About the guide
The wealth and investment management industry in Canada is in the midst of an important transformational change triggered by factors ranging from the availability of advanced tools and technologies, changing customer expectations, and changing client demographics, thanks to ongoing intergenerational wealth transfer.
To ensure that investment and wealth management firms put the client’s interests first, the Canadian Securities Administration (CSA) published the Client Focused Reforms (CFRs) in October 2019, and these are expected to be fully implemented by December 31, 2021.
Key among these regulatory changes are the enhancements to suitability rules to assess the suitability of client trades and investment recommendations, changes to “know-your-client” (KYC) information requirements, new “know-your-product” (KYP) requirements, and enhancements to client-registrant conflicts of interest requirements.
These reforms are expected to have major implications for the industry, both in terms of business processes and technology changes. This article categorizes these updated regulatory requirements based on the degree of anticipated impact, and, in addition to deep diving into the regulatory changes per se, also talks about the emerging business process and technology impact of the various changes.
Of note are the enhanced KYC and KYP obligations, which require a large amount of new information to be collected, processed, integrated, stored, and made available to Dealers, Registered Individuals, and systems. These changes will necessitate increased emphasis on Master Data Management, for firms to have a single view of their customers and products and will also require significant business process changes.
The Client Focused Reforms also enhance and clarify registrants’ obligations regarding client suitability determinations, that is, in assessing whether an investment action is suitable, and in determining each client’s risk profile based on their liquidity needs, debt, income, investments, age and life stage. Organizations will also be responsible for appropriately addressing and documenting instances of conflicts between a client’s ROI expectations and their risk profile. To ensure adherence to these aspects of the CFRs, firms will need to adopt/enhance technology to calculate account concentration, liquidity, and undertake predictive modelling of the impact of their actions to assess suitability and risk.
Next, the CFRs bring changes to the processes for documenting, tracking, overseeing, and reporting on sales practices, compensation arrangements and incentive practices, misleading titles, and for documenting, monitoring, supervising, and resolving conflicts of interests pertaining to all referral arrangements. The regulations also make changes to internal controls and will require firms to have detailed written policies and procedures that include risk mitigation for KYC and KYP obligations, suitability determination obligation, referral arrangements, conflicts of interest, and use of titles and designations by the firm’s Registered Individuals.
Finally, the article showcases Adastra’s expertise in building and implementing data management solutions for the financial services sector, and lists out the technology and business process changes Adastra can make for wealth and investment management firms to help them adhere to the Client Focused Reforms. Our experts have developed a set of solutions based on the enhanced requirements of the CFRs, and for each change, including KYC and KYP obligations, suitability determination obligation, client risk profiling and conflict between risk profile and expectations, handling conflicts of interest, and changes to internal controls, Adastra offers focused and targeted process and technology solutions to support industry players.