Clients’ interests to take precedence in new CSA amendments

By The IJ Staff | October 04 2019 09:48AM

The Canadian Securities Administrators has moved to ensure that clients’ interests come first, publishing rule amendments to implement reforms that are expected to increase investor confidence.

In making the changes to the Client Focused Reforms, advisors must address material conflicts of interest in the best interest of their clients and make sure that clients’ interests come first when looking at the suitability of an investment. The reforms introduce new obligations for advisors especially when it comes to Know your Client (KYC) and Know your Product (KYP) obligations as well as disclosure.

“Taken together, these changes mean better protection for retail investors across Canada and a high and uniform standard of conduct for all registrants. Both investors and the industry as a whole will benefit from these new requirements,” said Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers.

All reforms to be in effect by end of 2021

The reforms will come into force across Canada on Dec. 31, 2019, provided all ministerial approvals are obtained. There will be a phased transition period, with the reforms relating to conflicts of interest and relationship disclosure provisions taking effect on Dec. 31, 2020, and the remaining changes taking effect on Dec. 31, 2021.

Both the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) will amend their respective member rules, policies and guidance to be consistent with the changes, the CSA said in a statement. 

IIROC, which along with the MFDA were active in helping to develop the reforms, welcomed the news.

IIROC said it will ensure that the new rules and guidance come into play without creating unnecessary duplication or regulatory burden on its members. IIROC plans to have its amendments in force to meet the CSA's phased transition period.

Goal of new provisions is overall investor protection

“We share a commitment to requiring all registrants to promote the best interests of clients and put clients' interests first,” IIROC said in a statement. “IIROC believes that the proper management of conflicts of interest is critical to improving public confidence in our capital markets and financial system – and to overall investor protection. The provisions set out in [the] reforms set out the fundamental obligations of registrants toward their clients, forming an essential pillar of the regulatory framework that protects Canadian investors.”

The Investment Funds Institute of Canada also welcomed the CSA rule amendments to implement the reforms, noting the CSA’s commitment to better align the interests of advisors and clients to improve investor outcomes through changes such as the Know Your Product and suitability provisions.

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