CanadaCompanion Policy 31-103CP, know your client and suitability guidance
Companion Policy 31-103CP, ss. 13.2, 13.3
Guidance, not a law: the Canadian Securities Administrators's reading of National Instrument 31-103, know your client and know your product. It binds nobody by itself; the law it reads does.
Guidance on an AI sector rules rule, addressed to private bodies.
- Instrument type
- guidance published by a regulator
- Obligation class
- Governance
- Audit expectation
- none
As of .
What the regulator expects
- It reaches you if you are a registrant that uses standardized questionnaires or other tools to collect or update a client's know your client information, including through an online adviser: the Canadian Securities Administrators say the process must amount to a meaningful interaction between the client and the registrant, and that you remain responsible for the know your client process.
- The Canadian Securities Administrators say the know your client obligation does not vary depending on the medium through which you interact with your client to gather the necessary information, and that responsibilities arising from it cannot be delegated.
- The Canadian Securities Administrators say tools such as questionnaires should be designed to arrive at a meaningful risk profile for the client, that the questions and answers used to establish the level of risk a client is willing and able to accept should be documented, and that the questions should be fair, clear and not misleading.
- The Canadian Securities Administrators say a client's risk profile should not be manipulated to justify recommending higher-risk products, and that clients should not be influenced by a representative as to the way they respond to questions about risk tolerance or risk capacity.
Who enforces it
Enforcement body
The securities regulatory authority of each province and territory, listed in Appendix C of National Instrument 14-101 (in Ontario, the Ontario Securities Commission)
What this law does
Companion Policy 31-103CP sets out how the Canadian Securities Administrators interpret or apply the provisions of National Instrument 31-103 and related securities legislation. The Securities Act (Ontario) defines a policy as a written statement of the Commission of principles, standards, criteria or factors that relate to a decision, and of the manner in which a provision of the Act, the regulations or the rules is interpreted or applied by the Commission or the Director.
The policy states that the process of collecting and updating a client's know your client information must amount to a meaningful interaction between the client and the registrant. It states that standardized questionnaires or other tools may be used to facilitate the collection of know your client information and to document it, and that the registrant remains responsible for the process.
It states that the know your client obligation does not vary depending on the medium through which a registrant interacts with its client to gather the necessary information. It states that tools such as questionnaires should be designed to arrive at a meaningful risk profile for the client, and that the questions and answers used to establish the level of risk a client is willing and able to accept should be documented.
It gives the example of a client who invests in a model portfolio managed by an online adviser, for whom the Canadian Securities Administrators would not expect a change of the registered individual responsible for the account to necessarily result in an in-depth reassessment of suitability.
In 2019 the Canadian Securities Administrators stated that tools such as standardized questionnaires may be used to collect or review the know your client information, as long as the process amounts to a meaningful interaction between the client and the registrant, and that the registrant remains responsible for the process regardless of the tools or technologies it uses.
The Canadian Securities Administrators provided that the amendments to the instrument and the companion policy other than those on conflicts of interest and relationship disclosure information would take effect on .