IIROC has published final guidance reinforcing the supervision and suitability obligations of dealer members and financial advisors when recommending borrowing-to-invest strategies for retail investors.
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.
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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 has produced a checklist identifying 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.
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. It 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.