CSA cautions on disclosure and compliance

New CSA guidelines reassert the importance of advising clients on the perils they potentially face in borrowing funds to invest.

CSA cautions on disclosure and compliance

Canadian Securities Administrators have issued new guidelines on disclosure following a review of compliance practices at investment firms. While not providing new rules, the guidelines aim to ensure that industry relationship practices are in accordance with existing securities laws.

“Compliance reviews of this nature demonstrate the CSA’s commitment to work with industry to make sure that the rules are being followed,” said Bill Rice, Chair of the CSA and Chair and chief executive of the Alberta Securities Commission. “The recommendations set out in the staff notice will assist the industry in continuing to improve practices and, as a result investors will be better protected.”

The guidelines relate to the disclosure in the following areas:

  • Risks of using borrowed money to finance the purchase of a security.
  • Information a firm must collect about a client (Know Your Client).
  • The obligation to assess suitability prior to executing a transaction.
  • Content and frequency of reporting for each account or portfolio of a client.
  • Types of risks that a client should consider when making investment decisions.
  • Nature or type of client account.
  • Conflicts of interest.
  • All costs to a client for the operation of an account, and the costs clients will pay in making, holding and selling investments.
  • Products or services offered by the firm.
  • Compensation paid to the firm in relation to different types of products that a client may purchase.

The regulators issued the guidance after a review of 124 registered portfolio managers and exempt market dealers that focused on relationship disclosure information.  While not providing any explicit new regulations, the CSA said it encourages all registered portfolio managers and exempt market dealers to use the guidance to assess their own relationship disclosure practices and where improvements can be made.