It appears that the long promised regulatory KYC, KYP and suitability audits have begun. Regulators have started reaching out to conduct focused compliance reviews to ensure compliance with the Client Focused Reform requirements that were enacted in 2021.
Considering how much work our readers have put into updating their systems to meet the Client Focused Reform requirements, this is a bit of a bad news/good news situation.
The bad news is that audits… are audits (we think they rank just behind drilling for cavities after Halloween as a favorite activity). The good news is that the information collected from these promised audits will result in targeted regulatory guidance. We believe that this guidance will give industry more certainly around the application of the Client Focused Reforms.
As some of our clients start the audit process, we have noted the following interesting items from the initial document request list:
- Requests for detailed records of training on each of i) Know-Your-Client; ii) Trusted Contact Persons; iii) Know-Your-Product; iv) suitability; and v) older and vulnerable clients;
- A list of each and every client directed trade from your trade blotter; and
- The registrant’s standard template to determine suitability at the time an investment action is taken.
The above is in addition to a number of other requests that include policies and procedures, due diligence records and account opening documentation. If you have any questions about the Client Focused Reforms or the audit process, please feel free to contact your usual lawyer at AUM Law.
October 31, 2023