FINRA seniors’ hotline leads to US$4.3 million in reimbursements

Citing concerns about Canada’s aging population and the rising threat of elder fraud, the Canadian Securities Administrators (CSA) are proposing rule changes to help the financial industry combat suspected exploitation.

The CSA released proposals that would require firms to try to have clients name a “trusted contact,” and would enable firms to place temporary holds on transactions in the event of suspected exploitation.

Firms would have clients’ permission to communicate with trusted contacts if concerns arise about the clients’ declining capabilities.

The proposals would clarify how firms should proceed in cases where they decide to impose a temporary hold, ensuring they fulfil their duties to deal with clients fairly, honestly and in good faith.

“The proposed amendments increase investor protection and provide certainty and clarity to firms on how to act in these situations, while preserving client autonomy,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.

In its notice, the CSA said firms are often well positioned to detect possible elder fraud.

“Registrants can be among the first to notice signs of vulnerability, diminished mental capacity and financial exploitation because of interactions they have with their clients and the knowledge they acquire through the client relationship,” the CSA said.

Given these relationships, it also said it’s important to provide firms with “tools and guidance that they can use to take action against financial exploitation and to address issues arising from a client’s diminished mental capacity, while being mindful of the client’s autonomy.”

At the same time, the proposals don’t impose major new obligations for firms. While firms would be required to try to get clients to name a trusted contact, the new rules wouldn’t prevent them from opening accounts for clients that refuse.

The rule changes also wouldn’t create a new obligation to utilize temporary holds.

The CSA noted that it worked with both the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) in developing its proposals, which would apply to all registered firms, including IIROC and MFDA dealers.

It said the self-regulatory organizations may propose their own amendments to ensure that the SRO rules are consistent with the CSA’s requirements.

Industry trade group the Investment Industry Association of Canada (IIAC) endorsed the regulators’ approach and said it would work with the CSA on the proposals.

“Fear of financial exploitation and diminished capacity has become a reality for many families. The rules enable advisors to act as the first line of defence in protecting potential victims of financial exploitation from diminished capacity,” said IIAC vice president Michelle Alexander, in a statement.

The proposals are out for a 90-day comment period, which closes on June 3.