The Investment Industry Regulatory Organization of Canada (IIROC) has published its long-awaited version of the client-focused reforms (CFRs), which promise to reshape the industry’s relationship with investors in the years ahead.
Back in October 2019, the Canadian Securities Administrators (CSA) adopted the CFRs, which include a series of changes to core retail investor protection rules, including suitability, conflict of interests, disclosure and KYC/KYP requirements. Underpinning many of these changes is the expectation that the industry must explicitly start putting clients’ interests before their own.
IIROC has now issued its own version of the CSA’s reforms, which aim to modify IIROC’s rules to adhere to provincial regulators’ requirements.
In a notice detailing its proposals, IIROC said that the goal of the rule changes is to better align the interests of industry firms and reps with their clients, to improve client outcomes and to enhance clients’ understanding of the terms of their relationship with the industry.
To that end, IIROC published two sets of proposals: measures that are out for public comment until Jan. 18, 2021, as well as a set of so-called housekeeping amendments, which are required to conform with the CSA’s amendments but don’t introduce any major new requirements.
The more substantial public-comment amendments include enhancements to IIROC’s suitability rules and changes to its account appropriateness requirement to ensure that clients’ interests come first, along with measures setting out CFR exemptions (for certain account types, client types and service arrangements) and other changes.
Under the proposals, IIROC will be adopting new requirements for dealers and reps to put their clients’ interests first when making suitability determinations. In its notice, IIROC said that it agrees with the CSA’s approach and wants to “build these enhancements into our regulatory model.”
Additionally, IIROC published proposed guidance on product due diligence and KYP requirements under the CFRs. IIROC also said that it’s working on added guidance, alongside the CSA and the Mutual Fund Dealers Association of Canada (MFDA) to clarify the enhanced KYC and suitability requirements.
The CFRs are to be fully implemented by the end of 2021, with the conflict of interest provisions taking effect as of June 30, 2021. IIROC indicated that its rules will be implemented along the same timeline.