On July 6, 2017, IIROC published for comment IIROC Notice 17-0139 Proposed Amendments to Client Identification and Verification Requirements. IIROC is proposing changes to Part A of Rule 3200 of the proposed IIROC Dealer Member Plain Language Rule Book (the Proposed Amendments). The Proposed Amendments are designed to make IIROC rules consistent with National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and the Proceeds of Crime (Money Laundering) and Terrorist Act and its accompanying regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (defined in the Notice as the “AML Requirements”).
Effects of the Proposed Amendments
The Proposed Amendments would:
- Update the information Dealer Members are required to collect on clients who are not natural persons (such as corporations, partnerships and trusts)
- Change the amount of time Dealer Members have to confirm certain client information
- Reduce the number of clients who are exempt from Part A of Rule 3200 of the proposed IIROC Dealer Member Plain Language Rule Book (the IIROC Rules)
Part 3 of the Notice outlines the impact of the Proposed Amendments described as "generally more lenient on Dealer Members". Certain additional requirements are being imposed on Dealer Members to align IIROC Rules with NI 31-103 and AML Requirements. IIROC does not anticipate these amendments having a significant impact on Dealer Members as they are already required to comply with these requirements under the AML Rules.
To better align with NI 31-103, IIROC also proposes that Dealer Members must take reasonable steps to keep client identification information current. Like NI 31-103, the Proposed Amendments do not specify when such records must be updated. Under 31-103CP, the CSA consider information to be current if it is sufficiently up-to-date to support a suitability determination. The CSA had proposed a default requirement to perform a suitability assessment at least once every 12 months, which would impact the requirement to keep client identification information current, but is now reconsidering this position.
Red Tape Reduction
The chart under Section 2.6 of the Notice (page 6) is very interesting. By comparing the Proposed Amendments to the IIROC Rules, AML Rules and NI 31-103, it highlights numerous minor but otherwise inexplicable inconsistencies in the rules. The number of inconsistencies and the fact that IIROC has to rule-make to reconcile them are arguments for red tape reduction. Although they are minor, such inconsistencies matter because they permeate things like on-boarding procedures, KYC and AML forms and subscription agreements. Duplicative and inconsistent regulation can be confusing and costly for registrants and their advisers to navigate and make sense of.
IIROC plans to implement the Proposed Amendments when the proposed PLR Rule Book becomes effective(which will happen only after a training and implementation period that may extend well into 2018). Comments on the Proposed Amendments should be made in writing and delivered by August 8, 2017.
Arguably, regulations and requirements affecting registrants should be included in the initiatives to reduce regulatory burden currently being undertaken by the CSA, as set out in its 2016-19 business plan, and the OSC, as set out in its 2017-18 Statement of Priorities.