Last week, the Ontario Securities Commission Compliance and Registrant Regulation Branch released the results of its targeted compliance review of portfolio managers and exempt market dealers. Specifically, the review sought to assess compliance with know-your-client, know-your-product and suitability obligations found in NI 31-103.
With respect to EMDs, the review ultimately found a number of substantive issues deemed unacceptable by Branch staff. Issues identified by staff included (i) sales of securities to investors that did not qualify as accredited investors; (ii) inadequate suitability assessments (including due to concentration risk); (iii) misuses of client-directed trade instructions; (iv) in appropriate disclaimer language in client documentation; (v) improper delegation of KYC and suitability obligations to third parties; (vi) inadequate relationship disclosure information; and (vii) lacking or inadequate policies and procedures.
With respect to portfolio managers, staff found general compliance with obligations. Issues identified, however, included (i) inadequate suitability assessments; (ii) inadequate relationship disclosure information; (iii) inadequate process on collection, documentation and maintenance of KYC information; and (iv) inadequate policies and procedures.
Ultimately, approximately 62% of registrants reviewed were issued deficiency reports, with more than 30% of the deficiencies characterized as significant. The Branch intends to issue guidance to registrants in the next few months to provide best practices regarding KYC, KYP and suitability. The guidance is also expected to identify examples of unacceptable practices as well.
For more information, see OSC Staff Notice 33-740.