CanadaCSA Staff Notice 31-342, guidance for portfolio managers regarding online advice
Guidance, not a law: the Canadian Securities Administrators's reading of National Instrument 31-103, suitability determination. 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
- on_request
- Who audits it
- Regulator
As of .
What the regulator expects
- It reaches you if you are a registered portfolio manager or restricted portfolio manager that provides advice through an online platform: CSA staff say there is no online advice exemption from the normal conditions of registration, and that the registration and conduct requirements of National Instrument 31-103 are technology neutral and the same whether you advise face-to-face or through an online platform.
- CSA staff say your know your client process must amount to a meaningful discussion with the client or prospective client, even if that discussion is not a face-to-face conversation, and cannot be a tick the box exercise; clients should be able to start a live interaction with an advising representative by telephone, video link, email or internet chat.
- CSA staff say an advising representative remains responsible for determining that sufficient know your client information has been gathered to support suitability determinations, and for ensuring that the model portfolio the software proposes for the client is in fact suitable for the client.
- CSA staff say you must gather your own know your client information and make your own suitability determinations, and cannot rely on information provided under a referral arrangement or otherwise delegate those obligations to someone else.
- CSA staff say you must document the know your client information gathered for each client, update it regularly, and ensure you have a sufficient number of advising representatives to service clients as the number of clients grows.
- CSA staff expect an applicant or registrant planning online advice to provide, with its registration filing, its proposed online know your client questionnaire, investor profiles, model portfolios and details of related processes.
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
CSA Staff Notice 31-342 gives guidance from staff of the Canadian Securities Administrators to portfolio managers about the ways in which a portfolio manager can provide advice using an online platform while complying with regulatory requirements. It states that there is no online advice exemption from the normal conditions of registration for a portfolio manager.
It states that the registration and conduct requirements of National Instrument 31-103 are technology neutral, so that the rules are the same if a portfolio manager operates under the traditional model of interacting with clients face-to-face and if it uses an online platform.
It describes platforms that use electronic questionnaires for the know your client information gathering process, while an advising representative remains responsible for determining that sufficient information has been gathered to support investment suitability determinations. It states that model portfolios are often created using algorithmic software and that an advising representative has responsibility for the suitability of each client's investments.
It states that an online adviser must gather its own know your client information and make its own suitability determinations, and cannot rely on information provided under a referral arrangement or otherwise delegate its obligations to someone else. It states that CSA staff may conduct compliance reviews of online advisers within one or two years after they commence operations. The notice is dated .
In 2019 the Canadian Securities Administrators stated that the client focused reforms preserve the technology-neutral stance of National Instrument 31-103, in line with previous notices such as CSA Staff Notice 31-342.