CanadaNational Instrument 31-103, material conflicts of interest
National Instrument 31-103, s. 13.4
In force since .
An AI sector rules rule binding private bodies.
- Instrument type
- a regulation made under an act
- Obligation class
- Governance, Disclosure
- Audit expectation
- none
As of .
What it requires
- It reaches you if you are a registered firm, meaning a registered dealer, a registered adviser or a registered investment fund manager, other than an investment fund manager in respect of an investment fund that is subject to National Instrument 81-107: take reasonable steps to identify existing material conflicts of interest, and material conflicts of interest that are reasonably foreseeable, between the firm and the client and between each individual acting on the firm's behalf and the client (sections 13.4(1) and 13.4.2).
- Address all material conflicts of interest between a client and the firm, including each individual acting on its behalf, in the best interest of the client (section 13.4(2)).
- Avoid any material conflict of interest between a client and the firm, including each individual acting on its behalf, if the conflict is not, or cannot otherwise be, addressed in the best interest of the client (section 13.4(3)).
- Disclose in writing all material conflicts of interest you have identified to a client whose interests are affected by them, if a reasonable client would expect to be informed, describing the nature and extent of the conflict, its potential impact on and risk to the client, and how it has been or will be addressed (section 13.4(4) and (5)).
- Present the disclosure in a manner that, to a reasonable person, is prominent, specific and written in plain language (section 13.4(6)).
- Make the disclosure before opening an account for the client if the conflict has been identified at that time, and otherwise in a timely manner upon identification of a conflict not previously disclosed (section 13.4(7)).
- Do not rely on disclosure alone to meet the duty to address a material conflict of interest in the best interest of the client (section 13.4(8)).
If you get it wrong
Criminal exposureYes
Criminal exposure note
Contravening Ontario securities law is an offence under clause 122(1)(c) of the Securities Act (Ontario), punishable on conviction by a fine of not more than $10 million or imprisonment for a term of not more than five years less a day, or both.
Penalty structure
Administrative penalty of not more than $5 million for each failure to comply with Ontario securities law, under the Securities Act (Ontario).
- Rule
- Per violation only
- As of
- Currency
- CAD
- Per violation unit
- Violation
- Per violation amount
- 5,000,000
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
Section 13.4 of National Instrument 31-103 requires a registered firm to take reasonable steps to identify existing material conflicts of interest, and material conflicts of interest that are reasonably foreseeable, between the firm and the client and between each individual acting on the firm's behalf and the client. A registered firm must address all material conflicts of interest between a client and itself, including each individual acting on its behalf, in the best interest of the client.
A registered firm must avoid any material conflict of interest between a client and the firm, including each individual acting on its behalf, if the conflict is not, or cannot be otherwise addressed in the best interest of the client.
A registered firm must disclose in writing all material conflicts of interest identified to a client whose interests are affected by them, if a reasonable client would expect to be informed, describing the nature and extent of the conflict, its potential impact on and risk to the client, and how it has been or will be addressed. The disclosure must be presented in a manner that, to a reasonable person, is prominent, specific and written in plain language.
A registrant does not satisfy the duty to address a material conflict of interest in the best interest of the client solely by providing disclosure to the client. Section 13.4.1 separately requires a registered individual who identifies a material conflict of interest between the individual and the client to promptly report it to the individual's sponsoring firm.
Sections 13.4 and 13.4.1 do not apply to an investment fund manager in respect of an investment fund that is subject to National Instrument 81-107. A registered firm is a registered dealer, a registered adviser or a registered investment fund manager. The 2019 amending instrument replaced section 13.4.
The Ontario Securities Commission ordered, in parallel with the other jurisdictions of the Canadian Securities Administrators, that the day by which a registrant must comply with the conflicts of interest reforms be postponed by six months from , and the order ceased to have effect on .
The Canadian Securities Administrators stated in 2019 that amendments to National Instrument 31-103 would be implemented as a rule in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Yukon. In Québec the amendments were to be adopted as a regulation made under section 331.1 of the Securities Act (Québec). In Saskatchewan they were to be implemented as a commission regulation.
Section 143 of the Securities Act (Ontario) lets the Commission make rules prescribing requirements for registrants, including standards of practice and business conduct in dealing with clients and requirements for the prevention or regulation of conflicts of interest. The Act defines regulations as the regulations made under the Act and, unless the context otherwise indicates, the rules.
The Act defines Ontario securities law as the Act, the regulations and, in respect of a person or company, a decision of the Commission, the Tribunal or a Director to which the person or company is subject. A person or company that contravenes Ontario securities law is guilty of an offence and on conviction is liable to a fine of not more than $10 million or to imprisonment for a term of not more than five years less a day, or to both.
The Act provides for an order requiring a person or company that has not complied with Ontario securities law to pay an administrative penalty of not more than $5 million for each failure to comply. The offence and penalty amounts above are those of the Securities Act (Ontario), and National Instrument 14-101 lists a separate securities act for each other province and territory.
When LexLint raises it
When your app profile says your app provides financial services.