CSA Targets Brokers to Raise Conduct Standards

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On April 28, 2016, the Canadian Securities Administrators (“CSA”) published CSA Consultation Paper 33-404 (“CP 33-404”) which proposes for discussion regulatory action to hold securities advisors, dealers and representatives (“Advisors”) to a higher standard in dealings with their clients.

The following areas of Advisor conduct were found to be deficient:

  1. Conflicts of interest, including
    1. firms and Advisers must have a reasonable basis for concluding the client fully understands the implications and consequences of the conflict
    2. responding to material conflicts in a way that prioritizes the interests of clients ahead of the interests of the firm and advisor, including guidance on impact of incentives
  2. Know Your Client, including that the KYC process results in a thorough understanding of the client, including the client’s risk profile
  3. Know Your Product, including understanding the impact of all fees, costs and charges connected to the products they recommend
  4. Determining investment suitability, including
    1. taking into account product costs and investment strategies
    2. considering the client’s target rate of return and whether the proposed investment meets the client’s needs
    3. considering not only the suitability of a trade but also of the portfolio on an ongoing basis
  5. Relationship Disclosure, including
    1. disclosure of the actual nature of the client-advisor relationship
    2. disclosure by firms in restricted registration categories or that only offer proprietary products that there may be securities products they don’t sell that may be more suitable
  6. Proficiency, including requiring
    1. increased proficiency on product costs and investment strategies that can impact investment outcomes
    2. continuing education
  7. Misleading Titles of Advisors; some Advisor titles exaggerate their proficiency or the services they actually provide.

CP 33-404 attempts to establish clear, practical, and enforceable requirements for Brokers to follow and for regulators and courts to enforce.

Comments must be submitted in writing by August 26, 2016 to any member Securities Commission of the CSA.

For more information, please contact any member of Clark Wilson’s Corporate Finance & Securities Group.