Fund managers and exempt market dealers still have work to do on complying with the know-your-client (KYC) and suitability provisions of the Client Focused Reforms (CFRs), according to a report from the British Columbia Securities Commission (BCSC).
The regulator published its latest compliance report card, detailing the results of its calendar 2024 reviews. The reviews uncovered 130 compliance deficiencies across 19 firms directly regulated by the BCSC (excluding 174 dealers that belong to the Canadian Investment Regulatory Organization, or CIRO).
The top issue identified was KYC and suitability compliance, accounting for 22% of overall deficiencies, followed by policies and procedures and conflicts of interest, at 12% each. Rounding out the top five were disclosure issues (9%) and advertising/marketing (9%), followed by client reporting (8.5%).
According to the report, most deficiencies stemmed from a compliance sweep by the Canadian Securities Administrators (CSA), which targeted KYC and suitability provisions of the CFRs.
“The sweep is complete, and the CSA is currently finalizing a publication on the sweep findings and additional guidance,” it noted.
In the meantime, the BCSC reported that some findings led to compliance and enforcement action, including the suspension of one dealer and another that voluntarily surrendered its registration. Other firms had terms and conditions placed on their registrations.
The report also offers guidance to the industry on practices firms should follow to avoid future regulatory action.
“While we recognize that many firms have made significant efforts to adapt to the new rules, the report card shows that some firms still have more to do,” said Peter Brady, executive director of the BCSC, in a release.
“We expect registered firms to uphold the standards of conduct set out in Canadian securities regulations, including those related to Client Focused Reforms,” he added.
Alongside KYC and suitability failings, the BCSC noted an “increasing number of deficiencies in annual financial statement submissions,” which is often a red flag that can trigger further regulatory attention.