CSA NI 31-103 Proposed Client Focused Reforms

October 18, 2018

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CSA NI 31-103 Proposed Client Focused Reforms

Letter Summary:

Fresh off the best interest consultation, The CSA’s amendments to NI 31-103 add new requirements and represent a fundamental shift in the adviser/client relationship. One of the largest impact is on the suitability determination, where registrants would be required to explicitly consider the best interest of the client in their suitability decisions. The provisions on conflicts has been expanded to include all reasonably foreseeable conflicts, not just material conflicts. All conflicts would have to be resolved in the best interest of the client.  Certain conflicts are identified, including proprietary products, referral arrangements, and conflicts in fee-based accounts. New rules are also proposed with respect to misleading marketing and use of titles. Other amendments include those relating to referral agreements and referral payments.

Overview of the Council’s Comments:

The council expressed disappointment with the CSA’s decision to move away from the principled based best interest standards. The council believes that while the new ‘targeted’ or rules-based approach is directed to all registrants, some registrants currently operate under the elevated best interest framework. In the absence of the principled based best interest standard, the council generally supports the harmonized approach and added specific and thoughtful comments to help regulators. An overarching theme of the comments however, focused on requesting regulators to aim towards lessening the rules-based regulatory and cost burdens. Moreover, the council suggested providing specific and targeted guidance to the industry on the additional KYC and KYP requirements.