Unit 2 Lesson 3

Question 1

Provide an overview of conflicts of interest.

Answer 1

All participants in the Canadian capital markets must identify and manage conflicts of interest, as mandated by various securities legislation and regulations. This includes National Instrument (NI) 31-103 and MFDA Rule 2.1.4, along with additional guidance in Companion Policy (CP) 31-103. The key principle is addressing conflicts of interest in the best interest of the client. Compliance with these requirements is an ongoing responsibility, requiring registrants and their firms to consistently identify and manage both existing and foreseeable conflicts of interest.

Question 2

Define conflicts of interest.

Answer 2

A conflict of interest is a situation where there is a divergence between the interests of two or
more parties.

Under Companion Policy, the Canadian Securities Administrators (CSA) specifically define a conflict of interest to include any circumstance where:

• the interests of a client and those of a registrant are inconsistent or divergent
• a registrant may be influenced to put their interests ahead of their client’s interests
• the trust that a reasonable client has in their registrant may be compromised as a result of:
• monetary or non-monetary benefits available to the registrant.
• potential detriments that the registrant may be subject to.

As specified in the policy, you and your dealer are required to determine whether a conflict is material. When
determining whether a conflict is material, you should consider whether the conflict may be reasonably
expected to affect:

• the decisions of the client
• the recommendations or decisions you make