Canadian securities regulators are adopting new measures that aim to enable the investment industry to help combat the exploitation of vulnerable investors.
The Canadian Securities Administrators (CSA) unveiled final amendments that will require firms to ask clients to name a “trusted contact person” that can be called upon in the event of suspected abuse.
The rules will also create a provision for firms to place temporary holds on clients’ accounts in cases where firms have concerns about a client’s mental capacity or suspect that a client is being exploited.
Taken together, the rule changes are intended to enable industry firms to play a bigger role in preventing the financial abuse or exploitation of their senior, and other vulnerable, clients.
“Registrants can be in a unique position to notice red flags because of the interactions and the knowledge they acquire through the client relationship,” said Louis Morisset, CSA chair and president, and CEO of the Autorité des marchés financiers, in a release.
“We expect the amendments will provide more robust investor protection, while also respecting client autonomy and responding to the needs and priorities of older and vulnerable investors.”
The self-regulatory organizations, which worked with the CSA to develop the provisions, are expected to adopt the measures in their own rules.
Subject to approval, the rule changes by the CSA, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada are all slated to take effect on Dec. 31 alongside the remaining client-focused reforms.
In a notice outlining the changes, the CSA said that firms and reps aren’t required to collect trusted contact information by the end of the year. Rather, it’s expected that the first time they update a client’s KYC information (after Dec. 31), they will seek trusted contact information.
While clients won’t be obliged to provide a trusted contact to open an account, firms will be required to “take reasonable steps” to obtain the information.
Trusted contacts won’t be authorized to make transactions in the client’s account; instead, they’re intended to help firms protect their vulnerable clients’ financial interests or assets in the face of suspected abuse.
The challenge of confronting the abuse of senior clients is expected to grow as the population ages and the proportion of investors that are grappling with diminishing mental capacity increases.
“Seniors are a growing segment of investors whose needs and issues demand attention,” the CSA said in its notice.
The new measures form part of its ongoing effort “to enhance protection of older and vulnerable clients by providing registrants with tools and guidance to address issues of financial exploitation and diminished mental capacity,” it said.
“These amendments are an example of the CSA’s focus on enhanced investor protection in action,” said Morisset. “We are committed to policy development that increases investor protection and ultimately benefits both investors and the industry as a whole.”