Canada: CSA Releases Client-Focused Reforms To NI 31-103 In Response To Client-Registrant Relationship Concerns

Last Updated: July 20 2018
Article by Jason A. Chertin, Leila Rafi and Alex Bruvels

Co-authored by David Fanjoy, Summer Law Student

Overview of the Notice

On June 21, 2018 the Canadian Securities Administrators (the "CSA") released proposed amendments (the "Proposed Amendments") to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") and Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations (the "Companion Policy"). The goals of the Proposed Amendments are to better align the interests of securities advisors, dealers, and representatives with the interests of their clients to improve outcomes for clients, and to help clients better understand the nature and the terms of their relationship with registrants. The Proposed Amendments are expected to impose additional compliance obligations on registrants.


The Proposed Amendments were sparked by a number of the CSA's investor protection concerns relating to the client-registrant relationship including:

  • clients not getting the value or returns they reasonably expect from investing;
  • misplaced trust or overreliance on registrants;
  • concerns over effective mitigation of conflicts of interest;
  • information asymmetry between clients and registrants; and
  • clients are not getting the proper outcomes in the regulatory system.

Summary of Amendments

The Proposed Amendments restructure registrant obligations relating to: (i) Know Your Client ("KYC"); (ii) Know Your Product ("KYP"); (iii) suitability determination; (iv) conflicts of interest; (v) disclosure requirements; and (vi) education and experience requirements for registered individuals.


The CSA has provided more clarity on what information it expects should be collected to "know a client" on a more tailored basis. The Proposed Amendments require:

  • collection of explicit information by registrants in order to confirm their clients meet suitability requirements at the time of account opening;
  • reasonable steps be taken to ensure client information is correct; and
  • a combination of specified intervals and triggering events requiring when KYC information must be reviewed and updated including (i) every 12 months for managed accounts; (ii) within 12 months from executing a trade or making a recommendation to a client; and (iii) 36 months for other accounts. In addition, KYC information must be reviewed and updated at any time when the registrant knows or reasonably ought to know of a significant change to KYC.

Registrants may encounter difficulty fulfilling these obligations as they will require more participation from their clients including clients divulging more information about their financial situation than was previously required. In addition, registrant administrative efforts will need to be increased in order to comply with the increased expectations relating to monitoring and updating KYC.


Currently there is only limited principles based guidance concerning KYP in the Companion Policy. In contrast, the Proposed Amendments explicitly provide KYP obligations for both registered firms and registered individuals including:

  • requiring registered firms to: (i) understand the securities it sells and how they compare to similar securities in the market; (ii) approve the securities it makes available; and (iii) monitor and reassess securities including for significant changes to the security; and
  • requiring registered individuals to take reasonable steps to: (i) understand the securities available through their registered firm to purchase, sell, or recommend; (ii) understand each specific security they purchase, sell or recommend to a client as well as the impact of costs associated with acquiring and holding the security; and (iii) only purchase or recommend securities approved by their firm.

Registered firms must also ensure that their registered individuals have the necessary information about each approved security.

Codifying KYP obligations may require additional training for registrants as well as documenting that such training has occurred.

Suitability Determination

The changes to the suitability determination are extensive as the CSA notes that unsuitable recommendations generate the majority of complaints with the Ombudsman for Banking Services and Investments. The Proposed Amendments introduce a new core requirement that registrants must put their clients' interests first when making a suitability determination. Before a registrant opens an account, takes an investment action on behalf or, or makes a recommendation to a client, the registrant must determine that the action is suitable for the client based on a number of explicit factors including (i) specific KYC information; (ii) the registrant's understanding of the security; (iii) the features and associated costs of the account type made available to the client; (iv) the impact of the action on the client account; (v) portfolio-level concentration and liquidity; (vi) analysis of the actual and potential impact of costs on client return; (vii) available alternatives at the firm; and (viii) any other relevant factor in the circumstances.

The Proposed Amendments introduce triggering events, each of which requires a registrant to reassess suitability and take appropriate action in connection therewith. Triggering events include: (i) a new registered individual at the registrant being designated as responsible for the client account; (ii) a change in the KYC information of a client; (iii) a change in a security in the client's account that may result in the security or account not meeting previously established criteria; (iv) the registrant undertakes a requisite review of the client's information; or (v) the registrant becomes aware that a security in a client account or the account no longer meets prescribed suitability criteria.

Conflicts of Interest

The Proposed Amendments require that registered firms and registered individuals put the interests of clients ahead of their own interests. Additionally, the Proposed Amendments adopt a best interest standard relating to conflicts of interest that impact both registered firms and registered individuals, specifically:

  • all conflicts of interest must be addressed, not only those that are material, although non-material conflicts of interest may be addressed proportionately to the risk posed. In addition, the Proposed Amendments to the Companion Policy provide potential conflicts of interest examples and controls that may be used to assist registrants to address conflicts of interest;
  • conflict of interests obligations will apply to registered individuals as well as their sponsoring firms. In addition registered individuals must report identified conflicts of interest to their sponsoring firm;
  • outlining conflicts of interest that must be avoided, including, subject to certain exceptions, borrowing money, arranging a guarantee in relation to money a registrant has borrowed, borrowing securities or any other assets from a client, extending credit, providing margin, or lending securities or any other asset to a client;
  • broadened disclosure requirements relating to conflicts of interest requiring the identification of all conflicts of interest that a reasonable client would want to know about. This disclosure must include an overview of the nature and extent of the conflict of interest as well as the potential impact and risk posed to the client as well as how it was or will be addressed;
  • new prohibitions related to referral arrangements and limitations on referral fees including that a referral fee must not (i) continue for longer than 36 months; (ii) constitute a series of payments exceeding 25 percent of the fees or commissions collected from the client by the party who received the referral; and (iii) increasing the amount of fees or commission that would otherwise be paid by the client for the same product or service. In addition, referral fees: (i) are payable only to other registrants; (ii) must be reflected in a written agreement; and (iii) must be recorded by the registered firm. Finally, registered firms need to ensure that information required by NI 31-103 relating to referral fees is provided to clients in writing; and
  • expanding registrant record keeping obligations, particularly in relation to sales practices, compensation arrangements and incentive practices.

Increased CSA expectations relating to identifying and responding to conflicts of interest will require registered firms and their registrants to be more proactive monitoring their activities in order to identify conflicts. This will require firms revamping existing conflict of interest policies, implementing new internal controls, and training not only their registered individuals, but all firm staff to enable them to effectively identify and respond to conflicts as they arise.

Disclosure Requirements

The Proposed Amendments introduce new disclosure obligations for registrants including:

  • registered firms must make information that a reasonable investor would consider important in deciding whether to become a client of the firm, publicly available. The required information would include information relating to products and services offered, charges and other costs to clients, any third party compensation associated with the firm's products, services, and accounts; and
  • updates to relationship disclosure information or "RDI" requiring enhanced disclosure about restrictions on the products or services a registrant makes available to clients, including whether the registrant uses "proprietary products", the impact on client investment returns resulting from such restrictions, as well as the potential impact of costs and charges.

Education and Experience Requirements for Registered Individuals

The Proposed Amendments require registered firms other than investment fund managers to provide training to certain employees on compliance with securities legislation including: (i) conflict of interest requirements; (ii) KYC and KYP obligations; and (iii) suitability determination. In addition, firms must provide training to their registered individuals relating to the securities that the firm has approved for the registered individuals to purchase, sell, or recommend to clients.


The CSA is considering the Proposed Amendments would come into effect for (i) KYC, KYP, suitability and conflict of interest, in two years; (ii) referral arrangements, immediately and three years for pre-existing arrangements; and (iii) RDI, in one year to provide publically available information and in two years for other requirements.


In addition to tabling the Proposed Amendments for consideration, the CSA has invited industry participants to respond to requests for comment relating to conflicts that must be avoided, referral fees and transactional relationships on a general basis. The deadline for submitting comments to the CSA regarding the Proposed Amendments is October 19, 2018. Please contact a member of McMillan's Investment Funds and Asset Management Group if you have any questions or seek assistance with the preparation of a comment letter.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jason A. Chertin
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions