PMAC 2016 Montreal Compliance Forum

Transcription

1 PMAC 2016 Montreal Compliance Forum Session 1: Regulatory Update and Overview of Recent Policy Developments Moderator: David D. Kilburn, National Director, CIBC Private Investment Counsel Speakers: Sophie Jean, Director, Supervision of Intermediaries, Autorité des marchés financiers (AMF) Kat Szybiak, Senior LegalCounsel, Compliance and Registrant Regulation, Commission des valeurs mobilières de L Ontario (CVMO)

2 Montreal Compliance Forum Regulatory Update Sophie Jean Kat Szybiak Directrice de l encadrement des intermédiaires Autorité des marchés financiers Senior Legal Counsel Compliance & Registrant Regulation Branch Ontario Securities Commission June 8, 2016

3 Disclaimer The views expressed in this presentation are the personal views of the presenting staff and do not necessarily represent the views of the Commission or other Commission staff. The presentation is provided for general information purposes only and does not constitute legal or accounting advice. Information has been summarized and paraphrased for presentation purposes and the examples have been provided for illustration purposes only. Information in this presentation reflects securities legislation and other relevant standards that are in effect as of the date of the presentation. The contents of this presentation should not be modified without the express written permission of the presenters.

4 Outline Common Deficiencies from the Past Year Compliance Reviews Key Policy Initiatives PM-IIROC Dealer Service Arrangements CSA Consultation Paper (Proposals to enhance the obligations of advisers, dealers and representatives towards their clients) Ongoing initiatives (social media, seniors) 4

5 Common Deficiencies from the Past Year

6 Policies and procedures OSC findings: Ineffective policies and procedures manual Inadequate written policies and procedures on Portfolio management Cybersecurity 6

7 Know-your-client (KYC) and suitability OSC findings Delegating KYC and suitability obligations to referral agents or unregistered employees Inadequate update of clients KYC and suitability information No collection of client s insider status 7

8 KYC and suitability Not following firm s own KYC policies and procedures Not documenting KYC update and suitability assessment Repeat failure to address KYC and suitability issues leading to compliance actions 8

9 Compliance outcomes Significant, repeat, or large number of deficiencies signal a poor overall compliance system and compliance officer function Example of compliance actions Imposing registration conditions Suspending registration Enforcement actions 9

10 Compliance Reviews

11 Compliance Reviews Areas of Focus One-person firms Online advisers Large-impact firms (Ontario) New PM firms CRM 2 Risk Assessment Questionnaire (Ontario) 11

12 Desk Reviews - Ontario Mutual fund sponsored conferences 63 conferences were assessed for compliance with parameters in s. 5.2 of NI Adviser discount fee serving Reviewing possible non-monetary benefits to advisers when management fee rebates are issued to investors Cybersecurity Brief survey to gather information about registrants current policies and practices 12

13 Key Policy Initiatives

14 PM-IIROC Dealer Service Arrangements CSA and IIROC staff continue to discuss PM must maintain own books and records of client holdings and trades Discussing agreement between PM and IIROC dealer, and disclosure to clients Exploring alternatives to requirement for both PM and IIROC dealer to separately issue client statements to shared client 14

15 PM-IIROC Dealer Service Arrangements (continued) CSA plans to issue staff notice on this issue Until this work is complete: PMs are to comply with the account statement requirements in s of NI and the new additional statement requirements in s of NI PMs may consider interim guidance in s of OSCN for when it may be acceptable for a PM to not send a client statement when an IIROC dealer does 15

16 CSA Consultation Paper The CSA published its second consultation paper on April 28, 2016, following Consultation Paper in 2012 and CSA SN in 2013 Key concerns, supported by research and consultation work, among which: Persistent problems with our current suitability regime Expectation gap (clients currently assume that their registrants must always advise in the best interests of their clients) Ineffectiveness of disclosure to mitigate conflicts 16

17 CSA Consultation Paper (continued) Consultation on a set of potential targeted reforms to NI and on the adoption of an overarching statutory best interest standard The potential targeted reforms outline a regime where enhanced KYC and KYP (which includes identifying whether the firm has a proprietary or mixed/non-proprietary product list) lead to improved suitability and more effective, clientcentered conflicts management 17

18 CSA Consultation Paper (continued) Conflicts of interest Will also apply to representatives (currently applies only to firms) Response to conflicts required in a manner that prioritizes the interests of the client ahead of the interests of the firm or representative Disclosure given to clients about conflicts must be meaningful such that the client fully understands the conflict (including implications and consequences) Firms and representatives must have a reasonable basis for concluding that a client fully understands the implications of the conflict that is disclosed 18

19 CSA Consultation Paper KYC Enhancements designed to ensure that the KYC process results in a thorough understanding of the client, by requiring more information on the key elements: investment needs and objectives: time horizon, degree of required liquidity and investment constraints financial circumstances: amount and nature of all assets and debts, employment and tax status and spousal and dependents status and needs risk profile: attitude, capacity and loss aversion 19

20 CSA Consultation Paper KYP Firms required to identify whether they have a proprietary (which includes only proprietary products) or mixed/nonproprietary product list (which includes both proprietary and non-proprietary products, or only non-proprietary products) this informs various other requirements Requirements for mixed/non-proprietary firms include selecting products following a fair and unbiased market investigation of a reasonable universe of products, a product comparison and an optimization process in order to achieve a shelf that is most likely to meet the investment needs and objectives of its clients 20

21 CSA Consultation Paper Suitability Three components: basic financial / investment strategy / product The asset allocation strategy for the client and any other proposed investment strategy must 1) be suitable and 2) be the one that is most likely to achieve the client s investment needs and objectives Suitability analysis of the portfolio of securities in the client s account will be required upon certain triggering events 21

22 CSA Consultation Paper (continued) Consultation paper includes a discussion on the potential adoption of a best interest standard a description of potential guidance a series of alternative proposals on of the use of titles and designations by representatives Consultation open until August 26 AMF outreach session on June 17 and CSA roundtable in September in Toronto as well as in Montréal: we need your participation and comments 22

23 Ongoing initiatives Social media Seniors 23

24 Questions 24