Rule changes will require registrants to take reasonable steps to obtain the name of a client's trusted contact person; allow for temporary account holds.
The Canadian Securities Administrators recently announced the adoption of rules intended to strengthen the protection of older and vulnerable investors. Specifically, amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) will require that registrants, as part of the "know your client" (KYC) process, take reasonable steps to obtain the name and contact information of a client's "trusted contact person", along with consent allowing the registrant to contact the trusted contact person if concerns arise with respect to the client's mental capacity or possible financial exploitation.
The Companion Policy to NI 31-103 will be amended to provide guidance in respect of warning signs of financial exploitation (which may include unexplained withdrawals, sudden reluctance to discuss financial matters, and sudden or unexplained changes to legal or financial documents such as a power of attorney or will), as well as warning signs of mental capacity issues (including memory loss, confusion with previously-understood basic concepts and difficulty with communication).
The amendments to NI 31-103 will also clarify that firms are permitted to place temporary holds on a client's accounts under certain circumstances involving financial exploitation of a vulnerable client or mental capacity issues. Where a temporary hold is placed, firms will have to document the reasons for doing so, provide notice of the hold and the reasons to the client, and within 30 days of placing the hold either revoke the hold or provide notice to the client regarding the decision and reasons for maintaining the hold. Where the temporary hold is maintained, the firm would have to provide subsequent notification to the client every 30 days.
Amendments to NI 31-103 to protect older and vulnerable clients were first proposed in March 2020, and the final version address comments received in response to the initial proposal. The final amendments also follow OSC Staff Notice 11-790 Protecting Aging Investors through Behavioural Insights, which was published in November 2020 and provides behavioural techniques firms can use to encourage older clients to provide trusted contact information.
Assuming Ministerial approvals are obtained, the amendments to NI 31-130 will come into force on December 31, 2021, which aligns with the implementation of the KYC provisions of IIROC's Client Focused Reforms.
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