Roundtable event sheds light on steps being taken as well as developing challenges
The decision by the CSA full name (CSA) to extend the implementation timeline for its client-focused reforms has doubtlessly been a relief to those in the investment industry – and it seems the majority are making good use of the extra time.
In a roundtable discussion conducted by regtech firm InvestorCOM on November 24 – shortly after IIROC and the MFDA announced rule amendments in line with the CFRs – 78% of participating IIROC dealers said that they’re making progress and are on schedule with respect to meeting their know-your-product (KYP) obligations by the December 31, 2021 deadline.
Sixty per cent of the dealers said they would rely on regtech to ensure they were meeting their KYP obligations, while one third said they would be counting on product committees to stay compliant.
“While the survey results depicted a relatively positive view on the level of CFR project progress, the discussion shed light on a number of key compliance gaps,” InvestorCOM said in a report outlining the findings from the event.
Based on IIROC guidelines surrounding CFR obligations, dealers may assess and approve securities on their shelf using a risk-based approach, though discussions at the event suggested a need to form policies, to define different levels of assessment, approval, and monitoring for different types of securities. Securities sold under a prospectus exemption, for example, may deserve more extensive product due diligence due to their illiquid and more opaque nature.
Participants also remarked that regulatory guidance around the need to monitor for significant changes is somewhat vague, with some reported internal dialogue around how to differentiate between material and significant change. Others suggested that relying solely on a product committee to monitor changes across all security types may result in colossal operational challenges, particularly because of the sheer volume and diversity of securities to keep track of.
When asked what product types they would focus additional due diligence efforts on, dealers surveyed by InvestorCOM ranked mutual funds, alternative funds, and ETFs highly. With respect to the changes they’d pay particularly close attention to, dealers showed an emphasis on product fees, investment objectives, risk ratings, and time horizons, given the knock-on impact those features would have on suitability.
With respect to monitoring approved persons’ KYP activities to ensure they meet obligations, almost 60% of survey respondents said they intend adopt new technology, while approximately 40% plan to leverage existing systems.