On January 9, 2014, the CSA issued Staff Notice 31-336, Guidance for Portfolio Managers, Exempt Market Dealers and Other Registrants on the Know-Your-Client, Know-Your-Product and Suitability Obligations which reinforces registrants’ KYC and KYP duties, including providing guidance in specific circumstances. Of particular
- Registrants cannot rely on a client’s affirmation on a subscription agreement that he or she is an accredited investor; the registrant must take adequate steps to ascertain that the investor meets the criteria including a breakdown of financial and net assets;
Know Your Client
- Unregistered individuals may assist with incidental administrative tasks regarding collection of KYC information, but it is the obligation of the registrant to “know” the client;
- Adequate KYP involves moving beyond the Offering Memorandum or other issuer documentation where it is insuffcient;
- Reliance on third party reports does not relieve a registrant of his or her obligation to conduct sufficient due diligence to know the product;
Exempt Market Dealers
- An EMD’s relationship with the client may be transactional or ongoing; in the case of an ongoing relationship the CSA recommends that the EMD implement a practice of updating KYC information that is consistent with the SRA concept of “trigger events”;
- EMDs must be mindful of potential conflicts when they have a relationship with the issuer or seller of securities; the purchaser is the EMD’s client and the EMD has obligations to that client, including suitability obligations.
- Investments in securities of a single issuer or group of related issuers that represent more than 10% of the investor’s net financial assets will be viewed as potentially raising suitability concerns due to concentration.