Advocates express broad support, but urge some changes to better safeguard vulnerable investors
Investor groups have expressed general support for the Canadian Securities Administrators’ (CSA) proposed amendments to protect seniors and vulnerable investors, but are calling for tighter provisions in certain areas.
In a comment letter submitted last week, CARP agreed that firms must “make reasonable efforts to obtain the name and contact information of a trusted contact person (TCP) from their clients.” It backed a requirement for firms to describe under what circumstances they may disclose information about the client or the client’s account to the TCP.
Resources and materials should also be made available in large print and plain language for clients who wish to get more information, the group said. “A TCP should not be cited as the power of attorney, but rather a separate individual that the advisor can call upon if they suspect wrongdoing,” it added, echoing a view expressed separately by the Investment Industry Association of Canada (IIAC).
The group also supported proposals to allow firms to place a temporary hold on certain transactions when they have a reasonable belief that the client is being exploited, as well as a legal safe harbour provision for advisors and firms acting in good faith, in accordance with regulatory requirements, and with reasonable care in making disclosures to designated TCPs or imposing temporary holds.
In its own letter submitted early in the consultation, Kenmar Associates called for an expanded definition of “vulnerable investor” following the UK’s Financial Conduct Authority (FCA), which is “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
Whereas the CSA definition generally focuses on “illness, impairment, disability, or aging process limitation,” Kenmar called for additional groups to be considered, such as those with low or erratic income, those who have just immigrated into the country, and those going through bereavement or marital breakdown.
Supporting the use of a TCP, the group recommended the inclusion of a defined entry block in the NAAF as concrete proof that a firm offers clients the opportunity to name a TCP, which the clients may or may not take. Temporary holds, it added, should also apply as needed to purchases or sales of securities and transfers of cash or securities to another firm.
“We strongly recommend that the CSA require some basic incident record keeping by Firms as regards the use of TCP advisories and statistics on temporary holds,” the group said, arguing that the information would be vital in establishing public and regulatory policy as well as allow an objective assessment of the CSA proposal’s effectiveness.
Staff at firms should be properly trained to identify vulnerable investors, the group maintained, and it encouraged firms to maintain a tracking system and policies and procedures to define when cases may be escalated to external authorities.
For its part, the OSC’s Investor Advisory Panel (IAP) welcomed the CSA initiative, noting that much of the preliminary work behind the proposals was done by the Vulnerable Investor Task Force (VITF), a stakeholder council of investor advocacy groups, investment firms, and some regulatory agencies that was convened by the Investment Funds Institute of Canada (IFIC).
“[W]e expect the collaboration and practicality that marked the VITF’s efforts will help foster widespread buy-in for the CSA’s policy proposals from all constituencies in the investment community,” the IAP said, encouraging the CSA to use stakeholder councils when possible in the initial stages of future policy development efforts.
