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IFIC makes CSA submission regarding enhanced protections for vulnerable clients

By Kate McCaffery | July 21 2020 01:00PM

Photo: Freepik

The Investment Funds Institute of Canada (IFIC) filed a submission with the Canadian Securities Administrators (CSA), July 20, responding to the CSA’s request for comments on proposed amendments to National Instrument 31-103 and Companion Policy 31-103CP.

“We commend the CSA on this initiative to enhance investor protection by addressing the issues of financial exploitation and diminished mental capacity of older and vulnerable clients,” IFIC writes in its submission.

It proposes the CSA provide “safe harbour” for representatives and dealers who make use of proposed temporary hold provisions when they have concerns that a client does not have the mental capacity to make financial decisions.

“We believe that few in the industry will rely on the temporary hold provisions without protection from a lawsuit for having made the determination to impose a temporary hold in accordance with the terms set out in the consultation. Should there be a decline in the value of assets subject to the hold in the period between the imposition of the temporary hold and its removal, a client or proxy could institute litigation to recover the difference in the value of the assets,” they write.

“This is not a new concept,” they add. “We are aware of at least one national instrument that contains provisions that are intended to explicitly reduce potential liability.”

“We urge the CSA and provincial governments as required, to provide a safe harbour for representatives and firms who make a reasonable decision to impose a temporary hold.”

The submission also proposes that the CSA separate the process of collecting trusted contact person (TCP) information from the know-your-client process. “We agree that from a timing perspective it is best to collect the TCP information at the same time as collecting or updating the information currently required,” they write, “we think the TCP information should be separated from the existing know your client information,” as refusal by a client to provide TCP information could result in deficiency findings on an audit. Examining the CSA’s language, they also say a TCP should not necessarily need to be of the age of majority or in the client’s jurisdiction of residence as “there is no trading activity being conducted by the TCP which might require this geographic restriction.”

Finally, IFIC recommends the CSA develop, in partnership with elder law experts, a training course on financial exploitation and diminished mental capacity, which would be available to all industry participants.

“We commend the CSA on its efforts to provide regulatory guidance on issues of financial exploitation and diminished mental capacity of older and vulnerable clients,” IFIC’s president and CEO, Paul Bourque said in a statement released with IFIC’s submission to the CSA. “There is a growing need for support in these areas. Future guidance will assist our members in providing the best possible service to these clients.”

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