The Canadian Securities Administrators Adopt New Amendments to Enhance Protections for Senior and Vulnerable Investors

Bressler, Amery & Ross, P.C.

On July 15, 2021, the Canadian Securities Administrators (CSA) issued a series of amendments in an effort to bolster protections for senior and vulnerable investors across Canada. These new amendments, which are anticipated to become effective on December 31, 2021, will enable firms to establish “Trusted Contact Persons” and to implement the use of “temporary holds” on both disbursements and securities transactions in the event of suspected financial exploitation of a senior or vulnerable investor.

Trusted Contact Persons (TCP)

The first amendment to National Instrument 31-103 requires registrants to undergo reasonable steps to obtain both the name and contact information of a client’s TCP, and to obtain the client’s written permission to contact the TCP in certain situations. Those situations include instances where the registered individual or firm has concerns about: (i) possible financial exploitation, (ii) the client’s mental capacity as it relates to the ability of the client to make decisions involving financial matters; (iii) the name and contact information of a legal representative of the client; and (iv) the client’s contact information.

Temporary Holds

The second amendment to National Instrument 31-103 allows registered individuals and firms to place a temporary hold – defined as “the purchase or sale of a security on behalf of a client or on the withdrawal or transfer of cash or securities from a client’s account” – in the event the registered individual or firm reasonably believes that the client is vulnerable and financial exploitation of the client has occurred, is occurring, has been attempted or will be attempted. In the event a registered individual or firm places a temporary hold, the registered individual or firm is required to:

  1. Document the facts and reasons for the hold;
  2. Provide notice of the hold and the reasons for the hold to the client as soon as possible; and
  3. Review the relevant facts as soon as possible after placing the hold to determine if continuing the hold is appropriate.

In addition, within 30 days of placing the temporary hold and, until the hold is revoked during each subsequent 30-day period, the registered individual or firm must either (i) revoke the temporary hold; or (ii) provide the client with notice of the firm’s decision to continue the hold as well as the reasons for that decision.

Once fully-implemented, the new CSA amendments will apply to all registered firms in Canada, including members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).

These amendments, which are largely consistent with the report and hold framework of FINRA Rule 2165 (Financial Exploitation of Specified Adults) and the trusted contact amendment to Rule 4512 (Customer Account Information), reflect the reality that financial professionals are often in a unique position to detect signs of potential financial exploitation and diminished mental capacity due to their client relationships and detailed knowledge of their clients’ personal and financial situations. Taken together, these amendments will increase protections for senior and vulnerable investors by providing financial professionals with additional tools to address issues of client diminished capacity and suspected financial exploitation. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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