A recent targeted review by the Canadian Securities Administrators (CSA) of the relationship disclosure practices of 124 registered portfolio managers and exempt market dealers revealed a number of common deficiencies, and some best practices, as set out in CSA Staff Notice 31-334 available here.
The Notice was published shortly after the first effective date – July 15, 2013 – of the CSA's new client relationship disclosure and reporting requirements (CRM-2) amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations
(NI 31-103). For details of the CRM-2 amendments and applicable transition periods see BLG's Investment Management Bulletin Canadian Securities Administrators Finalize Rules Requiring Enhanced Account Level Disclosure by Registrants: Effective July 15, 2013 available here.
Elements of the CRM-2 amendments that came into effect on July 15, 2013 include the following enhancements to the prescribed relationship disclosure information (RDI) requirements
- clarification that RDI must be provided in writing, subject to certain exceptions
- more specific cost disclosure requirements including distinguishing between "operating charges" and "transaction charges"
- the requirement for a registrant to provide 60 days' prior written notice before imposing new or increased operating charges in respect of a client's account
Other key elements of CRM-2 will be phased in over a 3-year period including further enhancements to the RDI requirements.
In addition to the rule amendments, the Companion Policy to NI 31-103 contains expanded discussion on the CSA's expectations with respect to the manner in which the prescribed RDI requirements are to be implemented by registered firms, with particular emphasis on disclosure about investing in mutual funds.
In light of the new RDI requirements and the Notice, registrants should take the opportunity to review their RDI practices, and revise as necessary, to ensure they meet not only the prescribed RDI requirements but also the CSA's policy objectives behind the requirements – i.e. clear, relevant and understandable information that enables clients to make informed decisions.
RDI practices the CSA find acceptable include:
- providing the prescribed RDI in a number of different documents
- delivering RDI in person, by mail, by fax or electronically
- requiring clients to acknowledge receipt of RDI, including RDI updates
Areas of disclosure where deficiencies were most noted include:
- lack of written policies and procedures concerning the preparation, delivery and updating of RDI
- description of the nature or type of the client's account
- description of the risks that a client
- should consider
- description of the conflicts of interest a firm has
- description of the content and frequency of reporting by the firm
BLG's CRM-2 Road-Map for Compliance Service
The CRM-2 amendments generally, and the RDI enhancements specifically, are complex and represent significant new compliance obligations for firms, their representatives and executives. Conversations with your clients will be expected to change as will your account opening procedures and documentation, pre-trade procedures, trade confirmations and client account statements. To assist you with your compliance obligations, BLG is offering for a fixed fee – BLG's CRM-2 Road-Map for Compliance Service available here. BLG's compliance specialists have the depth of expertise and experience to help you develop a customized road-map for compliance, including developing compliance project plans, reviewing and revising account opening documentation and conducting training and continuing education sessions for advisors, representatives, compliance professionals and executives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
