Since the enhancements introduced as part of the Client Focused Reforms (CFR) came into force in 2021, the Canadian Securities Administrators (CSA) has been providing the industry with additional guidance by publishing an FAQ with a few updated responses to questions posed by the industry. The latest was released on April 29, 2022, and it provides some clarity to previous responses. The responses below relate to the regulators’ expectations regarding business titles and a few EMD-specific scenarios.

Question: I was appointed as an officer with my firm before CFR came into effect, can I still use my title?

Answer: The answer to this question depends on whether you are responsible for specific duties and functions within the firm that warrants a corporate level title, such as “Director” or “Vice-President”. If the title does not match your specific function within your firm or your level of responsibility, then use of the corporate title is prohibited. The CSA is concerned about public misunderstanding, when the public deals with someone that has a title that doesn’t reflect a registrant’s true role. The CSA have stated in previous communications that the use of titles that do not accurately portray the level of responsibility and the authority a registrant has within their firm could be confusing to the public (i.e., can this person bind the firm legally, or is the person part of the “mind and management” that makes decisions on behalf of the firm?). The CSA has made it clear that it does not matter if the client is sophisticated enough to qualify as a “permitted client” and that the use of a corporate level title that is not consistent with the registrant’s true role is prohibited.

The CSA will pay rapt attention to the titles and designations used by all registrants during their next wave of compliance reviews. To reinforce the importance the CSA has placed on the use of titles and designations, they have also published amendments to NI 33-109, that come into effect June 6, 2022, mandating that all business titles and professional designations used by registrants must be reported via the NRD.

Question: We have a referral arrangement in place with some clients, and they pay fees based on those arrangements. We disclose this to all our clients on our website, isn’t that enough?

No, the CSA expects full transparency. The CSA strongly believes that clients, especially those of a similar size, asset holdings and sophistication, receiving similar products and services should all be charged the same for the products and services provided. If there are referral arrangements or other considerations in place with some clients that reduce the fees those clients pay, then clients that do not benefit from such an arrangement must be made aware of this so that they can make an informed decision about the fees they pay versus the products and services provided to them. Full transparency allows for informed decisions; if the client is not happy, and the situation cannot be resolved in the client’s best interest, then the client can go elsewhere. A firm cannot claim that they have met the standard of care principle by simply disclosing that referral arrangements exist on their website. The CSA expects firms to be able to demonstrate that in carrying out their obligations they are treating all clients in similar circumstances fairly. This should be part of an on-going process whereby clients are duly informed of differing fees and charges in effect. The CSA will be specifically focused on differing fees charged for similar products and services rendered, and firms should be prepared to defend the difference during the next compliance review.

Question: My firm is an EMD, why do I have any suitability obligations when my firm’s interaction with these clients is limited?

No matter the relationship with a non-permitted client, whether it be transactional or an ongoing relationship, at the time that a service is provided (i.e., product or advice) the suitability requirement applies. The CSA believes that suitability cannot be waived simply because the nature of the relationship is brief, i.e., until the transaction closes, or the ink is dry.

Even prior to the April 2022 FAQ release, CSA regulators have always maintained that for transactional relationships, firms should always understand the requirements for each client prior to a trade being executed or a recommendation given. The EMD must know that client and must still gather the required information needed to make an informed suitability assessment of the client’s requirements prior to conducting and concluding the client’s business.

Once the transaction is over, the requirement to keep KYC information current on an annual basis would not apply, unless there is another service provided for that client within that period. Similarly, when it comes to changes to the nature of a product which is the subject of the sale, if product information changes prior or during a transaction, the EMD would be required to report this to the client. However, if the client is strictly a “one time client”, and there is a significant change to the product after the transaction concludes then the EMD would not be obligated to report to the “one-time client” regarding any changes to the product. It is very important to maintain evidence of the client relationship to support the nature of the relationship with the client.

May 31, 2022