Hi, I’m sure all of you know by now that the BCSC annual report card for 2022 has been published. There is a comprehensive discussion about the findings from the conflicts of interest sweep the CSA carried out after the implementation of the client-focused reforms.

Before we get to that, let’s see what the top five deficiencies are in the report card. Actually, there are six, because two vie for fifth place. None of them are surprises, because they all have appeared in the last few report cards.

In top place, we have policies and procedures! But this only narrowly edged out conflicts of interest. In third place was marketing and fourth place was client reporting. KYC and records took the two fifth places.

The goal of the report card is for firms to use it to review their own compliance systems and make improvements where necessary. The report card is a valuable tool, because it highlights areas of deficiencies found at other firms and is a good guide for examining your own systems and processes to see how they compare against the deficiencies.

Most of the report card, after the report on the conflicts findings, focuses on portfolio managers, so isn’t very helpful for exempt market dealers. But if you are with an exempt market dealer, you should still see whether there is information you can extrapolate for use in your firm. In case you missed it, here is a link to the report card.

Now, back to the conflicts of interest sweep. The sweep was conducted by members of the CSA and took place beginning December 2021. As a result, many of the firms that responded to the sweep had not yet got their conflicts processes in place, even though they should have been ready by June 2021. Hopefully, your firm is now up to speed.

Let’s look at the failure to identify conflicts. Some firms responded that they had no material conflicts of interest. The report card points out there are common material conflicts, which should have been identified. Outside activities and personal trading are ones perceived to be common material conflicts.

Some firms identified conflicts but then incorrectly rated them as immaterial or failed to consider appropriate ways to address the conflicts in the client’s best interest.

Once the material conflicts are identified and addressed, a firm is supposed to disclose those to clients who may be affected by them and who would expect to be told about them. And disclosure means telling clients what the nature and extent of the conflict is, what the potential impact is to the client, and how the firm addresses it in the client’s best interest. Some firms apparently used boilerplate wording that disclosed conflicts that didn’t even apply to their firm. So be careful about using examples you find elsewhere without customizing them to your business model.

Don’t forget to examine your conflicts records at least annually, to make sure you have identified and addressed all material conflicts. Keep good records to show what you’re doing, so that you don’t end up being one of the firms found to be deficient. For more information, please contact us at 778-933-2558 or admin@valc.ca.

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