A notice released by the CSA outlines the obligations portfolio managers and EMDs have when getting to know their clients and the products they are selling them.
The CSA is asking portfolio managers, exempt market dealers and other registrants to step up their game when it comes to knowing their clients and the products they're selling them.
The notice, published Thursday, outlines know-your-client (KYC) and know-your-product (KYP) obligations that registrants have to their clients and serves as a self-assessment tool that can be used to improve a registrant's systems, while promoting compliance and managing risk.
“The know-your-client (KYC), know-your-product (KYP) and suitability obligations are among the most fundamental obligations owed by registrants to their clients and are cornerstones of the Canadian investor protection regime,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release. “We strongly encourage registrants to conduct a thorough review of their current practices in the context of the guidance published today in order to ensure compliance with these obligations.” (Continued on Page 2)
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Key points from the notice include:
The notice, published Thursday, outlines know-your-client (KYC) and know-your-product (KYP) obligations that registrants have to their clients and serves as a self-assessment tool that can be used to improve a registrant's systems, while promoting compliance and managing risk.
“The know-your-client (KYC), know-your-product (KYP) and suitability obligations are among the most fundamental obligations owed by registrants to their clients and are cornerstones of the Canadian investor protection regime,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release. “We strongly encourage registrants to conduct a thorough review of their current practices in the context of the guidance published today in order to ensure compliance with these obligations.” (Continued on Page 2)
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Key points from the notice include:
- KYC, KYP and suitability obligations are among the most fundamental obligations owed by registrants to their clients, and are cornerstones of our investor protection regime.
- CSA expect registrants to comply not only with the letter of the securities law requirements, but also with the spirit of the requirements. It expects market participants to conduct themselves in a manner that is consistent with the principles of securities regulation.
- KYC, KYP and suitability obligations are extensions of each registrant's general duty to deal fairly, honestly and in good faith with its clients.
- A meaningful suitability assessment is required. Assessing suitability is more than a mechanical fact-finding or "tick the box" exercise. It requires meaningful dialogue with the client to obtain a solid understanding of the client's investment needs and objectives, and to explain how a proposed investment strategy is suitable for the client in light of the client's investment needs and objectives.
- Failure to adequately know your client may lead to a distribution of securities by an issuer or dealer in breach of a prospectus exemption which is a serious breach of securities law. An illegal distribution may also provide an investor with a continuing right of action for rescission or damages against the issuer or dealer for non-delivery of a prospectus.
- Adequate documentation of the suitability process (including KYC) is critical to ensuring that a registrant is meeting its securities law obligations.
