Saturday, April 4, 2020

Investor Bulletin- KYC/Suitability under COVID-19

The pandemic is likely to be a life- altering event for many individual investors who might experience, among other things:

·         a loss or significant decrease in employment or business income,

·         a significant decrease in the value of their investments, and/or

·         become seriously ill

This means that the investors’ know-your-client (KYC) information could need updating. 

Portfolio holdings and/or accounts might no longer be suitable for them.

We expect risk tolerance, risk capacity, objectives and time horizon to be severely impacted for many investors.

For accounts subject to the suitability determination requirements in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), Firms must:

·         take reasonable steps to keep current the investor’s KYC information before making a recommendation, accepting an investor’s instruction to buy or sell a security, or making a purchase or sale of a security for a managed account.

·         take reasonable steps to ensure that the purchase or sale of the security is suitable for the client. [Suitability standards  will further tighten up under the Client Focussed Reforms to be phased in during a two-year transition period, with the Amendments relating to KYC, suitability ,conflicts-of-interest and the associated relationship disclosure information provisions taking effect on December 31, 2020, and the remaining Amendments taking effect on December 31, 2021]..

·         consider significant changes in the portfolios as a trigger for updated KYC information.

Note: A suitability determination is not required for accounts held with discount brokers.

A Firms’ duty to update KYC information is occurring at the same time as investors and registrants are coping with the dislocations caused by quarantine measures and the shift to work-from-home arrangements.

We recommend that investors be proactive and advise the Firm of any and all changes in your personal circumstances that could impact your time horizon, risk tolerance, investment objectives, comfort with your financial plan and/or your investments. As investor’s personal circumstances change during a time of crisis, it is important that this be shared with the investment advisor.  Investors should take careful notes of all communications about your KYC information and keep those notes indefinitely.

COVID-19 or not, Firms must have policies and procedures for updating KYC information, including in situations like these where registrants have ample reason to believe that investors’ circumstances have changed, or are about to change, significantly. 

The know-your-client and suitability obligations are among the most fundamental obligations owed by registrants to their clients and are cornerstones of the investor protection regime. There is no chance that regulators will provide exemptive relief for this fundamental requirement but work-from-home creates risks for investors. Be vigilant. Control your own financial destiny or somebody else will.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.