Our colleagues at BLG have written a number of thought-provoking articles we thought might interest our readers, including the following:
For more information, please visit the BLG website.
September 30, 2021
AUM Law is a proud sponsor of the Fall Regulatory and Compliance Webcast organized by the Portfolio Management Association of Canada (PMAC) on October 21. Click here to register for the event. AUM Law’s very own Richard Roskies will participate as a speaker to discuss the top compliance challenges and priorities for the next 6-12 months. We hope to (virtually) see you there and don’t forget to drop into our online booth for a chat.
Our colleagues at BLG LLP have written a number of thought-provoking articles our readers may be interested in, including the following:
August 31, 2021
Please note our next bulletin publication will be in August. As always we appreciate any feedback so feel free to write us at email@example.com with your comments or to set up a video-call to discuss!
June 30, 2021
Our colleagues at Borden Ladner Gervais LLP publish a wealth of information every month. All are available on the BLG’s website, under Insights. Some selected Insights published in June that may be of interest to you include a primer on M&A in Canada, an update on privacy legislation in Ontario and an article and webinar on the future of Ontario’s new iGaming markets. For more information, please visit the following links:
June 30, 2021
As a follow-up to our article, All Together Now – OSC Joins DSC Ban, in the May 2021 AUM Law Bulletin, we can report that on June 23 the Canadian Securities Administrators (CSA) issued CSA Notice 31-360 Blanket Orders/Class Orders in respect of Transitional Relief Related to the Deferred Sales Charge Option in respect of Client Focused Reforms Enhanced Conflicts of Interest and Client First Suitability Provisions of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the Notice).
The Notice states that each of the CSA jurisdictions have decided to grant relief by way of blanket orders (the Blanket Orders) to address the issue of overlapping periods between the implementation of the enhanced conflicts of interest and “client first” suitability requirements in the Client Focused Reforms (CFRs) and the implementation of the ban on deferred sales charges (DSCs). The enhanced conflicts of interest provisions of the CFRs come into effect on June 30, 2021 and the client first suitability provisions of the CFRs come into effect on December 31, 2021 whereas the DSC ban only comes into effect on June 1, 2022.
In respect of a trade in a security of an investment fund that results in the payment of an upfront sales commission and that is subject to a DSC, the Blanket Orders will provide registrants with an exemption from the enhanced conflicts requirements from June 30, 2021 to June 1, 2022 and with an exemption from the client first suitability requirement from December 31, 2021 to June 1, 2022. Without the Blanket Orders, a firm selling investment funds with DSCs until the ban on June 1, 2022 could be in contravention of the CFR requirements regarding conflicts of interest and suitability.
If you have any questions about the Notice or Blanket Orders, please contact your usual lawyer at AUM Law.
June 30, 2021
On June 1, 2021, amendments to the regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act took effect. The amendments to the regulations were accompanied by revised and new FINTRAC guidance dated June 1, 2021. The amendments have the effect of closing gaps in the existing rules and addressing technological developments. Portfolio managers and exempt market dealers should review the revised guidance, consider if their policies and procedures should be updated and consider if their account opening forms should be revised.
By way of example only, the following are certain areas on which portfolio managers and exempt market dealers should focus attention. First, there is a new requirement to report a large virtual currency transaction, which should be reflected in a firm’s written policies and procedures. Second, the scope of the definitions of politically exposed persons and heads of international organizations was changed and there is a new requirement to gather the phone number of anyone uncovered during a third-party determination, which can both impact account opening forms. Finally, there is more prescriptive guidance in respect of beneficial ownership of entities and ongoing monitoring, which could warrant a change in how a firm conducts account monitoring.
June 30, 2021
On June 21, both IIROC and the MFDA published proposed guidance regarding suitability that relate to the CSA’s client-focused reforms. IIROC’s Proposed Guidance on Know-your-client and Suitability Determination, applicable to investment dealers and their representatives, would replace its existing KYC and suitability guidance in its entirety, and is intended to conform in all material respects to the CFRs. The new guidance details IIROC’s expectations on the collection of KYC information, its interpretation of certain terms, its expectations on how dealers can in fact “put the client’s interest first” and confirms that KYC requirements are not one-size fits all but depend on a member’s business model, service offerings and clients. The requisite KYC information is divided into “essential facts” about an order, client and account which dealers must collect as gatekeepers to the capital markets (such as client ID), and KYC information needed for the suitability determination obligation (e.g. financial circumstances, risk profile, investment knowledge and investment time horizon). IIROC states that dealers should apply the guidance and the suitability determination requirement to all investment products offered, and not just securities. With respect to specific dealer models, the guidance notes that while the KYC obligation is generally the same for all accounts, some limited exceptions exist for accounts such as OEO or DEA accounts. The notice also addresses when it would be acceptable to collect and maintain one set of KYC information for multiple accounts (spoiler alert: the account beneficial owner must be the identical individual for all the accounts, for starters) and when separate account applications would be required. The suitability determination obligation not only applies before taking or recommending an investment action for a retail client, but notes that the order type, trading strategy, fee structure and method of financing must also be suitable (and put the client’s interests first). In the draft guidance, IIROC clarifies that it will not review suitability determinations in hindsight, but rather on the basis of what a reasonable dealer or registered individual would have done in the same circumstances.
For mutual fund dealers, the MFDA has published CFR Conforming Changes to MSN-0069 (Know-Your-Client and Suitability). The new draft guidance has been combined with prior guidance to ensure that it reflects the business models of MFDA members while still being consistent with new CSA guidance. The staff notice sets out the various types of KYC information that must be collected such as personal circumstances, investment knowledge, financial circumstances, investment needs and objectives, investment time horizon and risk profile, and explains how each can support a suitability determination. The draft updates its description of the situations where certain KYC information can be collected jointly for joint accounts. The guidance also focuses on the timing of suitability determinations, including with respect to bulk account transfers, and the meaning of an “investment action”. The inputs into a suitability determination have been updated, to include items such as a comparison of KYC information to the characteristics of the investments in the accounts, as well as KYP information, concentration and liquidity factors, and the potential and actual impact of costs. The guidance also confirms that members must have policies and procedures for both branch and head office staff relating to the opening of new accounts and updating of KYC information, which can not be solely an administrative exercise but a review of the information’s adequacy, reasonableness, consistency and uniformity. Specific guidance is reiterated with respect to the MFDA’s suggestion for supervisory policies and procedures to flag specific concentration limits (at 25% of a client’s total investments with the member and an additional limit of 10% of a client’s total investable assets) relating to any one security, sector or industry. Other changes to MSN-0069 include its scope, to ensure it applies to all business conducted through the facilities of a member (e.g. non-securities related investment products), removal of KYP guidance (which is now addressed by another staff notice) and other content found in other compliance bulletins, and the removal of examples of a KYC and suitability review on the basis that the requirements are well understood by members. The changes to the staff notice all support the requirement to ensure that before a member or approved person opens an account, makes a recommendation or takes any other investment action for a client it is suitable for the client and puts the client’s interests first, as required by the CFRs.
Comments on both proposals are due on August 20. If you have any questions or wish to comment on the proposals, please reach out to your usual lawyer at AUM Law.
June 30, 2021
On May 19, CFA Institute published its Exposure Draft of ESG Disclosure Standards for Investment Products (the Exposure Draft). The draft is the second proposed version of standards (the Standards) on principles, requirements and recommendations in connection with the identification, comparison and presentation of investment products with environmental, social, and governance (ESG)-related features. The purpose of the Standards is to provide greater transparency and consistency in ESG-related disclosures, resulting in clearer communication regarding the ESG-related features of investment products. With the Exposure Draft, CFA Institute is seeking to elicit feedback from the public on the Standards.
CFA Institute noted that the recent substantial interest in investment products with ESG-related features has prompted a growing number of investment professionals and market participants to call for the development of a global standard to help investors understand which ESG-related investment products align with their needs and preferences. The Standards are meant to address that demand. CFA Institute stated that the Standards are suitable for all types of investment vehicles, all asset classes, all ESG strategies, and all markets.
The Exposure Draft notes that the CFA Institute Asset Manager Code, a voluntary principles-based code that outlines a firm’s ethical and professional responsibilities to clients, states that managers must, among other things, ensure that disclosures are truthful, accurate, complete, and understandable and are presented in a format that communicates the information effectively. The Standards support the Asset Manager Code. The Standards offer more detailed guidance about how to fulfill those requirements when aspects of an investment product’s strategy use ESG information or address ESG issues.
The Exposure Draft considers an ESG-related feature to be any aspect of an investment product’s strategy that uses ESG information or addresses ESG issues. The Standards are intended to be applied by investment managers regardless of how the investment products are named, labelled, or categorized. As well, the Exposure Draft proposes that investment managers have the flexibility to apply the Standard on a product-by-product basis rather than to all products, or at a firm level. The Exposure Draft contains disclosure requirements and recommendations that address certain elements of an investment product’s strategy including objectives, benchmarks, and sources and type of ESG information. The Exposure Draft also includes sample compliant presentations that include ESG information for certain types of investment products.
The Exposure Draft follows work done by CFA Institute’s ESG Working Group composed of industry professionals that explored concepts for a standard that would provide a consistent set of information and enough transparency to help investors understand and compare investment products with ESG-related features. The ESG Working Group released a Consultation Paper on the Development of the CFA Institute ESG Disclosure Standard for Investment Products (the Consultation Paper) in August 2020. Responses to the Consultation Paper confirmed the need for a set of standards and led to the Exposure Draft.
Comments on the Exposure Draft are due July 14, 2021 and can be submitted by any individual, group or organization. CFA Institute has also provided a list of questions for public comment on the Exposure Draft, guidelines for submitting feedback, and a draft response form. Comments received on the Exposure Draft will be considered for the final version of the Standards that are expected to be issued in November 2021.
If you have any questions about the Exposure Draft, please contact your usual lawyer at AUM Law.
June 30, 2021
On May 18, 2021, the securities regulatory authorities in Ontario, Manitoba, New Brunswick, Nova Scotia, Quebec and Saskatchewan (the “participating securities regulators”) published the underlying data used to prepare the sixth-year review of women on boards and in executive officer positions. The data was compiled from public documents filed on SEDAR for the 610 non-venture issuers who were included in the review sample. Previously, on March 10, 2021, the participating securities regulators published CSA Multilateral Staff Notice 58-312 summarizing the underlying data (the “Notice”). The Notice revealed the following:
- 20% of board seats were held by women;
- 79% of issuers had at least one woman on their board;
- 5% of issuers had a woman CEO;
- 15% of issuers had a woman CFO;
- 65% of issuers had at least one woman in an executive officer position; and
- 54% of issuers adopted a policy relating to the representation of women on their board.
The notice indicates that the Canadian Securities Administrators will continue to monitor trends in this area and will be considering its role in the broader diversity conversation. We look forward to following these discussions and important initiatives with interest.
May 31, 2021
Our friends at BLG invite you to scan information from their CFR Communication Series – Surging through 2021 to 2022, starting with a conflicts of interest summary and the new rules relating to titles and misleading communications that are coming into force on December 31, 2021. For more information, please visit the following links:
BLG is hosting a webinar on June 24, 2021 “Understanding the Green Regulatory Landscape” – please use this link to locate the registration details. For more information on regulatory activities in this space, see Canadian Securities Regulators Conduct a “Green Sweep” of ESG Products and Practices.
May 31, 2021
We are pleased to have been recognized once again by Lexology as the exclusive Legal Influencer for financial services commentary in Canada for the first quarter of 2021. These awards are designed to recognize law firms that provide subscribers with relevant, high-quality legal updates and are determined based on an algorithm that takes into account reader engagement with the law firm’s publications on Lexology. This is the seventh time that AUM Law has received this award.
May 31, 2021
On May 12, AUM Law’s Chris Tooley participated as a speaker at the Portfolio Management Association of Canada (PMAC) Spring Regulatory & Compliance Webcast on FINTRAC audits and Richard Roskies spoke on the topic of OSC audits. If you are interested in a copy of our Regulatory and FINTRAC Audits presentation, please contact us.
May 31, 2021
Richard Roskies and Chris Tooley will be participating as panelists at the Compliance Officers’ Network hosted by PMAC and Borden Ladner Gervais (BLG) on various topics related to client focused reforms and AML changes. This event will take place on June 2 for members of PMAC’s compliance officers network and will have other BLG speakers.
May 31, 2021
A number of new regulatory requirements regarding conflicts of interest, including referral arrangements, come into effect on June 30. These requirements are part of the Client Focused Reforms initiative and require new internal processes and disclosure to clients. If you have not started working on these changes, please contact your usual lawyer at AUM Law as soon as possible to discuss how we can assist you.
May 31, 2021