Following on the heels of the Client Relationship Model (CRM) – the largest regulatory reform the investment industry has seen – firms are now faced with another set of rules that regulators have designed to further enhance the client-advisor relationship – Canadian Securities Administrators (CSA) Client-Focused Reforms (October 3, 2019). For some firms it may feel as though they’ve barely had a chance to breathe before they tackle another set of client-facing reforms. Similar to CRM, which required substantial investment in technology and infrastructure to support new reporting requirements, it’s difficult to consider these reforms in the absence of the significant systems and technology investments that will be required for firms to comply with the reforms in a meaningful way.
For example, introducing a minimum time frame in which client information must be reviewed – at least every 12 months for managed accounts, within 12 months before making a trade for, or recommending a trade to, the client, where the registrant is an exempt market dealer, or at least every three years for all other account types – will require some firms to reconsider their account documentation processes to ensure, even in the case where changes are not required, that a systematic account review can be captured and appropriately shared with the client for review.
While the CSA has made provisions for some RegTech advancements, including digital client signatures, many firms are a long way from being able to fully support a digital platform. While most firms have started their journey to digitize the account-opening process, along with the ability to update Know Your Client (KYC) information electronically, the ability to make significant strides is often slowed as firms struggle with the inherent lack of flexibility in core systems. While new and smaller firms envy the resources of large competitors, large competitors’ legacy systems present a huge challenge. Simply introducing a new data field or updating the flow of information can take months of developing and testing. Although moving to a digital platform will allow firms to incorporate changes to their documentation collection and process to better align with new regulatory requirements (including the CSA’s Client-Focused Reforms), in reality a fully end-to-end digital platform may still be years away for some if not many firms.
In addition to the resources dedicated to digitizing the KYC process, firms will need to direct additional resources on their ability to consistently apply and regularly monitor the Client-Focused Reforms around Know Your Product (KYP) and suitability determination – further highlighting the importance of strong compliance systems and tools. As firms consider how they can leverage RegTech technology to help address these new reforms, more than ever, vendors will need to consider how their platforms can better support compliance requirements both pre- and post-trade. Investment in technology that could help identify the lowest-cost option, project the impact of cost on performance, highlight product differences, and recommend the most suitable products on a pre-trade basis, would go a long way towards helping firms and advisors navigate these Client-Focused Reforms.
In an environment with ongoing regulatory changes, firms are often forced to redirect resources to comply with regulations instead of focusing on enhancing the client experience. And we have to ask whether even the nimblest RegTech vendors are ready to address the new reforms. The Canadian RegTech Association (CRTA) strives to break down barriers between regulators, vendors and industry firms, bringing together key players to help address existing and new regulations. More than ever, organizations need to be working with technology partners and vendors to ensure technology solutions and tools are developed in a way that helps firms comply with regulatory requirements without detracting from the client-advisor relationship or forcing firms to abandon meaningful work to enhance the client experience in favour of addressing regulatory requirements.
Jennifer Segalowitz has over 15 years of financial services and management consulting experience. She has spent most of her career in Wealth Management as an advocate for the advisor and client experience, and has extensive experience managing regulatory change from a business perspective. Jennifer holds an HBSc in Actuarial and Statistical Sciences from the University of Western Ontario.