BCN 2001/64 - BC Instrument 32-502 - Exemption from suitability requirements [BCN - Rescinded]
Under this Instrument, a registrant need not comply with section 48 of the Securities Rules if the registrant is a member of the Investment Dealers Association of Canada and complies with its ‘know your client’ and suitability requirements, including the requirement that the IDA approves the firm member.
Registrants are currently required under Section 48(1)(a) of the Rules to learn the essential facts of every client before doing business with that client (the ‘know your client rule’). Section 48(1)(b) of the Rules requires a registrant to make enquiries concerning each client to determine the suitability of a proposed purchase or sale for that client. In addition, under Section 48(2) of the Rules, if the registrant determines that a proposed purchase or sale is not suitable for the client, then the registrant must make a reasonable effort to advise the client of those suitability concerns.
Both the suitability and ‘know your client’ requirement under Section 48 of the Rules were developed for a traditional “advise and sell” system. The growth of on-line financial services and the continued increase in direct retail participation in the market has created new investor protection issues and expectations. Exemption from the suitability requirements on the above conditions will allow BC registrants to develop their business in response to customer demand and remain competitive.
In the United States, the United Kingdom, and Australia, a suitability requirement is not imposed on dealers where the dealer does not give advice or recommendations to investors.
For a discussion of what the Commission will consider to be a recommendation, please see IDA document: “What constitutes a ‘recommendation’? Is a suitability determination required under Regulation 1300.1”. This document, IDA Policy No. 9, and IDA regulation 1300.1(f) are available on the IDA website at www.ida.ca.
The Commission believes that investor protection issues flowing from the conditional exemption under this Instrument are being addressed through IDA Policy No. 9 and consequential IDA amendments dealing with suitability.
This Instrument came into effect on September 6, 2001.
September 17, 2001
Douglas M. Hyndman
Ref: Securities Rules, s. 48
This Notice may refer to other documents. These documents can be found at the BC Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.