Review finds disclosure deficiencies at EMDs, portfolio managers

According to the notice, the CSA reviewed the relationship disclosure practices of 124 registered portfolio managers and exempt market dealers, and found a variety of deficiencies with their relationship disclosure practices, although the report does not set out how pervasive, or severe, the deficiencies actually were.

Nevertheless, it does indicate that know-your-client (KYC) information shortcomings were the most common issue, followed by disclosure of suitability obligations and descriptions of the content and frequency of portfolio reporting. It also noted deficiencies in risk, conflict of interest, and cost, disclosure.

The report indicates that the CSA followed up with firms to ensure that these issues were corrected, and that firms in certain jurisdictions were told that these deficiencies will be revisited in their next scheduled compliance examination.

In the meantime, the CSA calls on all portfolio managers and exempt market dealers to use the guidance published in the staff notice to assess their own relationship disclosure practices, and determine the areas where improvements are necessary.

Moreover, it notes that, since the review, the relationship disclosure requirements have been amended, with the implementation of the new requirements imposed by phase two of the Client Relationship Model (CRM 2); and that these requirements will continue to evolve as those reforms are phased in over the next three years.

“Compliance reviews of this nature demonstrate the CSA’s commitment to work with industry to make sure that the rules are being followed,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “The recommendations set out in the staff notice will assist the industry in continuing to improve practices and, as a result investors will be better protected.”