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Canadian Securities Regulators and Vulnerable Clients

The Canadian financial services industry may encounter the issues of financial exploitation and diminished mental capacity when working with older or vulnerable clients. There is an opportunity to have financial services firms play a role in our society in addressing this problem.

The Canadian Securities Administrators is an umbrella organization of Canada’s provincial and territorial securities regulators whose mission is to give Canada a securities regulatory system that protects investors from unfair, improper or fraudulent practices and fosters fair, efficient and vibrant capital markets through developing a national system of harmonized securities regulation, policy and practice.

On June 21, 2019 they published CSA Staff Notice 31-354: Suggested Practices for Engaging with Older or Vulnerable Clients.[1] The News Release states that the Notice “outlines suggested practices that registered firms can consider when engaging with older or vulnerable clients. Clients may be or become vulnerable due to changing needs and risks as they age, an illness or injury, or a physical, cognitive or psychological limitation.”

The suggested practices are presented for “…firms and their representatives to use to address the individual needs of their clients with the objective of protecting them from potential financial harm.”

The News Release indicates that the Notice is a part of the CSA’s ongoing work to “develop a flexible and responsive regulatory approach to address financial exploitation and diminished mental capacity among older and vulnerable clients.” The CSA will consider additional measures.

The CSA encourages registered firms to consider developing and improving their written policies and procedures based on the suggested practices set out in the Notice. It is said to complement the self-regulatory organizations’ senior-focused guidance and resources, including the Investment Industry Regulatory Organization of Canada’s (IIROC) Notice 16-0114 Guidance on compliance and supervisory issues when dealing with senior clients[2] and the Mutual Fund Dealers Association of Canada’s (MFDA) seniors webpage.[3]

It should be noted that some provinces through their compliance review process may have also set out expectations with respect to senior or vulnerable clients in order to meet regulatory obligations such as the know-your-client obligation and the requirement to maintain adequate documentation to support suitability determinations. For example, the Ontario Securities Commission’s Compliance and Registrant Regulation Branch, in August 2018 published its Annual Summary Report for Dealers, Advisers and Investment Fund Managers, OSC Staff Notice 33-749.[4] Quebec’s securities regulator, the Autorite des Marches Financiers (“AMF”) in May 2019 published “Protecting Vulnerable Clients: A practical guide for the financial services industry”.[5]

Some firms may be quite advanced in their training and policies and procedures regarding vulnerable and older clients whereas others may be in the formative stages. In completing its compliance reviews, OSC Staff found that “ …approximately 90% of the firms reviewed did not have any written policies and procedures for dealing with seniors and vulnerable investors (for example investors with diminished capacity, severe or long term illness, mental or physical impairment, language barrier).[6] Staff also founds that the majority of firms were aware of the challenges associated with servicing senior clients but had not established any written procedures or guidelines nor provided any training programs to their staff on how to identify and address issues such as potential financial abuse, diminished mental capacity and the misuse of a power of attorney (POA).[7]

CSA Staff Notice 31-354 includes suggestions as to how registrants can identify and respond to situations involving financial exploitation and diminished mental capacity. It reminds firms of their know-your-client and suitability obligations and encourages representatives to consider requesting and documenting information such as:

  • Current employment status and intended retirement date
  • Potential expenses while in retiremennt (for example, travel plans, property purchases, medical needs and assisted living expenses)
  • Liquidity needs and whether investments are generating enough income to meet the client’s fixed and potential expesse,
  • Estate planning objectives
  • Trusted contact person information and
  • Any current wills or POAs of which the registrant should be aware.

It also discusses specific practices firms can consider when assessing their policies and procedures in areas such as:

  • account supervision,
  • complaint handling,
  • handling of powers of attorney and limited trading authorizations,
  • communicating with older or vulnerable clients,
  • reporting and escalating of issues, and
  • identifying trusted contact persons.

It will be interesting to see the extent to which these suggested practices are adopted, whether CSA members will collect data to determine the extent to which the suggested guidance and practices are utilized and, ultimately, and whether the desired outcomes of protecting individuals from financial harm are being met.

We also note that the OSC set out in its recently released Statement of Priorities[8] that it will be publishing during its fiscal year a staff notice and rule amendments for comment to address financial exploitation of seniors and vulnerable investors. It may be that certain suggested practices, such as collecting a trusted contact person, will be the subject of rule-making in Ontario and other provinces and territories in Canada.

[1] https://osc.gov.on.ca/documents/en/Securities-Category3/csa_20190621_31-354_suggested-practices-for-engaging-with-older-or-vulnerable-clients.pdf.

[2] https://www.iiroc.ca/Documents/2016/87c0e6d5-8054-4e88-9b56-9a079b8c35aa_en.pdf.

[3] https://mfda.ca/investors/for-seniors/

[4] https://www.osc.gov.on.ca/documents/en/Securities-Category3/20180823_annual-summary-report-for-dealers.pdf. This report sets out expectations relating to policies and procedures for senior clients in that the OSC directly regulates including that such firms should define a senior or vulnerable investor and provide training to staff to be able to communicate with senior investors, recognizing signs of financial abuse and cognitive impairment and responding to such issues. See page 37 and 49.

[5] https://lautorite.qc.ca/fileadmin/lautorite/grand_public/publications/professionnels/tous-les-pros/guide-bonnes-pratiques-personnes-vulnerables_an.pdf

[6] OSC Staff Notice 33-749, at page 36.

[7] OSC Staff Notice 33-749, at page 36.

[8] OSC Notice 11-786, Notice of Statement of Priorities for Financial Year to End March 31, 2020, (2019),  42 OSCB 5551; online: https://www.osc.gov.on.ca/documents/en/Securities-Category1/sn_20190627_11-786_sop-end-2020.pdf.

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