compliance puzzle

As industry firms and reps prepare to adopt the client-focused reforms (CFRs) over the next 15 months, regulators are starting to provide implementation guidance.

Ahead of the CFR requirements taking effect next year — the conflict of interest provisions come into force on June 30, 2021, with the remaining requirements taking effect at the end of 2021 — the CFRs Implementation Committee has published a frequently asked questions (FAQ) document with responses to questions about implementing the CFRs.

The implementation committee, which includes staff from the Canadian Securities Administrators (CSA), the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada, was established to provide the industry with guidance on adopting the forthcoming new requirements.

“Our responses are intended to add clarity on how certain requirements under the CFRs should be operationalized, while preserving flexibility to the extent possible for registrants to operationalize those requirements in the context of their particular business models,” the committee said.

Among other things, the FAQ addresses issues such as the practical effects of adopting principles-based best interest standards; what constitutes adequately addressing conflicts of interest; assessing the materiality of conflicts; product due diligence; and ensuring that referrals are in clients’ best interests.

“Some of the CFRs impose new requirements, while others codify best practices set out in existing CSA and SRO guidance,” the committee said.

The SROs are revising their own rules and guidance to conform to the CSA’s CFR requirements. Those changes are expected to be released in the coming weeks.

The FAQ will be updated throughout the transition period and the regulators may also provide additional guidance in the future as they monitor implementation and consider the industry’s best practices.

“We encourage registrants to plan now so that they will be in compliance with the new requirements once in force,” the committee said.