Regulators propose changes to combat financial exploitation of vulnerable clients

By Al Emid | March 05 2020 01:57PM

The Canadian Securities Administrators (CSA) has published for comment proposed amendments designed to outline how registrants can address situations involving diminished mental capacity or the potential financial exploitation of vulnerable clients.

"Due to the nature of their client relationships, registrants are in a position to be among the first to recognize signs of diminished mental capacity or financial exploitation of older or vulnerable clients," said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers in a March 5 statement. "The proposed amendments increase investor protection and provide certainty and clarity to firms on how to act in these situations, while preserving client autonomy."

Trusted Contact Person

Under the proposed amendments, registrants will be required to take reasonable steps to obtain the name and contact information of a Trusted Contact Person (TCP) from their clients, as well as the client's written consent to contact the TCP in specified circumstances. 

The proposed amendments will also “set out the steps that a registered firm must take if they place a temporary hold on a transaction due to a reasonable belief that a vulnerable client is being financially exploited, or that a client lacks mental capacity,” says the CSA, adding that the proposed amendments also clarify that Canadian securities legislation does not prevent a registered firm from placing temporary holds in circumstances where the firm has a reasonable belief of these concerns. 

The CSA developed the proposed amendments together with the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).

In a separate statement, IIROC says the proposed amendments strike an appropriate balance between a client's autonomy/confidentiality and the need for investor protection measures.

Better protection for clients

"We worked closely with the CSA to develop a consistent and streamlined approach that will enable the investment industry to better protect their clients if they suspect vulnerability," said Irene Winel, IIROC's Senior Vice-President, Member Regulation. "We know from our members that these types of measures will help them better protect their clients."

Lucy Becker, IIROC's Vice-President, Public Affairs and Member Education Services, added, "Our national research showed resounding support from Canadian investors for measures to safeguard vulnerable investors, including some seniors…The proposed tools would help to address some of the issues associated with Canada's aging population and vulnerable investors."

To find out how to submit comments, which are due on or before June 3, 2020, visit the CSA's Notice and Request for Comment.

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