On June 21, IIROC published for comment a proposed guidance (the Proposed Guidance) to assist Dealer Members (Dealers) in understanding and complying with IIROC’s Client Focused Reforms rule amendments relating to the know-your-client (KYC) and suitability determination requirements (CFRs Amendments).
The Proposed Guidance is aimed at:
Providing IIROC’s interpretation of the CFRs Amendments
Clarifying how IIROC’s KYC and suitability requirements should be implemented, and
Making the guidance consistent with the IIROC Rules, which will be effective on December 31, 2021.
The Proposed Guidance lists, among others things, the type of KYC information that should be collected by dealers, including:
Essential facts relative to each order, client and account
Information to establish the identity of clients
Information regarding the client reputation
Information about the client’s insider status
Information to ensure dealers have a sufficient understanding of their clients to enable a discharge of suitability determination obligations.
Specific KYC information that must be collected for suitability determination includes:
The client’s personal circumstances
The client’s financial circumstances (e.g., liquidity needs, financial assets and net worth, use of leverage or borrowing to finance the purchase of securities, investment needs and objectives, investment knowledge, client risk profile etc.…)
The guidance also includes IIROC’s expectations on how dealers can put the client’s interest first and confirms that KYC requirements are not one-size fits all but depend on the dealer’s business model, service offerings and clients.
The suitability determination requirement is applicable to all investment products offered, and not just securities. The guidance also addresses when it would be acceptable to collect and maintain one set of KYC information for multiple accounts and when separate account applications would be required.
The Proposed Guidance is available in Appendix 1 available and will replace Notice 12-0109 - Know your client and suitability – Guidance.
On the same date, the MDFA also published for comment, CFR Conforming Changes to MSN-0069 (Know-Your-Client and Suitability), proposing revisions to its suitability guidance.
The MDFA guidance provides the various types of KYC information that must be collected by mutual fund dealers (e.g. personal circumstances, investment knowledge, financial circumstances, investment time horizon and risk profile…) to help them meet their suitability requirement.
The proposals are out for a 60-day comment period ending August 20, 2021.