Chapter 10 - Recordkeeping Requirements (v1.2)

Recordkeeping Requirements

• Recordkeeping requirements extend beyond daily business records, encompassing compliance, supervision, complaints, and investigations.
• Regulations are dynamic and vary between legal entities and regulatory agencies.
• Compliance departments should maintain updated records of requirements based on regulator and information type.
• Larger dealer members often rely on legal departments for updates on recordkeeping requirements, including limitation periods.
• Registrants must maintain records for two reasons: to accurately document business practices, financial affairs, and client transactions, and to demonstrate compliance with securities legislation.
• The firm's recordkeeping methods are crucial to ensuring records are safely stored in a durable format and readily accessible to regulators.
• CIRO defines a "record" as documentation related to a Regulated Person's business, including books, records, client files, and electronic documents.

Recordkeeping Formats

• Dealer members primarily maintain electronic records, although some still utilize paper records.
• Regulators focus on record accessibility rather than format.
• Implementing recordkeeping systems should align with regulator expectations for each information type.
• Records created or maintained offsite (e.g., supervision records) require policies for format, storage, and retrieval.
• Firms should establish procedures for recording recipients when distributing preliminary prospectuses.
• Daily completion and accessible storage of supervision forms ensure an appropriate record for compliance department or CIRO retrieval.
• Email can demonstrate supervision, but email management is crucial for effectiveness.

Email and Supervision

• Supervisors should follow up on email communications to avoid oversight.
• Email responses to inquiries should be stored in accessible files.
• Supervisors can maintain email folders for each supervised RR, ensuring appropriate filing of inquiries and responses.
• Procedures should ensure email accessibility.
• Email archiving methods should address supervisor or compliance staff departures.
• Third-party supervisory systems can automate supervision processes and documentation, including workflow for timely query resolution.
• Staff should be aware that emails are legally discoverable and can be used as evidence.

CIRO Email Archiving Requirements

• CIRO mandates investment dealers to archive all business-related emails, including those sent from mobile devices.
• Dealer members should consider the retention of internal emails.

Supervision Reporting Requirements

• CIRO sets minimum standards for exception reports.
• Dealer members can create additional reports for supervision purposes.
• Daily supervision includes reviewing equity trades over $5,000 in stocks trading below $5 per share.
• UMIR mandates markers for specific order types transmitted to marketplaces.
• UMIR Rule 10.16, Gatekeeper Obligations, requires reporting potential breaches of UMIR or SRO regulations.

Gatekeeper Obligations

• Supervisors or compliance staff must investigate and document reported potential violations.
• If a violation is identified, a report must be filed with CIRO within 15 days.
• CIRO encourages reporting potential violations.
• Dealer members must retain reports, reviews, and findings for seven years.
• CIRO has the right to inspect and copy records during normal business hours.
• These review and reporting requirements are in addition to other securities legislation or SRO rule provisions.

FINTRAC Requirements

• Businesses and industries reporting to FINTRAC must comply with PCMLTFA regulations.
• PCMLTFA sets forth direct reporting, client identification, and recordkeeping requirements for securities dealers.
• These requirements aim to detect, investigate, and prosecute money laundering and terrorist financing offenses.

Dealer Member FINTRAC Compliance

• Canadian securities dealers must implement a compliance regime aligned with FINTRAC guidelines.
• A compliance officer, often the CCO, oversees the implementation of the dealer member's money laundering and terrorist financing prevention program.
• PCMLTFA mandates record retention for FINTRAC access within 30 days of a request.
• Signature cards, account operating agreements, and account application forms must be kept for five years from account closure.
• Entity existence and beneficial ownership records must be retained for five years from the last business transaction.

Reporting Requirements

• Dealers must file reports to FINTRAC when there are reasonable grounds to suspect money laundering or terrorist financing activities.
• Suspicion also applies to properties in the firm's possession owned or controlled by suspected terrorists or terrorist groups.
• FINTRAC reports are typically filed electronically, but paper submissions are accepted for entities lacking electronic capabilities.

Terrorist Property Holdings

• Dealer members must submit a terrorist property report to FINTRAC, RCMP, CSIS, and CIRO when property in their possession is owned or controlled by a terrorist or terrorist group.
• Advisor records should be accessible to the dealer member for a reasonable period, even after departure.

Record Retention Importance

• Retention of compliance and supervision records is crucial.
• Paper-based records pose challenges for storage, retrieval, and access.
• Electronically stored records are generally more efficient.
• Paper notes should be stored separately by date or integrated into client files.

Recordkeeping Summary

• Dealer members should establish record retention procedures that eliminate ambiguity and ensure consistency across locations.
• Recordkeeping procedures aid compliance audits.
• Regulators have varying recordkeeping requirements.
• CIRO focuses on evidence of adequate supervision, critical for investigations and disciplinary actions.
• FINTRAC recordkeeping requirements concentrate on preventing and detecting money laundering and terrorist financing.
• Record retention strategies should include accessible storage methods.
• Designated personnel are responsible for maintaining records and ensuring accessibility when needed.