The proposed amendments impact a number of MFDA rules and staff notices relating to know-your-client, know-your-product and suitability requirements, as well as specific conflict matters such as personal financial dealings with clients. The purpose of the amendments is to conform to the client-focused reforms in NI 31-103 (the “CFRs”). While most of the changes repeat the CFR requirements, some have been adapted to be more specific to the existing MFDA rules, such as with respect to the requirement for clients to confirm the accuracy of collected KYC information. Rules related to KYC, updating KYC information, KYP expectations, relationship information and fee disclosure, unsolicited orders, branch reviews and suitability requirements have all been expanded substantially, and the suitability requirement would explicitly reference putting a client’s interests first. The proposed amendments would also clarify the prohibitions and the exceptions for approved persons borrowing from or lending to clients. comments are only being sought on whether the changes are clear and consistent with other MFDA rules and applicable to the business model of MFDA members and not on the substantive changes made by the CFRs.
Overview of the Council’s Comments:
The CAC supports publishing the proposed rules specific to dealers and their business models. In the absence of the best interest standard, we also support the CSA’s new core requirement for registrants to put their clients’ interests first when making a suitability determination. We note that an example of expectations that may still require further clarification surrounds the framework and level of diligence expected for investment products. We appreciate that draft Rule 2.2.6 will require members and approved persons to consider a reasonable range of alternative actions available to the approved person through the member at the time a suitability determination is made, and that the MFDA is working on amendments to guidance set out under MSN-0069 regarding suitability. The MFDA may wish to consider including supplementary supporting language explaining how a consideration of alternative results will lead to a recommendation that puts clients’ interests first. We are of the view that the current KYP requirements should be permitted to take hold before initiating any potential rules for shelf access. We note however, that additional and more specific KYP guidance provided at this time may help pre-empt unintended consequences if in future additional rules are instead added with the purpose of narrowing the issues for dealers from a KYP perspective.