engaged by issuers and investors to make
a private placement of securities. ;e
targeted reforms, if implemented, must
be done with awareness of the business
models and types of registrants involved.
A ‘one-size ;ts all’ approach could have
deleterious e;ects on registrants, investors
and the capital markets.
SPECIFIC COMMENTS ON THE
Con;icts of interest: ;e PCMA
supports the CSA's objective of aiming to
avoid and control con;icts of interest in
such a manner that prioritizes client's
interests. ;e PCMA is concerned that
the proposals in the Consultation Paper
do not adequately address how registrants
will discharge their duty to adequately
disclose con;icts of interest to their
clients. In particular, the scope of disclosure required by the Consultation Paper
;e PCMA is concerned that prominent, speci;c and clear disclosure, coupled
with a signed acknowledgement from an
investor, may not satisfy the ‘su;ciently
meaningful test’ that has been introduced.
;e CSA is proposing a ‘reasonable basis
test’ – a new requirement where registrants must have a reasonable basis for
concluding a client meaningfully understands the implications of a disclosed
con;ict of interest. ;e Consultation
Paper provides no additional guidance as
to what factors must be considered by
registrants to meet these new tests.
Know your client: ;e reforms in the
Consultation Paper add new requirements
and replace a common regulatory requirement with a new and unknown requirement. ;e result will be increased regulatory burden and confusion for both
registrants and investors.
Requiring basic tax knowledge by
registrants could lead to a greater expectation gap, as investors would think the
registrant has some expert knowledge in
tax. Tax matters can be extremely complex
and registrants should not be encouraged
through regulation to give advice on tax
strategies when they do not have that
expertise. ;is could result in investors
not seeking independent tax advice and
just relying on the registrant.
;e CSA is proposing to replace the
concept of ‘risk tolerance’ with a client
risk pro;le. ;e PCMA does not believe
that investment risk tolerance, a well-established concept, should be replaced by
a detailed and potentially confusing risk
pro;ling process that will be di;cult and
costly for EMDs to implement.
Requiring the annual updating of KYC
forms is impractical in Canada’s private
capital markets. Exempt market products
generally represent only a portion of a
client’s portfolio. As a result, an EMD
may not deal with a client for a period of
years, or may only ever make a single
transaction with a client. ;e customary
and usual practice for EMDs is to ensure
the client’s KYC form is updated prior to
making a trade.
Know your product: ;e CSA has
aspirational standards of product shelf
investigation, development and optimization and implies that EMDs are not
looking after the interests of their clients.
;e PCMA does not agree that imposing
such requirements will best serve the
industry let alone clients.
;e CSA has concerns with EMD
product shelves; however, it has not
explicitly identi;ed its issue or concerns
in the Consultation Paper. Instead, the
CSA has set out a targeted KYP process
without identifying what failures it is
attempting to resolve.
;e ‘one-size ;ts all’ approach may not
be a suitable approach for regulating
registrants. ;ere are many EMD
business models. An EMD may only want
to sell proprietary product or have a
limited product shelf for a variety of
reasons. We ;nd it curious that the CSA
sees a need to interfere with the dynamics
of the marketplace. EMDs and dealing
representatives should have the freedom
of choice to operate their businesses in the
manner they see ;t.
;e Consultation Paper assumes that a
private capital markets investigation is
possible. ;ere is no centralized and
accessible database where one can search
and analyze various private capital market
o;erings in order to compare one to
another let alone engage in shelf development and/or optimization.
;e PCMA believes the CSA is forcing
an unrealistic KYP requirement on all
EMDs arising out of its concerns with
certain EMDs selling only one proprietary product, a few non-proprietary
products or a limited mix of both. An
EMD that only sells its own product
should provide investors with disclosure
so clients understand the relationship
and con;ict of interest. ;e decision by
a registrant to sell proprietary or a mix of
proprietary and non-proprietary products should be a choice of the registrant
based on its business model.
;e PCMA believes the regulatory
requirement and the desired outcome
should be that each trade is suitable. A
registrant that only sells a few products
to the exclusion of others should not be
seen as a signi;cant de;ciency by
Suitability: ;e PCMA agrees with the
CSA approach of including the phrase
“investment strategy involving a
security” in the suitability requirement.
We believe the existing suitability
standard is robust, rigorous and clear.
;e proposed targeted reforms and new
standards create uncertainty, and are
ill-suited to account for the diversity of
In the Consultation Paper, the CSA
expands upon what it calls the three
elements of suitability: basic ;nancial
suitability, investment strategy suitability, and product selection suitability.
Until the publication of the Consultation Paper these three elements of
suitability were previously unknown.
;ese terms are not used or de;ned in
the materials for the EMP Course, the
Canadian Securities Course, the CFA
course materials or even on the internet.
It is impossible to meet a standard for
which no independent information
Basic ;nancial suitability requires
registrants to act as ;nancial consultants for
investors. Just like other targeted reforms,
this requirement could result in further
reliance on a registrant in an area where the
registrant does not have expertise. ;is
could result in investors not seeking
independent ;nancial planning advice and