The Canadian Securities Administrators (CSA) published for comment on March 5, 2020 proposed amendments designed outline how registrants can address situations involving diminished mental capacity or the potential financial exploitation of vulnerable clients.
Under the proposed amendments, registrants will be required to take reasonable steps to obtain the name and contact information of a Trusted Contact Person (TCP) from their clients, as well as the client’s written consent to contact the TCP in specified circumstances.
Additionally, the proposed amendments set out the steps that a registered firm must take if they place a temporary hold on a transaction due to a reasonable belief that a vulnerable client is being financially exploited, or that a client lacks mental capacity. The proposed amendments also clarify that Canadian securities legislation does not prevent a registered firm from placing temporary holds in circumstances where the firm has a reasonable belief of these concerns.
The proposed amendments were developed together with the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).
The comment period closes on June 3, 2020. Subject to the nature of comments received, the CSA anticipates that the proposed amendments will come into force at the same time as the Client Focused Reforms relating to enhanced “Know Your Client” (KYC) requirements.
The CSA also published, for a 90-day comment period, proposed amendments (the Proposed Amendments) to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103 or the Rule) and Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103CP, together the Instrument) relating to business operations and client relationships in order to enhance investor protection by addressing issues of financial exploitation and diminished mental capacity of older and vulnerable clients.
The CSA worked together with the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) to develop the Proposed Amendments. The Proposed Amendments will require registrants to take reasonable steps to obtain the name and contact information of a trusted contact person (TCP) as well as the clients’ permission to contact the TCP in prescribed circumstances.
The TCP is intended to be a resource for registrants to assist in protecting their clients against possible financial exploitation or where there are concerns about the clients’ mental capacity. Amendments do not prevent registrants from opening and maintaining an account if a client refuses or fails to identify a TCP as long as the registrant takes reasonable steps to obtain the information.
Proposed Amendments will allow registered firms and registered individuals to place a temporary hold on the purchase or sale of a security or withdrawal or transfer of cash or securities from a clients account if the registrants believes that a vulnerable client is being financially exploited, orwith respect to an instruction given by the client, the client does not have the mental capacity to make financial decisions, and require registered firms to take certain prescribed steps if they place a temporary hold in the above noted circumstances.
For a copy of the request for comments, please see: https://www.osc.gov.on.ca/documents/en/Securities-Category3/csa_20200305_31-103_protection-older-vulnerable-clients.pdf
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004. This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.