On January 9, 2014, the Canadian Securities Administrators
(CSA) published CSA Staff Notice 31-336 that provides industry
guidance on, among other things, when exempt market dealers
(EMDs) need to update their
'know-your-client' (KYC) information. The
CSA states that an EMD should update KYC information at least
annually or more frequently if there is a material change in a
Canadian securities law requires a registrant to obtain current
KYC information about a client's investment needs and
objectives whenever a registrant, such as an EMD, is required
to consider whether a trade is suitable for a client.
What is a material change in a client's circumstances?
A material change in a client's
circumstances means any information that results in
changes to the stated risk tolerance, time horizon or investment
objectives of the client or would have a significant impact on
the net worth or income of the client.
For an EMD, these can include various triggering events,
including, but not limited to, a change in a client's:
investment goals and objectives (e.g., income or
investment time horizon;
earnings (positive or negative);
life situation (e.g., marriage, death, divorce, health
employment status (e.g., change in employment,
retirement or loss of employment).
How frequently does an EMD have to update client KYC
The frequency of updating a client's KYC information depends
on whether an EMDhas a transactional or ongoing
relationship with the client.
A transactional relationship is a relationship
An EMD's relationship with a client is limited to a
specific private placement transaction and not a series of
Neither the EMD nor a related issuer of the EMD holds, directly
or indirectly, client assets or securities;
The EMD is not paid a trailer fee or similar ongoing
compensation in relation to the client's ownership of a
There is no expectation on the part of the client that the EMD
will continue to provide services to the client after the
completion of the transaction.
If an EMD has a relationship where any one of the above factors
are present or is also registered in another category of
registration, such as a portfolio manager, the CSA would view the
EMD as having an ongoing relationship with the client and
accordingly a more frequent duty to update a client's KYC
Cannot update client KYC information to make an
unsuitable trade suitable
EMDs should note that it is inappropriate to update or alter the
client's KYC information in an effort to justify the
suitability of an investment that is otherwise unsuitable for the
client. Specifically, an EMD should not be soliciting the
client's consent to change their KYC information if the purpose
of the change is solely to create the appearance of a suitable
Best practices for updating client KYC
EMDs who have an ongoing relationship with a client are
encouraged to adopt certain best practices for updating a
client's KYC information which would include:
Adopting policies and procedures requiring, when appropriate,
periodic suitability reviews of client accounts;
Conducting suitability reviews of accounts that may be affected
by significant market events; and
Conducting suitability reviews of accounts holding securities
of an issuer that has undergone a material change in its risk
Get it in writing– signing and dating updated
client KYC information
Lastly, although it is not legally required, EMDs should have
its dealing representative and his or her clients sign and date any
updated client KYC information as a matter of best practices.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
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