Canadian Securities Administrators (CSA) along with the Canadian Investment Regulatory Organization (CIRO) introduced Client Focused Reforms (CFR) in October 2019, which came into force in December 2021, with the goal of improving the client-registrant relationship. The CFR amendments were introduced to help align the interests of security advisers, dealers and representatives (registrants) with the interests of their clients, improve outcomes for clients and clarify the nature and characteristics of the client-registrant relationship.
The main areas of focus of the CFR include:
- Conflict of interest - Registrants must address material conflicts of interest in the best interest of the client. This includes identifying existing and reasonably foreseeable conflicts and having policies to address them.
- Know Your Client (KYC) - Enhancements to KYC obligations ensure that registrants gather complete and current information about their clients. This includes understanding the client's investment needs, financial circumstances, risk tolerance, time horizon, and investment objectives.
- Know Your Product (KYP) - Registrants must understand the securities they recommend.
- Suitability - Registrants must ensure that any investment action taken on behalf of a client is suitable for the client, based on KYC and KYP principles.
- Relationship disclosure - Clients must be provided with easy to understand and complete information about fees, charges, and other key aspects of their relationship with the registrant.
- Restrictions on referral arrangements - There are new requirements and restrictions related to referral arrangements to ensure that they are in the best interest of the client.
- Enhanced training - The reforms require that registrants have sufficient training to understand and comply with their new regulatory obligations.
In July 2023, the CSA and the CIRO published joint Staff Notice 31-363 Client Focused Reforms: Review of Registrants' Conflicts of Interest Practices and Additional Guidance (Notice).
The Notice summarized the findings of the CSA and CIRO's review of conflicts of interest practices at 172 firms across various registration categories. It provided additional staff guidance to registrants including suggested practices to comply with the conflicts of interest requirements under the CFR.
Deficiencies noted in the review include failure to identify one or more material conflicts of interest, inadequate controls to address certain material conflicts of interest and inadequate or outdated written policies and procedures relating to conflicts of interest.
The CSA and CIRO advised that they will conduct additional reviews through the remainder of 2023 to assess registrants' compliance with other obligations under the CFR, including the KYC, KYP and suitability requirements.
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