The Canadian Securities Administrators (CSA) announced July 15 that regulators are adopting amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, which require advisors to collect the name and contact information of a trusted contact person (TCP), along with the client’s written consent to contact the TCP in prescribed circumstances.
The amendments also clarify that registered firms and individuals are not prohibited from placing a temporary hold on the purchase or sale of a security on behalf of a client on the withdrawal or transfer of cash or securities from a client’s account when the individual or firm believes the client is being exploited or lacks the mental capacity to make financial decisions.
Among the changes to the rule initially published for comment in March 2020, the amendments state that clients are not required to identify a TCP in order to open an account, but adds that registrants will be required to take reasonable steps to obtain and update TCP information as part of the know your client (KYC) process. The amendments also create a regulatory framework for placing a temporary hold on transactions, withdrawals or transfers in circumstances where there is a reasonable belief that there is financial exploitation of a vulnerable client taking place, or where there are concerns about a client’s capacity to make decisions.
Advisors in a unique position to notice red flags
“Registrants can be in a unique position to notice red flags,” says Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers. “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 worked together with the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) to develop the amendments. The rules will apply to all registered firms, including members of IIROC and the MFDA, as both self-regulatory organizations (SROs) are expected to implement corresponding amendments to their own rules. Subject to the necessary approvals, the SRO rule amendments will come into effect on December 31, 2021.
“For clarity, there is no expectation that registrants take reasonable steps to collect TCP information from existing clients as of the effective date,” the CSA adds. “Rather, we would expect registrants to take reasonable steps to collect TCP information from existing clients the first time they update the client’s KYC information in accordance with section 13.2 after December 31, 2021.”