Business conduct requirements
In addition to broad principles-based obligations, registered firms and individuals are governed by specific business conduct requirements outlined in Ontario’s Securities Act and its associated regulations, rules and instruments. To assist registered firms and individuals, as well as other stakeholders, the OSC has compiled a Topical Guide regarding compliance and registrant regulation matters.
Key business conduct requirements for registered firms
Know your client, know your product, and suitability
Dealers and advisers must take reasonable steps to ensure that any security purchase or sale recommended for a client is suitable. This is called the “suitability obligation”.
Firms should understand:
- the general investment needs and objectives of their clients and any other factors necessary for them to be able to determine whether a proposed purchase or sale is suitable. This is commonly referred to as “know your client”
- the attributes and associated risks of the products they are recommending to clients. This is commonly referred to as “know your product”
All marketing materials—including offering memorandums, term sheets, websites, performance data, and other client presentations—must comply with securities law. Marketing materials should have true, clear, and adequate disclosure and must not include false or misleading statements or omission.
Disclosure to clients
Dealers and advisers are required to provide each client with certain information about the client’s relationship with the registrant.
Written policies and procedures
A registered firm is required to establish, maintain, and apply written policies and procedures. The firm must consider its scope of operations, size, risks, and internal controls when developing its policies and procedures manual. The manual should be sufficiently detailed and customized for the type of business and should be readily accessible by all employees.
Dealers and advisers are required to document and respond to complaints made to the firm about its products or services or its representatives. Most firms are required to be members of the Ombudsman for Banking Services and Investments (OBSI) and are also required to ensure independent dispute resolution or mediation services are available to clients to resolve certain types of complaints about the firm.
Oversight of service providers
A registered firm must have adequate procedures to monitor any functions that it outsources to external service providers. This is to ensure these functions are performed properly. It includes performing a due diligence analysis of prospective third-party service providers.