CFRs: 3 Tips to Help You Get Audit-Ready

01 March 2023 by National Bank Independant Network
Three National bank experts share their thought about money taboo

A recent panel discussion hosted by National Bank Independent Network explored the topic of Client Focused Reforms. Expert panelists shared insights about how to ensure you are meeting the requirements, tips for best practices, and their thoughts about the “why” behind the changes.

Financial Advisors are by now very familiar with Client Focused Reforms (CFRs), which were published by the Canadian Securities Administrators in 2019 and have been widely covered by industry media. NBIN's annual conference, Vision/22, provided an opportunity to step back and look at best practices for implementation. Leanne Morgan, Senior Manager, Risk & Regulatory Management, NBIN, moderated a discussion panel featuring the following guest experts:

Melissa Ghislanzoni, General Counsel, Portfolio Management Association of Canada

Sean Shore, Securities, Compliance and Regulatory Counsel, Canadian Compliance & Regulatory Law

Below is a recap of three recommendations that emerged during the discussion. 

1. Revisit your marketing and advertising materials.

From your website to social media and paid advertising, there are many channels firms can use to raise awareness about their offerings. Consumers rely on this information to be honest and accurate.

This point was underscored by panelist Sean Shore, Securities, Compliance and Regulatory Counsel, Canadian Compliance & Regulatory Law, who -- in addition to representing clients in the investment industry -- is also a public hearing panel member for the Investment Industry Regulatory Organization of Canada and industry hearing panel member for the Mutual Fund Dealers Association of Canada.

"I think that this is going to be an area that the regulator focuses on," he said. "When you speak and hear of clients in the real world, the concept of them reviewing marketing materials...what they read highly influences their decisions."

He added that registrants need to be "Making sure you have control over how [marketing] materials are produced, vetted and released, and your ability to demonstrate your supervision."

Likewise, titles and professional designations should be clear and transparent in their registration information. "We know the CSA is doing quite a bit of work around titles...they are taking this very, very seriously," said panelist Melissa Ghislanzoni, General Counsel, Portfolio Management Association of Canada (PMAC).

2. Carefully evaluate your proprietary products.

This is a sensitive topic for regulators, due to concerns about conflict of interest. Ensure that your process and documentation reflect a rigorous, well-thought-out process.

When a proprietary product is reviewed by your Know Your Product committee, have thoughtful discussions, and clearly document details about the product, how it should be sold and the rationale behind the risk level assigned to the product.

Melissa explained that it should be clear "who made the decision, how the decision was made, how often might you revisit that decision, what are your triggers for doing another look at the landscape."

"Expect to discuss these products with regulators," said Sean. "As long as you can document [and tell regulators] 'look, we went through this and this is what we honestly landed on,' I think you can defend that."  The key is to demonstrate a repeatable and scalable process that reflects meaningful discussion among key stakeholders and which can reasonably justify the end decisions.

3. Write it down.

In addition to clearly documented policies and procedures, always document your client information, decision-making processes, and more. When regulators visit your firm, they will want to see evidence of how decisions were made and your data collection practices, for example.

Documentation related to proprietary products mentioned above is one example. Another is CSA enhancements related to Know Your Client requirements.

It is not enough to say that you know everything about a given client -- you must show that the information has been captured in written client notes. "You need to have your registrants trained and documenting, hopefully in a really easy-to-use system," said Melissa.

The Bottom Line

The rationale behind the CFRs is to strengthen the relationship between an advisor and an investor. When regulators visit your firm, they will be looking for evidence that these requirements have been covered carefully and thoughtfully.

This article offers a few tips for how to prepare for upcoming audits. Be sure to revisit all the new requirements and be ready to explain, and show, how you are meeting them.

If you have any questions about CFRs, reach out to your Regional Vice President for support.

National Bank Independent Network (NBIN) is a division of National Bank Financial Inc. (NBF Inc.). Please note that comments included in this communication are for information purposes only. The opinions and endorsements expressed herein do not necessarily reflect those of NBIN.

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