Client Focused Reforms
What is the Client Focused Reforms (or "CFRs)?
On October 3, 2019, the Canadian Securities Administrators (CSA) published amendments to NI 31-103 and its companion policy (the Client Focused Reforms).
The rules were phased in as follows:
(1) Conflicts of Interest changes took effect on June 30, 2021; and
(2) Remaining amendments took effect on December 31, 2021.
Summary of the changes
Conflicts of Interest (COIs):
- Firms must identify and resolve material COIs in the best interest of a client, avoid material conflicts that cannot be addressed in the best interest of the client, provide clients with disclosure of material conflicts.
- Registered individuals must promptly report material COI to the firm.
- The rules provide guidance on how to address certain COIs such as proprietary products, referral arrangements, and third party compensation.
- Definition of "referral fee" is broadened.
KYC:
- Expands the list of KYC information firms must currently collect to include items such as client's personal circumstances, client's risk tolerance and risk capacity.
- Clients must now confirm accuracy of KYC information.
- Introduce prescribed minimum timelines for updating KYC information - 12 months for managed accounts and 36 months in most other cases and if significant change.
KYP:
- Existing KYP obligations are codified and heightened and require that firms cannot make securities available unless they assess, approve and monitor securities for significant changes.
- Registered individuals must understand the securities they trade or recommend (including their costs), and only buy or recommend securities approved by their firms.
- Firms must provide registered individuals with access to the information about securities that have been assessed and approved.
- A firm's approval process can vary depending on the complexity and risk associated with the security.
- Confirmed that fund sub-advisors must comply with KYP rules for the funds they manage.
Suitability:
- Suitability requirement is enhanced and requires that for each trade or recommendation, the registered individual: (1) considers a list of prescribed factors such as client's KYC, registered individual's understanding of the security, impact of the action on the account including costs on client's returns, and what other alternatives are available; and (2) determines that action is in the best interests of the client.
- Prescribed triggers for when a suitability determination is required (e.g. there is a significant change in a security).
- Additional requirements for unsuitable client-directed trades.
Training:
- Firms must provide training to registered individuals on compliance with securities legislation including KYC, KYP, and suitability obligations and COI requirements.
- Training must be documented and ongoing.
Recordkeeping:
- Heightened recordkeeping requirements to demonstrate compliance with KYC, KYP, suitability, COI determinations, training and misleading communications.
Misleading statements:
- Registered individuals cannot have titles that are based on their sales activity (e.g. President's Club) or corporate officer titles unless board approved (e.g. VP)
- Firms cannot hold themselves out in a manner that could mislead about their proficiency, the nature of the relationship, or the products and services they offer.
CFR Compliance Check
Registrant Law's CFR Compliance Check™ program conducts an assessment of your firm's compliance with the Client Focused Reforms, by comparing your policies, procedures and documentation against the Client Focused Reform requirements, and providing suggestions on ways to improve your programs.
We can also help update your:
- policies & procedures manual
- client disclosures
- account opening documents
We also provide training on the client focused reforms, to help satisfy the CFR's training requirements.
Registrant Law has been helping clients with the Client Focused Reforms since inception. Nancy Mehrad, CEO & Founder of Registrant Law, is regularly asked to speak about the CFRs at industry events.
Contact Nancy Mehrad at nancy@registrantlaw.com to discuss.
Registrant Law is a boutique law firm in the Toronto area offering quality, practical and cost-effective securities law advice to portfolio managers, investment fund managers, and dealers. This article is an overview only and does not constitute legal advice. It is not intended to be a complete statement of the law or the proposed regulations. You should not act upon the information in this article without a thorough examination of the law or proposed regulations as applied to the facts of your situation. No part of this publication may be reproduced without the prior written permission of Registrant Law.
Registration Changes
On December 16, 2021, the CSA published final amendments to NI 33-109, including its related forms and Companion Policy, and consequential amendments to NI 31-103 and its Companion Policy (collectively, the Amendments).
The Amendments became effective June 6, 2022, and provide a helpful transition period (see below).
Firms should revisit their policies, procedures and practices on outside business activities (now called, "Outside Activities") and on updating registration information. Of note, firms must report business titles and professional designations used by individual registrants.
The Amendments introduce a number of changes to the registration information regime, including:
- Establishing a new reporting framework for reporting Outside Activities (the new term for OBAs)
- Implementing a new rule that will restrict the client base of Individual Registrants whose Outside Activities are positions of influence over certain clients (amendments to NI 31-103)
- Extending some deadlines to report changes in registration information
- Modifying or clarifying certain registration information requirements, such as reporting changes to percentage ownership in ownership charts, reporting a change in the annual expiry date of insurance policies, and reporting changes in litigation status
- Implementing a new rule to reduce multiple filings of the same information by corporate groups by allowing registered firms to delegate to an affiliated registered firm the requirement to notify the securities regulatory authority of changes in certain registration information where the reporting and filing firms have the same principal regulator
- Amending certain registration information requirements to provide greater clarity on the information asked for and reduce common errors
- Clarifying when certain Registration Forms should be used, such as which forms a permitted individual may be required to submit, to reduce the number of forms returned
- Implementing a new requirement to report the business titles and professional designations used by Individual Registrants
Of note:
- The CSA has prepared a helpful FAQ in Annex C of the Amendments.
- The Companion Policy to NI 31-103 provides a detailed discussion on "positions of influence" to help assess whether an individual meets the definition; and a discussion on policies, procedures and practices to monitor and supervise individuals' Outside Activities, including training.
Timing and transition period:
- The Amendments became effective on June 6, 2022.
- However, the CSA has said, there is no expectation that Individual Registrants would update their registration information on June 6th. Rather, the expectation is that Individual Registrants will update their registration information when there has been a change in registration information the individual previously filed. At that time, the individual would review and update any other registration information that is not complete or accurate in light of the Amendments.
- All Individual Registrants are required to update their information in NRD where it states “there is no response to this question” by the earlier of (i) the date the Individual Registrant reports a change to their registration information and (ii) June 6, 2023.
Registrant Law assists firms with the Registration Changes
Registrant Law can help update your:
- policies & procedures
- client disclosures
- NRD filings
We also provide training on the registration changes.
Contact Nancy Mehrad at nancy@registrantlaw.com to discuss.
Registrant Law is a boutique law firm in the Toronto area offering quality, practical and cost-effective securities law advice to portfolio managers, investment fund managers, and dealers. This article is an overview only and does not constitute legal advice. It is not intended to be a complete statement of the law or the proposed regulations. You should not act upon the information in this article without a thorough examination of the law or proposed regulations as applied to the facts of your situation. No part of this publication may be reproduced without the prior written permission of Registrant Law.