Published By: Insurance Journal
Author: Andrew Rickard
Date Published: July 22, 2016 01:34 p.m.
The Ontario Securities Commission (OSC) says some advisors are not collecting and maintaining adequate Know Your Client (KYC) information, and is warning against the inappropriate use of client testimonials. The regulator is also concerned about the quality of advice that is being offered to seniors and other vulnerable investors.
In its annual summary report on compliance and registrant regulation, the OSC says that the inadequate collection, documentation, and updating of KYC information “continues to be a significant and common deficiency” in the industry. Among other things, compliance reviews have found that advisors have failed to gather information about their clients’ other investments. Without this information, the regulator warns that “a registrant does not have an adequate understanding of the client’s financial situation and whether the proposed transaction may result in undue concentration risk in securities of a single issuer, group of related issuers, or industry.”
The OSC is also keeping an eye on client testimonials. Although Ontario securities law does not prohibit the use of testimonials, the OSC says advisors need to make sure that they are balanced, fair, and not misleading. “Registrants should be able to substantiate all claims that they make in their marketing materials,” reads the report. “Further, there is a risk that misleading or inaccurate testimonials will be communicated to investors, unless the registrant has procedures in place to conduct an adequate review and approval of the use of testimonials.”
In addition, the regulator says its compliance reviews uncovered instances in which advisors failed to provide appropriate services or products to vulnerable investors. The OSC is particularly concerned about how seniors are being treated, and is developing guidelines and best practices for those who provide advice to older clients. “In the interim, we remind you that you are responsible for the adequacy of your firm’s policies and procedures for the protection of investors, including vulnerable investors,” reads the warning to investment dealers. “You should assess your firm’s business model and policies and procedures.”
These are just some highlights from the 99-page report, which the OSC “strongly encourages” advisors to read and use in order to gain a better understanding of their obligations.