Conflict of interest practices at 172 firms in various registration categories were reviewed
The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) have released a joint notice on the results of their review of conflicts of interest obligations and provided additional guidance.
The CSA and CIRO have reviewed conflicts of interest practices at 172 firms in various registration categories. The joint notice they issued includes additional staff guidance for securities advisers, dealers, and representatives (registrants) to help them comply with the conflicts of interest requirements outlined in the Client-Focused Reforms published by the CSA in October 2019.
The reforms are based on the fundamental concept that clients' interests come first in their dealings with firms and individuals registered to give investment advice and trade in securities. They also require that registrants address material conflicts of interest in the best interest of their clients.
"The implementation of the Client-Focused Reforms was an important step in protecting retail investors across Canada," said Stan Magidson, CSA chair and chair and CEO of the Alberta Securities Commission. "Under these requirements, registrants are expected to abide by a high standard of conduct and address material conflicts of interest in the best interests of the client."
The review conducted by the CSA and CIRO highlighted several deficiencies in the industry's current practices, such as the failure to identify one or more material conflicts of interest, inadequate controls to address specific material conflicts of interest, and insufficient or outdated written policies and procedures relating to conflicts of interest.
Andrew Kriegler, president and CEO of CIRO, emphasized the commitment of CSA and CIRO to ensuring compliance with the Client-Focused Reforms for the benefit of all Canadians.
"We encourage all firms to carefully review this notice to identify opportunities for strengthening their compliance programs to ensure they meet the enhanced standards established by the Client-Focused Reforms," Kriegler said.
CSA and CIRO plan to conduct additional reviews later this year to assess registrants' compliance with other obligations under the Client-Focused Reforms, including the know-your-client, know-your-product and suitability determination requirements that came into force on December 31, 2021.
"We'll have a better understanding of the level of compliance once our reviews are complete," Magidson said. "If we observe that the high standards of conduct required by the Client Focused Reforms are not achieved, we will consider our course of action at that time, such as considering additional rules."
