On May 30, 2013, the Ontario Securities Commission published its findings for the 2012/2013 focussed review of 87 firms registered in the exempt market dealer and portfolio manager categories. The focus was on firms’ compliance with their know-your-product, know-your-client and suitability obligations.
The more prevalent breaches were found at exempt market dealers (EMDs), which made up of just over half of the firms chosen for review. Compliance and Registrant Regulation Staff found that 75% of EMDs did not have adequate processes in place for collecting, documenting and updating KYC information. 45% of the EMDs reviewed had inadequate or had no policies and procedures for KYC, KYP or assessing suitability. EMDs sold exempt securities that were unsuitable because
- investors did not qualify as accredited investors
- there was an over concentration of a single exempt product in clients’ portfolios, in some cases the investment represented 30% of a client’s portfolio
- Investors purchased securities which were not based on their KYC information, further to recommendations made by their dealing representative
The portfolio managers (PMs) reviewed had similar breaches. OSC Staff found that a large proportion of the PMs did not have adequate processes for collecting, documenting and maintaining KYC information. About a third of the PMs did not have adequate policies and procedures for KYC, KYP and assessing suitability.
For more details on the OSC’s findings, please refer to OSC Staff Notice 33-740.