Reinforces importance of suitability, supervision and informed decision making
TORONTO, Feb. 19, 2014 /CNW/ - The Investment Industry Regulatory Organization of Canada (IIROC) today published final guidance reinforcing the supervision and suitability obligations of Dealer Members and financial advisors when recommending borrowing-to-invest strategies for retail investors.
The guidance makes it clear that IIROC-regulated firms, as part of their supervisory framework, must have sound policies, procedures and controls in place when borrowing-to-invest strategies are recommended by the firm and its registered representatives. The guidance also reminds advisors of their suitability obligations when they recommend or become aware that such a strategy is being used. Advisors must also ensure the risks are fully explained and that clients are aware of the potential impact of borrowing-to-invest strategies based on the clients' financial situation, risk appetite and ability to withstand loss.
"IIROC's guidance when borrowing-to-invest strategies are used highlights best practices for registered representatives and firms to help them comply with their suitability and supervision obligations," said IIROC President and CEO Susan Wolburgh Jenah.
In addition, the guidance includes a checklist that identifies issues that advisors should consider before making specific recommendations about borrowing to invest. It also outlines minimum controls that dealers should have in place to identify and supervise the use of these strategies.
There are various types of borrowing-to-invest strategies, including the use of margin loans advanced by firms, and loans from third parties that may or may not be affiliated with the Dealer. IIROC's guidance is also designed to help firms address some of the challenges of monitoring for "off book" loans and identifies "red flags" that could signal a client's use of this type of loan.
IIROC has also adapted information in the guidance notice into an Investor Bulletin to help consumers make more informed decisions. The bulletin outlines factors investors should consider before determining whether a borrowing-to-invest strategy is appropriate for them. The bulletin includes questions investors can ask to understand what's involved and reinforces the importance of disclosing information about other loans to their advisor before making a decision.
IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc., IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.
IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.
SOURCE: Investment Industry Regulatory Organization of Canada (IIROC) - General News
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