To that end, IIROC will provide clarity on existing rules, including for example:
- When wet signatures from clients are, and are not, required on documentation.
- How KYC requirements are not one-size-fits all.
IIROC will also clarify how Dealers may use technology to assist them in complying with our existing rules, for example, regarding the requirements for a supervisor to approve new accounts and how the requirements apply to online account opening processes.
Impact on our regulatory regime
The expanding scope of advice and services our Dealers are offering or exploring is testing IIROC’s traditional regulatory approach. The shift in focus from product-based advice to more holistic financial-planning advice, and from a single account to a household account (that could involve multiple financial goals and time horizons), does not translate easily to our current rules and guidance and how IIROC has traditionally interpreted them.
We believe that advice and service offerings in Canada should evolve in order to meet the needs of existing investors and increase access to advice and services for traditionally underserved investors. We (IIROC) are assessing the flexibility of our existing rules and guidance, and how they support or hinder the emerging spectrum of advice and service offerings, as well as a client’s ability to transition across that spectrum.
The expanding scope of advice and services our Dealers are offering or exploring is testing IIROC’s traditional regulatory approach.
We (IIROC) will continue to seek input from interested parties, including investors, wherever possible, to ensure we continue to focus on the appropriate issues. This will support an overall review and assessment of our current framework, with a view to amending and/or adding rules to accommodate industry transformation and to reduce barriers to innovation and burden where appropriate. This should help make understanding and navigation easier for all stakeholders, and enable the wealth management industry to better serve investors.
Fundamental to our assessment is challenging the traditional concepts of:
- “Advice” – how to expand the definition beyond buy, sell and hold recommendations?
- “Client” – how should the core elements of our current regulatory regime – for example, KYC, suitability assessment and performance reporting – be applied to a client that has multiple financial goals, time horizons, and family members each with their own needs?
- “Investor protection” – should we look at investor protection not only through the lens of protecting investors from unsuitable products, but also from the perspective of ensuring they have access to appropriate advice and services at all stages of their investing life?
From there, IIROC will work with other Canadian regulators and industry participants to evolve our regulatory framework. We (IIROC) are determined to continue, during this process, to fulfill our public-interest mandate of protecting investors and supporting healthy Canadian capital markets and to do so without perpetuating unnecessary regulatory burden.
Impact of Canada’s multi-layered regulatory environment on innovation
We operate in a multi-faceted regulatory environment in Canada. This has its benefits: it facilitates regulatory expertise – and its costs: it can increase compliance costs for those operating on multiple regulatory platforms, and slow the resolution of issues making innovation challenging (as our Consultation has illustrated).
To deliver emerging digital wealth management advisory services, many Dealers are growing the number of partnerships they have with other registered and non-registered industry participants (e.g. fintech firms and global partners). Partnering with non-registered entities can increase the challenges associated with the multi-layered regulatory regime for investors and their understanding of the level of protection, or lack thereof, associated with each activity or service.
Future policy framework ideas
Investor account opening
- Firms have the option of full digital new investor onboarding e.g. in-person meeting, phone call, or digital signature only required.
- Investor will be onboarded (paper or digital) once and have the ability to move across the no-advice/advisory spectrum.
- Investor goals, time horizons and risk profiling can be determined at the household level and with a financial planning approach.
Know your client (KYC)
- Required KYC questions will be relevant to the advice and service offering - e.g. online advice investors that are in less bespoke portfolios.
- Clear process for updating an online advice investor’s KYC.
- Clear process for collecting KYC for households.
- Blueprint KYC form solutions provided to dealers to complement principle-based guidance.
- Suitability obligation clearly articulated for financial planning and à la carte or event-driven advice.
- Suitability obligation clearly articulated for households with multiple goals and time horizons.
- Technology solutions analytics for supervision permitted to allow certain automated trade approvals.
- Supervision focus shifts from daily account checks to monthly reviews and focus on patterns and trends where appropriate.
- More tailored supervision - e.g. for sophisticated investors based on expertise and risk awareness
- Reassess meaning of ‘investor protection’ to include empowering investors and facilitating access to advice and services to under-served investors.
- Clear view on the definition of ‘household’
Source: IIROC & Accenture Industry Consultation Review, 2018
In light of the pace at which the wealth management industry is changing, enabling the evolution of advice and services will require increased coordination among Canadian regulators and other industry participants. Coordinating our efforts as regulators to have a shared vision and to resolve issues common to all platforms, rather than working independently, will lead to greater certainty for all industry participants, including investors as well as those exploring innovative business models.
There are several ways in which we (IIROC) plan to enhance our approach to engagement with the industry. The challenges to innovation inherent in regulation will, in our view, benefit not only from increased coordination and a shared vision among regulators, but also from more flexible interactions and bilateral dialogue between IIROC and Dealers.
In our consultations with Dealers, we believe that including a broader range of departments within the Dealer – for example, compliance, legal, business, strategy, technology, operations and product-development leaders – will benefit all parties. It will help Dealers in their dayto-day operations and with their innovation plans, and it will also help us keep on top of industry trends and better understand the challenges and risks associated with the new advice and services offerings being explored.
To enhance our engagement with Dealers and stay abreast of future developments, IIROC:
- Is including business and strategy leads in our standing advisory committee structure wherever possible.
- Will hold discussions with an expanded range of industry participants to explore emerging business models and issues related to innovation.
- Has enhanced our process for reviewing and approving changes in Dealers’ business models, allowing for a faster, more-efficient process and ensuring existing rules are applied as flexibly as possible, while adhering to the underlying principles.
- Will approach new ideas with an open mind, and a view to finding practical solutions where appropriate and within the context of our investor protection mandate.
Additionally, we (IIROC) are committed to increasing transparency where we can, including sharing rule interpretations that we have made that could benefit others, without compromising confidentiality.
We also plan to continue to engage investors directly through the channels that we have established over the past several years.
In addition to the next steps discussed above, IIROC is in the process of refreshing its three-year strategic plan, which will reflect our learnings from this Consultation, and provide more detail on our plans to better accommodate the evolution of advice in Canada.
As all parties look to adopt a more coordinated approach to facilitate innovation in Canada, we hope the insights from this report can support ongoing industry and regulatory discussions.