On June 21, the Canadian Securities Administrators (CSA) published Staff Notice 31-354 Suggested Practices for Engaging with Older or Vulnerable Clients (Notice). The Notice builds on prior work by the regulators, including the Ontario Securities Commission Seniors Strategy, which we wrote about in March 2018. It’s also intended to complement senior-focused guidance published by the Investment Industry Regulatory Organization of Canada (IIROC) and the seniors webpage maintained by the Mutual Fund Dealers Association (MFDA).

Although the Notice doesn’t break any new ground, it does provide registrants with more detailed guidance and suggestions for dealing with older and vulnerable clients. In particular, we noted the following:

  • Red Flags: The Notice describes red flags for diminished mental capacity and financial exploitation, noting that registrants can be among the first to notice problems in these areas. CSA staff recommend that firms train their employees to recognize these warning signs and understand how the changes can affect clients’ financial decision-making abilities.
  • Trusted Contact Person (TCP): For some time, regulators have been encouraging registrants to ask their clients to identify one or more TCPs whom the registrant can contact if there is a concern about mental capacity or financial exploitation. Implementing a TCP protocol, however, presents challenges for registrants due to concerns about matters such as privacy laws, the risk of complaints or lawsuits arising from a delay in implementing a client’s instruction pending a discussion with a TCP, and concerns about situations where a TCP might be perpetrating abuse of the client. Until legislation is enacted that provides a clear safe harbour for registrants that contact a TCP, registrants will continue to face risks in this area. The Notice, however, includes recommendations on steps that registrants can take to mitigate some of these risks. As we discuss in another article in this bulletin, the CSA are working on a TCP requirement and, ideally, it will incorporate a safe harbour.
  • Communications: Registrants are encouraged to: (1) be aware of how issues relating to vision, hearing and mobility may affect how their clients communicate with them; (2) design written communications with the needs of older and vulnerable clients in mind; and (3) provide written summaries and follow-up information to older or vulnerable clients after conversations take place.
  • Know-Your-Client (KYC): The Notice describes the types of information to request and document. CSA staff also encourage firms to meet with older or vulnerable clients more frequently to remain informed of significant changes (such as the diagnosis of a medical condition) that may affect the clients’ financial circumstances and/or indicate diminished financial capacity or increased risk of financial exploitation.
  • Supervision: Registrants are encouraged to establish heightened supervision of accounts and transactions for older and vulnerable clients, including: (1) conducting more focused reviews of new account application forms and KYC updates for these clients; (2) establishing age-based heightened review criteria for certain investments or product concentrations; and (3) incorporating factors such as age and retirement status into criteria for conducting spot checks on client trades or portfolios.
  • Complaint-Handling: Registrants are encouraged to be mindful that older or vulnerable clients may be particularly susceptible to abandoning a justified complaint because they find the firm’s complaint-handling procedures too prolonged or complex.
  • POAs and LTAs: The CSA encourages registrants to, among other things:
    • have policies and procedures (P&Ps) to identify accounts that have a power of attorney (POA) or limited trading authorizations (LTAs) or that are under public guardianship or trustee services;
    • develop P&Ps to ensure that any POAs on file are current and satisfy applicable requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, including requirements relating to third-party determinations;
    • consider how legislation that governs POAs in the jurisdiction where the client resides may affect the registrant’s ability to take instructions from the designated attorney;
    • keep in mind that the client’s needs, objectives, financial circumstances and risk tolerance must still be considered in determining whether an investment is suitable, even when the registrant is taking instructions from someone appointed under a POA; and
    • be mindful that POAs and LTAs can be abused, so that the firm should consider developing P&Ps and employee training to address potential abuses in this area.
  • Escalation P&Ps: The CSA encourages registrants to establish P&Ps for employees to escalate concerns within the firm if they suspect a client is suffering from diminished mental capacity or is being financially exploited. They also encourage firms to have P&Ps that address when and how suspected abuse of a POA should be escalated to external authorities. The Notice outlines information that firms could collect in standardized forms to record and share (internally or externally, as appropriate) when concerns arise and also suggests that firms maintain and share with their employees up-to-date contact information for provincial support services and providers.