The Investment Industry Regulatory Organization of Canada yesterday published guidance in respect of the supervision and suitability obligations of dealers and representatives that advise clients to use borrowed money to invest.
Specifically, IIROC's guidance sets out a number of issues that registered representatives should consider before making a specific recommendation that a client invest with borrowed funds, including with respect to the collection of information about the proposed loan, the impact of the proposed loan on the client's financial situation and whether the client's debt to net worth leverage ratio is appropriate.
Guidance is also provided in respect of dealers' supervisory obligations, including in respect of minimum controls that should be in place to identify and supervise the use of leverage strategies, best practices that should be considered in developing and implementing supervisory controls, and red flags that may indicate the existence of off-book client loans.
IIROC published draft guidance on the subject in July 2012, and the final guidance addresses the public comments received in response to the original draft. For more information, see IIROC Notice 14-0044.
The Investment Industry Regulatory Organization of Canada yesterday published guidance in respect of the supervision and suitability obligations of dealers and representatives that advise clients to use borrowed money to invest.
Specifically, IIROC's guidance sets out a number of issues that registered representatives should consider before making a specific recommendation that a client invest with borrowed funds, including with respect to the collection of information about the proposed loan, the impact of the proposed loan on the client's financial situation and whether the client's debt to net worth leverage ratio is appropriate.
Guidance is also provided in respect of dealers' supervisory obligations, including in respect of minimum controls that should be in place to identify and supervise the use of leverage strategies, best practices that should be considered in developing and implementing supervisory controls, and red flags that may indicate the existence of off-book client loans.
IIROC published draft guidance on the subject in July 2012, and the final guidance addresses the public comments received in response to the original draft. For more information, see IIROC Notice 14-0044.
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.
