Client Focused Reforms – Proposed Guidance on Know-your-client and Suitability Determination

21-0111
Type: Rules Notice > Request for Comments
Rule connection:
IIROC Rules
Legacy DMR Rules
Distribute internally to:
Internal Audit
Institutional
Legal and Compliance
Retail
Senior Management
Training

Contact:

Madeleine A. Cooper
Policy Counsel, Member Regulation Policy
Telephone:
Email:
David Wright
Senior Counsel, Business Conduct Compliance
Telephone:
Email:

Executive Summary

We are publishing for comment proposed guidance (the Proposed Guidance) to assist Dealer Members (Dealers) in understanding and complying with IIROC’s Client Focused Reforms rule amendments relating to the know-your-client (KYC) and suitability determination requirements1 (the CFRs Amendments).

The Proposed Guidance would replace Notice 12-0109 - Know your client and suitability - Guidance, and would:

  • provide our interpretation of the CFRs Amendments and conform our guidance in all material respects to the Canadian Securities Administrators’ (CSA) Client Focused Reforms2, in particular the updated Companion Policy 31-103 CP – Registration Requirements, Exemptions and Ongoing Registrant Obligations,
  • clarify how our KYC requirements are not one-size-fits-all, and
  • make our guidance consistent with the IIROC Rules3, which will be effective on December 31, 2021.

We include the Proposed Guidance in Appendix 1. The changes to Notice 12-0109 - Know your client and suitability - Guidance were quite extensive, so we are not including a blackline comparing it to the Proposed Guidance as it would not be meaningful.   

  • 1. For more information on the CFRs Amendments relating to the KYC requirement see Notice 20-0239. For more information on the CFRs Amendments relating to the suitability determination requirement see Notice 20-0238.
  • 2. See CSA Notice entitled “Notice of Amendments to NI 31-103 and Companion Policy 31-103CP: Reforms to Enhance the Client-Registrant Relationships (Client Focused Reforms)”, dated October 3, 2019 and the CSA Relief Orders extending the effective dates of the CSA CFRs relating to conflicts of interest and relationship disclosure provisions, dated April 16, 2020.
  • 3. For more information on the IIROC Rules, see Notice 19-0144 and Notice 20-0079.
  1. Interpretation of the CFRs Amendments

In the Proposed Guidance, we discuss, among other things:

  • our expectations with respect to the KYC information Dealers must collect to meet our suitability determination requirements on an ongoing basis,
  • our interpretation of new terms, including:
    • personal circumstances,
    • financial circumstances,
    • risk profile, and
    • investment action,
  • how we expect Dealers can meet their enhanced suitability determination obligations, including how we interpret the phrase “put the client’s interest first”, and
  • what we expect Dealers to do if a client refuses to provide them with KYC information.

We also clarify that if we review a suitability determination made by a Dealer or Registered Individual4, we will do so without hindsight and on the basis of what a reasonable Dealer or Registered Individual would have done under the same circumstances.

  1.  KYC is not one-size-fits-all

To clarify certain issues raised by industry participants with us in the course of our work on supporting industry transformation5, we discuss:

  • how Dealers should focus on collecting what KYC information they need to meet IIROC requirements (including suitability determination) and other laws applicable to them,
  • examples of information Dealers may want to collect based on their business model, service offering and clients,
  • different methods of KYC information collection, including the use of questionnaires and online tools, and
  • the application of our suitability determination requirement to different business models.
  1.  Consistency with the IIROC Rules

To reflect the updated requirements under the IIROC Rules, we made changes to:

  • explain the difference between suitability determination and account appropriateness, and
  • update rule references to reflect the IIROC Rules.
  1. Attachments

Appendix 1 - Proposed Guidance – Know-your-client and suitability determination for retail clients

How to Submit Comments

Comments are requested on all aspects of the Proposed Guidance, including any matter which it does not specifically address. Comments on the Proposed Guidance should be in writing and delivered by August 20, 2021 to:

Member Regulation Policy
Investment Industry Regulatory Organization of Canada
Suite 2000
121 King Street West
Toronto, Ontario M5H 3T9
e-mail: [email protected]

Commentators should be aware that a copy of their comment letter will be made publicly available on the IIROC website at www.iiroc.ca.

Other Notices associated with this Consultation: