Canadian regulators issue findings on Client Focused Reforms sweeps

The Canadian Securities Administrators and the Canadian Investment Regulatory Organisation published in August 2023 a joint staff notice (the Notice) to summarise the findings of their review of firms’ conflicts of interest (COI) practices with respect to the Client Focused Reforms and to provide additional guidance to securities registrants. As a reminder, the Client Focused Reforms introduced significant enhancements to registrant obligations which came into force in two stages in 2021. 

The Notice discusses the most common findings and identifies applicable rules and guidance.  For example, the Notice:

• emphasises that disclosure alone is not sufficient to address a material COI and that controls must be used in conjunction with adequate disclosure.
• provides examples of specific COIs that were either not identified by firms as material or not adequately addressed by firms, and for each of these COIs, provides suggested controls.  For example, internal compensation arrangements and incentive practices, proprietary products, referral arrangements, and fees charged to clients.
• provides guidance on disclosures related to material COIs, emphasising that disclosure must cover all three required elements of disclosure required by the Client Focused Reforms (i.e. the nature of the conflict, the impact to the client, and how the conflict is being addressed).
• provides that 66% of the firms reviewed had inadequate policies and procedures relating to COIs, and provides guidance on what a firm’s COI policies should include.
• provides that most firms (83%) provided adequate training on COIs, but explains when training will NOT be considered adequate.
• provides guidance on recordkeeping requirements for COIs, including a conflicts matrix, evidence of periodic reviews of the matrix, and evidence of specific controls for COIs.

The Notice should be top-of-mind for securities registrants, as they review their existing policies and disclosures against the regulators’ findings.

This article is an overview only and does not constitute legal advice. It is not intended to be a complete statement of the law or the proposed regulations. You should not act upon the information in this article without a thorough examination of the law or proposed regulations as applied to the facts of your situation.

Nancy Mehrad