Amendments affecting all registered firms, including IIROC and MFDA registrants, to come into force on December 31
After a lengthy consultation with multiple industry and public stakeholders, the Canadian Securities Administrators (CSA) has announced that it is adopting amendments to National Instrument 31-103 that would improve advisors’ ability to protect seniors and other vulnerable clients.
The final amendments include tools and guidance to help registrants address situations of diminished mental capacity or financial exploitation of their clients.
“The CSA has introduced client-first principles, enhanced Know Your Client requirements through Client Focused Reforms, and is now providing new tools and guidance for registrants concerned about their older and vulnerable clients,” Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers, said in a statement.
Under the amendments, registrants must take reasonable steps to obtain the name and contact information of a trusted contact person from individual clients, as well as written consent for the TCP to be contacted in specific circumstances.
The TCP does not have to fall within the age of maturity, though registrants should encourage clients to name one who is trusted, mature, and able to communicate and engage with the registrant in potentially difficult conversations about the client’s personal situation. The TCP requirement applies only for individual clients, but registrants may also request TCP information from non-individual clients that, for example, may be part of an individual’s personal investment plan.
“While clients are not required to identify a TCP in order to open an account, registrants will be required to take reasonable steps to obtain and update TCP information as part of the Know Your Client (KYC) process,” the CSA said.
To help registrants implement their TCP policies, the CSA referred to previous regulatory publications, including OSC Staff Notice 11-790: Protecting Aging Investors through Behavioural Insights and CSA Staff Notice 31-354: Suggested Practices for Engaging with Older or Vulnerable Clients.
Investor advocacy group Kenmar Associates is also encouraging investors to take advantage of their ability to name a TCP.
“Salespersons have been or will soon be trained to identify cases of diminished capacity,” the group said in an email to its network. “The TCP will form part of your KYC database. Similar laws are necessary in the banking sector as well.”
The amendments also establish a regulatory framework for registrants to place a temporary hold on transactions, withdrawals, or transfers in cases where they reasonably suspect the client is being exploited, or that the client’s mental capacity to make financial decisions is compromised.
“Registrants can be in a unique position to notice red flags because of the interactions and the knowledge they acquire through the client relationship,” Morisset said. “We expect the amendments will provide more robust investor protection, while also respecting client autonomy and responding to the needs and priorities of older and vulnerable investors.”
The CSA’s amendments will apply to all registered firms including members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA), which were involved in developing the amendments. The amendments will come into effect on December 31, before which IIROC and MFDA are expected to implement corresponding changes to their respective rules.
