal, the primary issue was whether an ad hoc fiduciary relationship could be established between the class members and the defendant based on the “best interest” regulatory standard enshrined in the rules, regulations and by-laws of the MFDA and the FP Canada Standards Council Code of Ethics (professional standards).
Decision: In a 2 to 1 decision, the majority of the Divisional Court held that because ad hoc fiduciary relationships arise based on the specific circumstances of a given relationship, a fiduciary duty between a financial advisor and a client will only be found where the multi-factor test stated in the Ontario Court of Appeal decision of Hunt v. TD Securities Inc. (taken from the Supreme Court of Canada test in Hodgkinson v. Simms) is satisfied, on an individual basis. The Hunt test considered five factors: a) the client’s degree of vulnerability; b) the degree of trust between the client and advisor; c) the history of reliance and any representations of special skills and knowledge by the advisor to the client; d) the extent of the advisor’s discretion over the client’s account; e) and any professional rules or codes of conduct which inform the duty owed by the advisor and the standard of care. As such, the majority found that a fiduciary duty could not be established on a class wide basis as strictly the result of standards imposed by regulatory rules and regulations which require advisors to act in the “best interest” of the client.
The key distinction between the dissent and majority opinions centered around the weight afforded to the fifth factor (professional rules or codes of conduct). Sachs J. in dissent, placed a strong emphasis on a self-regulating body to set the standard for their profession, relying on the remark in Hodgkinson, that “It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself.” While in the majority’s view, the dissent had reduced the five-factor analysis to a “’one-size-fits-all’ duty that would apply to every investor, regardless of discretionary authority over the account, or sophistication of the client.” The majority also took the view that imposing a fiduciary duty in the absence of the other four indicia would negatively impact both investors and capital markets.
Additional points and takeaways: It is important to note that the dissent of Sachs J. opens the door for the plaintiff to appeal the Divisional Court’s decision to the Ontario Court of Appeal. Even so, parties should keep in mind, as the majority notes, that even if the “best interest” regulatory standard does not impart a fiduciary relationship between financial advisors and their clients, “duties of good faith, care, confidentiality and disclosure apply to a variety of non-fiduciaries as well.”
-  Hunt v. TD Securities Inc. (2003), 66 OR (3d) 481 (CA), at para 40.
-  Hodgkinson v. Simms,  3 SCR 377 at 425.
-  Boal v. International Capital Management Inc., 2022 ONSC 1280 at para 68.
-  Ibid at para 70.
March 31, 2022
If not already completed, firms with a December year end should turn their attention to the required annual report from the Chief Compliance Officer. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations requires that a CCO submit an annual report to a registered firm’s board of directors (or individuals acting in a similar capacity if there is no board) for the purpose of assessing compliance by the firm and individuals with securities legislation.
Staff at the Ontario Securities Commission have provided guidance in compliance audits and annual reports with respect to their expectations for these reports, including in OSC Staff Notice 33-751 Summary Report for Dealers, Advisers and Investment Fund Managers, and this guidance should be reviewed to help ensure the report includes all expected commentary. While each report must be individually prepared based on the events of the past year, they should typically include items such as:
- compliance highlights;
- the operation of a firm’s policies and procedures;
- any changes made to a firm’s compliance infrastructure or individual registrations; and
- a description of any compliance issues, including with respect to any reports made, complaints filed and a firm’s personal trading program.
For the year ended December 31, 2021, we would expect that such reports would include a description of changes made to a firm’s policies and procedures to implement the client focused reforms, as well as the new expectations around vulnerable clients and trusted contact persons. AUM Law frequently helps firms with these reports, and we would be pleased to assist.
March 31, 2022
Answer: As set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103), as a registrant you are now required to follow all the new KYC and suitability requirements. Section 13.3(2) of NI 31-103 provides, among other things, that a registrant must take reasonable steps to ensure it has sufficient information about its clients regarding certain factors to enable it to meet its suitability determination, including the client’s personal and financial circumstances, and the client’s investment needs, objectives, investment knowledge, risk profile and investment time horizon. In addition, Section 13.2(4) of NI 31-103 specifically provides that you must “take reasonable steps” to keep the KYC information current, including updating the information within a reasonable time after becoming aware of a significant change in the client’s information that you have in your files.
As noted in the CSA’s FAQs on the Client Focused Reforms, CSA staff have stated that they expect registrants to schedule KYC updates in accordance with the triggers set out in Section 13.2 (4.1). CSA staff specifically note that as a registrant, you must use your professional judgement, when interacting with clients, to determine if you need to ask about any significant changes to the client’s circumstances and then update the KYC information accordingly. With respect to how often you need to reach out to clients (assuming they do not reach out to you to let you know of a significant change), the expectation is that you will periodically confirm with clients that the information you have is current. One suggestion provided is that you consider having more frequent interactions at set intervals; again, all depending on your relationships and mandate with your clients. In all cases, your policies and procedures must demonstrate that you have taken reasonable steps to keep KYC information up to date. Your firm must also provide training to all registered individuals on compliance with securities legislation, including the KYC obligations.
March 31, 2022
A number of CSA jurisdictions have begun their promised registrant reviews relating to the client-focused reforms. These jurisdictions have sent out very extensive questionnaires relating specifically to the conflicts of interest provisions that came into force at the end of June, 2021. The questions include those relating to the formation of a firm’s conflicts inventory, inquiries about fee arrangements and proprietary products, and ask for documentation and proof of changes made to policies and procedures to demonstrate compliance with the new requirements. We suspect the result of these reviews will result in further guidance to the industry on baseline regulatory expectations.
Registered firms with clients in Québec should also soon be hearing from the AMF, if they haven’t already. The AMF is currently conducting a normal course focused review with a number of questions being asked of firms that do not have a physical presence in Québec. The stated purpose of the review is to get a better understanding of a firm’s activities in the province.
In addition to regulatory reviews, the OSC has begun the process of individually reminding registrants of the 2022 risk assessment questionnaire (RAQ), which will be sent out in early May and is due by mid June. The 2022 RAQ will ask about information for the period ended December 31, 2021. While the questions are expected to be substantially similar to those in the 2020 RAQ and some fields that relate to information unlikely to change from year to year will be pre-populated, significant time and resources will still be required to complete all sections of the questionnaire fully. The OSC email includes a link to a copy of the 2020 questions in order to help get firms started on collecting the necessary information. The OSC will also be providing a list of FAQs and user guides for each section of the questionnaire and is setting up a webinar as part of its Registrant Outreach to be held in May. We would urge clients to begin thinking about and planning for this project. As the form requires certification from a firm’s UDP, it is important to leave enough time for the c to review the form prior to submission.
As a reminder, firms in Ontario that are registered as investment fund managers must also complete the OSC’s Investment Fund Survey (which has already been sent out) by April 29th.
We are assisting a number of clients with responding to these reviews, and we would be pleased to answer your questions about this or any other regulatory sweeps occurring.
February 28, 2022
Answer: The regulatory guidance on this topic is similar to the answer above; registered firms can perform a suitability determination at a household level, but only if they also separately make an account-level suitability determination. In other words, the household-level suitability determination must be supplemental to the account-level determinations.
From a compliance perspective, before registered firms can perform supplementary suitability determinations at the household level:
- the household members should have sufficient alignment of investment objectives to benefit from a household account suitability assessment,
- each individual who is not a minor within the household should be fully informed of the purpose of a household suitability determination and how it differs from account-level suitability determinations, and
- each individual who is not a minor within the household should agree to the household suitability determination.
These and many more topics are covered in the CSA’s Client Focused Reforms FAQs.
February 28, 2022
Related to OSC Staff Notice 33-753 OSC Consultation on Tied Selling and Other Anti-Competitive Practices in the Capital Markets, on December 7 the Ontario Securities Commission (the OSC) commenced a desk review, also known as the OSC Product Review Sweep (the Sweep), of many large Ontario-based financial institutions and some independent firms. The Sweep was initiated following a Letter of Direction from the Honourable Peter Bethlenfalvy, Minister of Finance of Ontario, to the Chair of the OSC. The Letter of Direction expressed concerns about some of Ontario’s largest financial institutions halting sales of third-party investment products. The letter noted that some financial institutions had signaled that the measures to restrict shelf space were in response to the Client Focused Reforms.
In response to the Letter of Direction, the OSC commenced the Sweep and requested detailed information from the targeted firms by January 6, 2022. The information request included questions on general business information about the firm, related products, third-party products, shelf composition, and managed solutions. The OSC also provided a detailed template of information to be completed with the review. The OSC plans to incorporate the information in its report to the Minister by February 28.
January 31, 2022
In this bulletin:
- Ontario’s New Draft Capital Markets Act – Topics of Interest to Registrants
- Déjà vu – Titles, Titles and More Titles – Proposed Amendments to Draft FSRA Guidance
In Brief: FSRA Consults on Consumer Advisory Panel ▪ Independent Evaluation of OBSI ▪ Canadian Companies Appointing More Women to Boards and Executive Roles ▪ CFA Institute Creates Voluntary ESG Disclosure Standards for Investment Products▪ Timeline for the New Self-Regulatory Framework ▪ OSC Releases Proposed Statement of Priorities
Important Reminders: Pre-Registration Activities and Titles – Watch those Names ▪ Check Your Titles Prior to Dec 31, 2021 ▪ Capital Markets Participation Fee – December 1 Filing Deadline ▪ Exempt Trade Reports for Funds Due in January – Don’t Delay; Prepare to File Today
BLG’s Resource Corner
Click the link to access a PDF of our full, monthly bulletin summarizing these recent developments. >> Monthly Bulletin | Winter is Here Edition | November 2021
As previously mentioned in our bulletins, as part of the client-focused reforms to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, a new prohibition on misleading communications will apply as of the end of the year. In particular, a registered individual who interacts with clients must not use a corporate officer title, unless their firm has appointed that registered individual to that corporate office pursuant to applicable corporate law. Our clients have been approaching this new prohibition in a number of different ways, one of which is considering alternative titles (such as primary, manager or head of) for use by individuals who can not be appointed as corporate officers.
A friendly reminder that a number of housekeeping items should be addressed as part of this change:
- Updates to websites, internal policy documents and business cards; and
- Regulatory filings. Specifically, any title changes may require the filing of Form 33-109F5 Change of Registration Information to notify the applicable regulators of a change in information filed on your organizational chart (to the extent current titles are listed). Additionally, individuals with new titles may want to review Item 10 of their existing Form 33-109F4 to ensure their listed job title is accurate.
November 30, 2021
On September 2, 2021, the Ontario Securities Commission (OSC) published its 2021 Annual Report – Promoting Confidence, Fostering Innovation (Report), along with its financial statements for the year ended March 31, 2021 and the accompanying MD&A. The Report highlights a busy year at the OSC.
There were 1,319 registered firms and 67,758 registered individuals in Ontario as noted in the Report. In the past year, the OSC reviewed 645 public company prospectuses, up more than 67% from the previous fiscal year, and a further 280 prospectuses from investment funds and structured products. The OSC Enforcement Branch assessed a record 807 cases and 164 tips were received under the Whistleblower Program. It issued 42 administrative sanctions, up from 22 in the previous fiscal year, handing down $11.1 million in monetary sanctions. The Quasi-criminal Serious Offences Team completed 11 cases, with two charges laid against 4 respondents.
The OSC continues to implement the Ontario government’s five-point capital markets plan focused on strengthening investment in Ontario, promoting competition, and facilitating innovation. In addition, following recommendations of the Capital Markets Modernization Taskforce, the Ontario government announced in its spring budget that it plans to move forward with legislative amendments to expand the mandate of the OSC and modernize its governance structure. The OSC is working to embed the new mandates to promote competition and foster capital formation into its work and is moving forward with key structure changes, including greater separation of its Tribunal under the OSC umbrella.
The Report included a 2020-2021 Report Card setting out how the OSC has fulfilled the obligations set out in its 2020-2021 OSC Statement of Priorities. The OSC sought to promote confidence in Ontario’s capital markets, reduce regulatory burden, facilitate financial innovation, and strengthen its organizational foundation. In furtherance of these goals, the Client Focused Reforms (CFRs) remain on schedule for implementation by the end of 2021. The OSC views these as fundamental reforms that provide retail investors with greater confidence that they are receiving investment products that are right for them and advice that puts their interests first.
Additionally, the OSC adopted final rules that prohibit order-execution-only (OEO) dealers from receiving trailing commissions from fund organizations where advice is not provided. Ontario joined other CSA jurisdictions to harmonize the ban on deferred sales charges taking effect on June 1, 2022.
The Report notes that activity in the crypto asset sector has accelerated, with global crypto asset market capitalization doubling from January to April 2021 to reach US$2 trillion. Along with its Canadian Securities Administrators partners and the Investment Industry Regulatory Organization of Canada (IIROC), the OSC announced steps that crypto asset trading platforms must take to comply with securities legislation. The OSC issued a deadline for platforms operating in Ontario to engage with it to start compliance discussions or face potential enforcement action.
Furthermore, the Report notes that the OSC has completed 62 of the initiatives set out in its 2019 report on reducing regulatory burden, with more than 20 on track to be completed by the end of 2021. The Report states that the OSC is embedding a culture of burden reduction across the OSC, which includes providing a detailed cost-benefit analysis of proposed rules, ten of which were published this year. In addition, following a comprehensive review of best practices in leading jurisdictions, the OSC published an updated service commitment that provides investors, registrants, and other market participants with added transparency on the standards and timelines to expect when interacting with the OSC.
With respect to facilitating financial innovation, the Report notes that the Office of Economic Growth and Innovation, first announced in 2019, is now fully staffed, including experts in capital raising and new financial intermediation technologies, allowing the OSC to support and encourage innovative business models. The OSC has also established a new Digital Solutions Branch (DSB) to lead the OSC’s data-driven transformation by building the data capabilities needed to support all aspects of its work.
If you would like to discuss the items highlighted in this summary or any aspect of the Report and its relevance to your business, please do not hesitate to contact us.
September 30, 2021
On September 13, 2021, the Canadian Securities Administrators (CSA) announced the launch of its newly refreshed website as part of its continued efforts to streamline and enhance the information and resources available to market participants. The website is intended to be easier to navigate, be mobile friendly and includes an expanded search feature. In addition, the site has been optimized to meet web accessibility guidelines and lays the groundwork needed for the transition of a number of CSA databases to SEDAR+.
The refreshed website contains a helpful Resources section under which one can easily find useful information including rules and policies, frequently asked questions regarding the client focused reforms as well as the CSA Guide to Monthly Suppression of Terrorism and Canadian Sanctions Reporting.
September 30, 2021
Answer: While a firm is not required to approve securities that are held in an account as a result of a client-directed trade if they do not otherwise make those securities available to clients, the firm is required to: (a) inform the client of the basis for the firm’s determination that the trade is not suitable for the client, (b) recommend to the client an alternative action that would be suitable for the client, and (c) receive recorded confirmation of the client’s instruction to proceed with the trade despite the determination that has been made by the firm.
In respect to suitability, the Canadian Securities Administrators (CSA) have stated that all securities in a client’s account are subject to the registrant’s obligation to make a suitability determination, including required periodic suitability determinations. This is subject to a permitted client’s ability to waive suitability. Otherwise, a firm cannot get an explicit acknowledgement in writing in respect of a client-directed trade that the investment will not be considered to be part of the account and will not be part of any suitability assessment.
In respect to the know-your-product obligation, the CSA have stated that they expect registrants to take reasonable steps to assess and understand securities that form part of an account as a result of a client-directed trade, within a reasonable time after the trade, and, specifically with respect to registered individuals, that they will have an understanding of all securities held in a client’s account, including those that are held as a result of a client-directed trade in order to make the required periodic suitability determination. The CSA have acknowledged that the depth of the understanding required may vary depending on the nature of the securities, the client’s circumstances and investment objectives, and the relationship between the client and the registrant. Lastly, it should be noted that even where a permitted client has waived suitability, the CSA have provided that they still expect firms and their registered individuals to have an understanding of the securities in those situations.
September 30, 2021