The Ontario Securities Commission (OSC) has approved rule amendments proposed by the Mutual Fund Dealers Association of Canada (MFDA) concerning obligations for dealers and reps to assess suitability when leverage is involved.
In Thursday’s OSC Bulletin, it was announced that the OSC has approved the MFDA’s amendments that, among other things, set out criteria for assessing the suitability of client leverage.
The amendments detail the general obligations for dealers and reps to establish policies and procedures to assess the suitability of the use of leverage as part of overall suitability obligations.
It notes that a number of changes were made to existing rules in this area, including: codifying minimum criteria standards for assessing the suitability of client leveraging; clarifying that the suitability of leverage must be assessed in the context of a client’s investment knowledge, risk tolerance, age, time horizon, net worth, income, and investment objectives; clarifying the obligations of the reps, branch, and head office supervisory staff; and, clarifying that the obligation to review leveraged trades and recommendations at the branch and head office levels applies to accounts, other than RRSPs and RESPs. It also provides guidance on the type of documents dealers will be required to review and maintain to facilitate proper supervision of a leveraging strategy.
The amendments were published for comment back in July 2011.
MFDA extends suitability obligations to cover borrowing to invest
Those comments, and the MFDA’s responses are also being published Thursday, along with the revised rules.