Our securities lawyers help you with Client Focused Reforms

What is the Client Focused Reforms (or "CFRs)?

Our securities lawyers can help you achieve regulatory compliance with the Client Focused Reforms.  Contact Nancy Mehrad at nancy@registrantlaw.com to find out more.

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:

• The Client Focused Reforms 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:

• The Client Focused Reforms codifies and heightens existing KYP obligations and requires 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.
• The Client Focused Reforms confirmed that fund sub-advisors must comply with KYP rules for the funds they manage.

Suitability:

• The Client Focused Reforms enhanced the suitability requirement and required 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.
• The Client Focused Reforms prescribed triggers for when a suitability determination is required (e.g. there is a significant change in a security).
• The Client Focused Reforms added additional requirements for unsuitable client-directed trades.

Training:

• The Client Focused Reforms provides that 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:

• The Client Focused Reforms heightened recordkeeping requirements to demonstrate compliance with KYC, KYP, suitability, COI determinations, training and misleading communications.

Misleading statements:

• The Client Focused Reforms provides that 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.