The Investment Industry Regulatory Organization of Canada has published the latest version of its proposed client relationship model for a 90-day comment period.

In a notice published Friday, IIROC says that the proposed rules and amendments have been introduced to establish substantive requirements and address regulatory objectives in the areas of: relationship disclosure; management and disclosure of conflicts of interest; suitability; and performance reporting.

“Disclosure of the details of the account relationship and the services to be provided are necessary to better inform the client of the nature of their account relationship. This disclosure, along with account cost and activity reporting will provide clients with important information to use in assessing the performance of investments in their account and whether their objectives and expectations for the account have been satisfied,” it says.

Additionally, a new rule is being proposed to clarify the IIROC’s position regarding the management of conflicts of interest. The proposed rule will require dealers to develop policies and procedures to identify, disclose and address all real and potential conflicts.

Also, amendments to the account suitability requirements have been introduced to enhance the level of investor protection for retail clients by ensuring that the suitability of investments in each client’s account is assessed whenever: a trade is accepted; a recommendation is made; securities are transferred or deposited into the account; there is a change of representative on the account; or there is a material change to the know-your-client information for the account.

“The effect of the proposed rules and amendments will be to improve the quality of information that clients are provided regarding their account relationships and with the performance of investments in their accounts. Clients will also be better served through more frequent monitoring of their accounts and better conflict management procedures at dealers,” it notes.

There will be costs to dealers in complying with the new rules, and the IIROC says that long transition periods will be adopted to give firms time to make the necessary changes to their systems and practices. A formal cost-benefit analysis has not been carried out, despite an independent research company being hired for the job, because various industry factions (IIROCs predecessor, the Investment Dealers Association, the Mutual Fund Dealers Association of Canada, Ontario Securities Commisison, the Investment Funds Institute of Canada, the Investment Industry Association of Canada along with representatives from investment dealers and mutual fund dealers) could not agree on an approach.

IIROC says that it is expected that the systems and cost impacts will be the greatest for the relationship disclosure and performance reporting proposals.

Proposed rule changes to address these issues were published by the IDA in February 2008 and subsequently adopted by the IIROC board in May 2008. IIROC made several revisions to the proposed rules and amendments to address comments received, and they have now been re-published for a 90-day comment period. No implementation date has been set, and the rules must first receive approval from the provincial securities commissions.

IE