Registered Representative (RR) regulations

Dealing and Advising Registration Categories

• This chapter covers registration categories for dealer member employees in the securities industry
• It explains proficiency requirements and activities permitted for Registered Representatives (RRs), Investment Representatives (IRs), Portfolio Managers (PMs), and Associate Portfolio Managers (APMs)
• Discusses regulatory requirements and guidelines for marketing, advertising, and communications with clients
• Covers rules on conflicts of interest, personal dealings with clients, and client data handling in compliance with privacy regulations

Registration Requirements of a Registered Representative

• Various registration categories within the securities industry have different permitted activities and specific rules
• All registrants must follow strict regulations around communications with clients
• When dealing with existing and prospective clients, good communication skills are important
• A value proposition must be articulated clearly to prospective clients in compliance with industry regulations
• National Instrument (NI) 31-103 requires individuals trading in securities or advising on purchases/sales in Canada to be approved and registered as dealing or advising representatives

CIRO Registration Categories

• Registered Representatives (RRs) and Investment Representatives (IRs) are common CIRO registration categories for investment dealer members
• Both must be registered to operate in their clients' geographic location
• CIRO must be notified of the customer type (retail or institutional) and products traded by the RR or IR
• There is no full-time employment requirement
• Employees must state the number of hours they will work, with explanations required for less than 30 hours per week
• Securities regulators impose stringent requirements, must adhere to terms and conditions of registered status
• Registered status is a privilege, not a right, to work in the securities industry
• CIRO member firms must adhere to SRO rules and provincial securities law
• Dealer members may allow employees to engage in outside business activities only if the provincial regulator permits
• Registrants must observe dealer member policies, with the most stringent rule applying in case of conflicts
• CIRO rules: any outside occupation must not bring the securities industry into disrepute
• All outside activities must be disclosed and pre-approved by the dealer member
• Provincial securities administrators and CIRO have rules on initial and ongoing proficiency requirements for RRs and IRs
• These rules establish requirements for education, experience, periods of supervision, and time limits for proficiency validity

Registered Representatives Activities

• RRs can provide advice on equity and fixed-income securities products
• They need additional proficiency to solicit orders for or advise on options, futures contracts, and futures contract options
• RRs are often called investment advisors or brokers, but these terms are not formal registration categories
• The role requires broad industry knowledge of individual securities, capital markets, economic cycles, security performance, and taxation issues
• RRs provide investment advice and bridge the gap between order-takers and discretionary money managers, and can sell most products from a full-service dealer
• Successful RRs have strong communication skills and an understanding of ethical decision-making
• RRs are subject to Know Your Client (KYC) and Know Your Product requirements

RR Registration Requirements

To register as a new RR you must:

• Successfully complete the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH), administered by the Canadian Securities Institute (CSI)
• A 90-day period of restricted client contact is often called the 90-day training period, individuals are not yet registered as an RR
• During this period individuals cannot contact customers or prospects to obtain, take, or solicit orders for securities or advise on trades, including electronic platforms and social media, and cannot receive commission splits
• Permitted activities include gathering information from existing/prospective clients, assisting clients, giving quotes (without opening client accounts), sending letters, inviting people to seminars, forwading info etc
• Following approval as an RR, there is a six-month period of supervision
• This period is not required if RR/IR was previously approved for six months with a member of an SRO or recognized foreign SRO.
• Successful completion of the Wealth Management Essentials (WME) course within 30 months after approval is needed to deal with retail customers.
• Failure results in immediate suspension until the course is completed.
• Program participation is a condition of maintaining individuals licenses
• Professional development and compliance portions of the CE program

Portfolio and Associate Portfolio Managers

• Full-service dealers focus on providing holistic wealth management to high-net-worth clients
• Discretionary portfolio management has led to rapid growth of advisor-managed accounts
• Individuals must be approved as Portfolio Managers (PMs) or Associate Portfolio Managers (APMs)
• PMs and APMs must meet proficiency requirements and complete industry courses
• Candidates need demonstrate a high level of relevant investment management experience (RIME)
• Applicants must demonstrate strong research, analysis, and portfolio construction skills for a broad range of securities
• CIRO assesses RIME for PM/APM approval on a case-by-case basis by assessing exemption applications, taking a holistic approach, and using applicant-specific descriptions

Courses Competed Before PM Approval

• Completion of the CPH and a Canadian Investment Manager (CIM) designation, or the Chartered Financial Analyst (CFA) Charter
• At least four years of RIME; one year of which was gained within the three years
• At least one year of RIME within the three years
• For APMs you must meet the following requirements:
• Successfully complete the CPH and Canadian Investment Manager designation, or the CIM Designation, or Level 1 or higher of the CFA Program
• Two years of RIME acceptable to CIRO within three years before requesting approval

Investment Representatives Activities and Regulations

• Investment Representatives (IRs) are registered to take/submit client orders for execution
• IRs cannot provide investment advice
• IR applies only to employees of CIRO investment dealer members
• IRs, like RRs, are registered provincially as dealing representatives.
• The proficiency requirements for IRs are similar to those for RRs, but not as extensive
• IRs must complete the CSC, the CPH, and a 30-day training program (as opposed to 90-day program)
• IRs are subject to a six-month supervision period and compliance CE requirements (but not the 30-month WME requirement)
• They may act as sales assistants or as IRs at Order Execution Only firm

Sales Assistant Roles

• Are IRs employed at full-service investment dealers to assist fully registered RRs in managing their business
• The role involves largely administrative tasks, such as organizing records, the account application, and other client documentation. A sales assistant may speak with clients, but cannot give advice
• They may also take unsolicited orders
• Successful sales assistants typically have strong organizational and communication skills
• Combination of skills allows sales assistants to multitask and interrelate well with RR's, clients, and other departments
• It also helps IRs in this role to process transactions and solve problems related to such issues as account applications and cage procedures.

Investment Representatives at Order Execution Only Firms Requirements

• IRs at Order Execution Only Firms are registered to take orders from clients and submit them for execution
• IRs must recognize when an order is beyond their authority and pass it on to a supervisor
• Limitations exist, IRs who are only licenced in Ontario cant accept customers from Manitoba, cannot accept options orders if they don't have the qualifications
• SRO restrict the activities of non registered staff (admin assistants, office managers etc), they may not open accounts, recommend advise, solicit, or complete orders for securities
• Deliver/receive securities, contact clients to arrange appointments

CIRO Registration Reviews and the Fit and Proper Test

• The CIRO's registration staff conducts suitability reviews, known as the fit and proper test
• Includes their integrity, morality, honesty, moral character to work with clients
• An applicant can be denied approval, or transfer, if they don't meet standards

Communication with the Public

• Registrants must be aware of what is and is not permitted by way of client contact
• CIRO has rules that govern how they can contact and what they can send to them
• Rules exist regarding marketing and advertising
• Following communications have been specifically prohibited:
• No registrant is permitted to use the name of another registrant on signs or other advertisements
• Registration certificates cannot be displayed by the registrant or the business location; however, course completion certificates may be displayed.
• No registrant is permitted to represent that a securities administrator has approved the investment merits of a security or the financial standing, fitness, or conduct of any registrant

Telemarketing and the National Do Not Call List

• Canadian Radio-television and Telecommunications Commission (CRTC) created and enforces a regulatory framework for telemarketing calls
• CRTC's Unsolicited Telecommunications Rules and the National Do Not Call List (National DNCL) establish requirements
• These include times of day, introductions, record maintenance, consultation of the National DNCL, and penalties
• However, the National DNCL does not apply to telemarketing communications made to a business

Canada’s Anti-Spam Legislation

• The CRTC also helps enforce Canada's Anti-Spam Legislation (CASL), which establishes similar rules for the sending of commercial electronic messages (CEMs)
• CASL requires businesses to obtain either express (opt-in) or implied consent to send CEMs
• This includes emails and certain types of social media messages.
• Unless exempt, the firm must include contact information and provide an unsubscribe mechanism
• Complying with CASL helps avoids criminal charges, civil charges, personal liability
• Industry sale rules are there to ensure fairness

Electronic Advertising and Social Media Use

• Electronic advertising and social media use is regulated to ensure the communications aren't misleading
• Key is to have compliance

General Regulations and Guidelines for Sales Literature

• Any commercials or commentaries, or any published materials promoting a dealer member's business is advertising
• Sales literature under this definition is any written or electronic communication for clients' use that contains a recommendation relating to a security or trading strategy
• They help keep clients fully updated
• Documents include research reports, updates on business and performance, and other updates

Performance Data in Mutual Funds

• Governed in NI 81-102, data includes measurements, ratings, rankings and more
• Important investors understand both the potential gains and loss from certain investments

Important Note for Sales Communications

• Create sales communications that are not misleading by:
• Provide clear explanations and clarify any qualifications or limitations
• Do not represent past or future investment performance in such a way that overstates/understates information
• Should not misrepresent anything or predict without justification

Dealing with the Clients in a Conflict-of-Interest Situation.

• A conflict of interest arises in any circumstance where the interests of different parties are inconsistent/divergent
• All parties should be aware of risks to protect all parties
• Avoid it, or address it another way
• Firms are also responsible for leading in managing risks by taking the lead

Borrowing from Clients

• RRs cannot borrow from a client unless that client is related through blood relationship
• Avoid it or risk losing your certifications

Outside Activities

• When RRs participate in outside activities, they should make sure their participation does not result in negative publicity
• RRs must seek permission from dealer member
• Carrying accounts at other dealer members is prohibited unless with written express permission

Rules Regarding Privacy

• It is of paramount importance to protect client information per PIPEDA
• You can't disclose unless absolutely necessary to comply with the law
• Clients have a say who should see their information

Cybersecurity Concerns

• Growing concerns for financial institutions by bad actors.

Key aspects of Registered Representatives (RRs). It covers differences between RRs and dealing representatives, essential skills, regulatory requirements, and continuing education obligations. Also, it specifies the consequences of non-compliance and necessary training.