Regulators publish joint guidance on conflicts of interest following review

A notable 66 per cent of the 172 firms reviewed by the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) had inadequate policies and procedures related to conflicts of interest. These findings, along with others related to the conflicts of interest policies and practices at the firms reviewed, are summarized in a joint staff notice from the two regulators, entitled Staff Notice 31-363 Client Focused Reforms: Review of Registrants’ Conflicts of Interest Practices and Additional Guidance.

According to the CSA and CIRO, the report “provides additional staff guidance to securities advisers, dealers, and representatives (registrants) including suggested practices to comply with the conflicts of interest requirements under the Client Focused Reforms,” they state. 

Deficiencies noted in the review included the failure to identify one or more material conflicts of interest – this was identified as a problem with 34 per cent of firms reviewed – and inadequate controls to address certain material conflicts of interest were identified in 28 per cent of cases, along with the above-mentioned inadequate or outdated policies and procedures.

“The CSA published the client focused reforms, which are relevant to all registrants, in October 2019. The reforms are based on the fundamental concept that clients' interests come first in their dealings with firms and individuals that are registered to give investment advice and trade in securities. They also require that registrants address material conflicts of interest in the best interest of their clients,” they state.

Going forward, the CSA and CIRO will conduct additional reviews focused on know-your-client and product suitability determination requirements which came into force on December 31, 2021. “We’ll have a better understanding of the level of compliance once our reviews are complete,” says Stan Magidson, CSA chair, as well as the chair and CEO of the Alberta Securities Commission. “If we observe that the high standards of conduct required by the client focused reforms are not achieved, we will consider our course of action at that time, such as considering additional rules.”