Cropped shot of a cheerful elderly woman hugging her husband who's in a wheelchair at home during the day

It is rare that securities commissions and self-regulatory organizations come forward with new rules or regulations that are applauded by industry. Yet that’s what happened when the Canadian Securities Administrators (CSA) released a proposed framework to address issues of financial exploitation and diminished mental capacity among older and vulnerable clients.

The rules introduce a new concept — a trusted contact person (TCP), who serves as a key resource for registrants. The framework requires registrants to take reasonable steps to obtain the name and contact information of a TCP, as well as a client’s written consent to contact the TCP in prescribed circumstances.

The framework also provides additional protections to vulnerable clients by permitting a registrant to place a temporary hold on the purchase or sale of a security, or the withdrawal or transfer of cash or securities from a client’s account, if there is a reasonable belief that a client is being financially exploited or has diminished mental capacity to make financial decisions.

The new rule framework will be eagerly accepted by all investment dealers that face the ongoing challenges of dealing with many aging and vulnerable clients. Even before now, dealers placed transaction holds when circumstances required them to and utilized a named TCP. But these new rules will help reduce uncertainty among advisors and firms on their actions and options when diminished capacity or financial exploitation are suspected. Moreover, the new rules will result in a harmonized and consistent approach.

With the framework soon to be put into place, more must be done. Firms will look for greater clarity on the role and purpose of a TCP, including details such as contacting a TCP in case of an emergency or urgent situation. They will also want additional details on what information can and cannot be discussed with a TCP, and what actions a firm or advisor may take when a TCP contacts them directly. Firms will also need guidance and clarity from the regulators on complying with privacy obligations in discussions with a TCP.

The industry recognizes that temporary holds on client transactions are fraught with challenges, especially with regard to balancing a client’s right to manage his/her own assets with the need to intervene in situations that reflect possible financial exploitation or diminished capacity.

While the Investment Industry Association of Canada (IIAC) agrees with the 30-day notification provisions set out in the rules on temporary holds on transactions, greater clarity is needed on when a temporary hold should or could be removed. Guidelines on what documentation is required to release a temporary hold are needed.

The IIAC encouraged regulators to implement an effective safe harbour provision to help ensure that when firms contact a TCP or initiate a temporary hold on a client transaction, they will not face the prospect of litigation or a complaint. An important example: What if a firm imposes a temporary hold on the sale of a security and then the price of that security falls in value? A safe harbour provision would protect the firm from liability for the loss of value of that security.

We also suggest that the regulators consider the application of temporary holds on accounts before a transaction has been initiated when, for example, an advisor becomes aware of a suspicious change in a beneficiary name.

Finally, it is clear firms will need further training and resources to navigate proper compliance in these situations. It would be valuable for advisors and firms, given the challenging, changing and complex relationships with older and vulnerable clients, to have guidance on when to engage with a public guardian and trustee and when to escalate matters to local authorities. It is also important to have access to case studies and introduce a helpline to investors, similar to the model implemented by the Financial Industry Regulatory Authority in the U.S.

The CSA’s new rule framework is a good first step and, together with the proposals suggested by the IIAC, the industry will be well on its way in protecting older and vulnerable clients.

Michelle Alexander is vice president and corporate secretary of the Investment Industry Association of Canada.