Registration Requirements for Representatives

Registration Requirements of a Registered Representative

• The securities industry has various registration categories, each allowing different activities, but all have strict rules on client communication.
• Compliance with industry regulations is essential for all registered employees of a dealer member.

NI 31-103 Requirements

• Requires those trading or advising on securities in Canada to be registered in one of two categories
• Dealing representatives who execute trades
• Advising representatives who advise on the purchase or sale of securities.
• Representatives of investment dealers within the Canadian Investment Regulatory Organization (CIRO) need CIRO approval before registering with provincial securities administrators.

CIRO Registration Categories

• The most common categories for those at an investment dealer are Registered Representatives (RRs) and Investment Representatives (IRs).
• Both RRs and IRs need to be registered in the location of their clients and must notify CIRO of the client type and products they will trade.
• There is no full-time employment requirement, but the number of hours worked must be stated
• An explanation is required for those working less than 30 hours a week.
• Securities regulators in Canada often impose strict registrant requirements, and registrants must abide by them.
• Registered status is a privilege, requiring adherence to its terms.
• CIRO member firm representatives must follow SRO rules and provincial securities law; for example, outside business activities are allowed only if the provincial regulator permits.
• Registrants must follow the rules, policies, and procedures of their dealer members.
• CIRO rules mandate that if a registrant has another occupation, it must not discredit the securities industry
• All outside activities must be disclosed and pre-approved by the dealer member.
• Provincial securities administrators and CIRO set rules on the initial and ongoing proficiency for RRs and IRs, covering education, experience, supervision, and validation.

Registered Representatives

• RRs can advise on the full range of equity and fixed-income securities products.
• Additional proficiency is necessary for an RR to solicit orders for or advise on options, futures contracts, and futures contract options.
• An RR's role demands extensive industry knowledge, allowing them to advise on investments, bridge the gap between order takers and discretionary money managers, and sell most products from a full-service dealer.
• They must have strong communication skills and a grasp of ethical decision-making.

90-day Period

• During this period which is considered a training period, new RRs cannot contact customers or prospects to obtain, take, or solicit orders for securities or advise on trades
• This prohibition extends to electronic platforms and social media; they cannot receive commission splits during this time.
• Permitted activities include gathering client information, assisting with inquiries, providing quotes (without opening accounts), sending introduction letters, inviting people to seminars, forwarding non-securities information, and creating potential client lists.

Supervision Period and Additional Requirements

• After RR approval, there is typically a six-month supervision period, unless the RR/IR was previously approved for six months with a member of an SRO.
• Those dealing with retail customers must complete the Wealth Management Essentials (WME) course within 30 months of approval to avoid suspension.
• Maintaining a license requires ongoing participation in the industry's Continuing Education (CE) program, where they must satisfy professional development and compliance portions.

Additional Required Courses

• Trading options requires completing the Derivatives Fundamentals and Options Licensing Course or the Derivatives Fundamentals Course (DFC) and the Options Licensing Course (OLC).
• Dealing in futures and futures options necessitates completing the DFC and the Futures Licensing Course.

Portfolio Managers and Associate Portfolio Managers

• Individuals dealing with or providing portfolio management for managed accounts should be approved as Portfolio Managers (PMs) or Associate Portfolio Managers (APMs).
• PMs and APMs must meet proficiency requirements and have a high level of experience in portfolio management activities, demonstrating skills in research, analysis, and portfolio construction for a range of securities.
• CIRO assesses RIME for PM/APM approval on a case-by-case basis, taking a holistic approach and encouraging applicants to provide specifics unique to their application.

Registration for PMs

• Requires a successful completion of the CPH and Canadian Investment Manager designation, or the Chartered Investment Manager (CIM) designation, or the Chartered Financial Analyst (CFA) Charter.
• If they hold the Canadian Investment Manager designation or CIM designation, they must have at least four years of relevant investment management experience (RIME), with one year gained in the three years before applying to CIRO.
• Completion of the CFA Charter requires at least one year of RIME within the three years before CIRO approval.

Requirements for APMs

• Must complete the CPH and Canadian Investment Manager designation, or the CIM Designation, or Level 1 or higher of the CFA Program.
• Also requires two years of RIME acceptable to CIRO within three years before applying.

Investment Representatives

• IRs are registered solely to take or submit client orders for execution without providing investment advice.
• Similar to RRs, IRs refer to employees of CIRO investment dealer members and are provincially registered as dealing representatives under NI 31-103.
• Proficiency requirements for IRs are slightly less extensive than for RRs, including completion of the CSC, the CPH, and a 30-day training program.
• IRs are supervised for six months and subject to the compliance portion of the CE requirements, but they do not need to complete the 30-month WME requirement.

Roles for IRs

• They can act as sales assistants or work at Order Execution Only firms.
• Registered sales assistants aid RRs at full-service investment dealers with administrative tasks
• They are not permitted to give investment advice, but they can take unsolicited orders.
• Successful sales assistants have strong organizational and communication skills, good industry knowledge, and familiarity with back-office operations.
• IRs at Order Execution Only Firms take and submit client orders for execution.
• They must know when an order exceeds their authority and must pass it to a licensed individual or supervisor.

Restrictions on non-registered staff

• SRO rules limit the activities of non-registered personnel like administrative assistants and office managers.
• They are not allowed to open client accounts, complete KYC information, provide investment advice, solicit transactions, or assist in completing orders.
• Permitted activities include advertising services, delivering securities, and contacting clients for appointments or to address incomplete forms

CIRO Registration Reviews

• Conducts suitability reviews, known as the fit and proper test, for CIRO approval/registration
• CIRO evaluates terminations, regulatory, criminal, civil, or financial disclosures on the National Registration Database (NRD), as well as providing guidance on best hiring practices.
• All regulatory filings must be made through the NRD.
• A change notice should be submitted when registration information changes.

CIRO Authority

• The CIRO possesses the authority to deny an application for approval or transfer. They may do so under any of the following:
• The applicant does not meet any of the requirements prescribed by CIRO rules or rulings.
• The applicant will not comply with the rules and rulings of CIRO.
• The applicant is not qualified for approval for reasons relating to integrity, solvency, training, or experience.
• The approval of the applicant is otherwise not in the public interest.

Continuing Education

• CE is essential for ongoing licensing in the Canadian securities industry, ensuring proficiency given industry complexity.
• Dealer members can design their own compliance and professional development courses following CIRO guidelines, or employees can take courses from sources like CSI.
• RRs must complete one or more approved programs every two years, totaling at least 20 hours of professional development and 10 hours of compliance, with five hours focusing on Canadian compliance.
• Failure to complete CE courses risks registration suspension and fines, and employers must keep records.

Communication with the Public

• Registrants must understand what is permitted in client contact, following CIRO rules on telephone contact and electronic communication.
• Rules also cover how to represent oneself to clients through marketing and advertising.

Prohibited Communications

• Some communications specifically prohibited in many provinces include the registrant using another registrant's name on ads without written consent, displaying registration certificates at the business location (course completion certificates are allowed), and representing that a securities administrator has endorsed a security's investment merits or a registrant's fitness.

Rules for Telemarketing and the National Do Not Call List

• Created and enforced by the Canadian Radio-television and Telecommunications Commission (CRTC).
• Together, the CRTC's Unsolicited Telecommunications Rules and National DNCL establish time of day rules, introductions and penalties for telemarketers.
• Subscribers must consult the National DNCL before telemarketing, but there are exceptions, such as when there is direct consent.

Canada's Anti-Spam Legislation

• Helps enforce Canada's Anti-Spam Legislation (CASL), which has similar rules for commercial electronic messages (CEMs)
• All electronic marketing messages must identify the sender and include the firm's information and an unsubscribe mechanism.
• Non-compliance with CASL carries serious penalties like criminal and civil charges.

Rules for Marketing Materials

• Under provincial securities legislation, the definition of trade includes advertisements or solicitations with respect to a security
• Industry rules mandate that sales materials and presentations must give a fair and balanced view of product risks and benefits, and must not omit material facts misleadingly.

Social Media

• Dealer members must supervise communications delivered electronically no less diligently than traditional media.
• CIRO published a guidance notice that specifically addresses the use of social media
• Compliance must be ensured regardless of what the communication vehicle is Guidelines should address compliance and supervisory issues when RRs are using social media websites to communicate with clients.
• Members must keep records of business activities, client transactions.

General Regulations and Guidelines for Sales Literature

• Advertising is any commercial or commentary promoting a dealer member's business.
• Sales literature- any written or electronic communication for clients containing a security/trading strategy recommendation.
• Registrants are typically provided with investment information like research reports, company updates, new product info, and notices of prospectus availability.

Mutual Fund Communications

• Rules governing content of mutual fund advertising and sales communications are in NI 81-102 Investment Funds.
• Sales communications must contain no untrue or misleading statements and be consistent with the fund's prospectus, annual information form (AIF), or Fund Facts.

Fund Facts Document

• Plain language document with information about a mutual fund, available on the fund's website and delivered to investors before they purchase the fund.
• Must summarize the key facts in no more than two pages in easily understood language, which include holdings, performance, risk rating and costs.

Use of Performance Data

• Includes any mutual funds investment performance and data.
• Sales communications must also include standard performance data listed as prominently as all other data.
• Detailed guidelines in NI 81-102 address the use of performance data in sales communications.
• Communication must adhere to specific rules- must contain standard performance date, all elements of return, must only reflect date of the prospectus.
• Must relate to funds of common management, investment objective, or with similar industry averages, with a clear identification of period data.
• Must contain only credit ratings prepared by an organization.

Dealing with clients

• Conflicts of interest arise when the interests of different parties are inconsistent.
• An actual conflict of interest is where the parties are currently and clearly in conflict.
• A potential conflict is a situation where the interests of the parties may be inconsistent
• Addressing perceived conflicts of interest can be challenging because a third party may perceive a conflict or potential conflict where none exists
• The presence of a conflict by itself does not constitute an impropriety. However, conflicts arise in the normal course of business in the normal course.
• Any existing or potential material conflict that cannot be addressed in a fair, equitable, and transparent manner that is consistent with the best interests of the client must be avoided.
• Individual registrants must identify any arising conflicts of interest, and they must report the conflicts to their current firms.

Personal Financial Dealings with Clients

• Prohibited.

Outside Activities

• Approval is needed from the dealer member before engaging in the activities of the dealer member.
• The dealer members may also need to file the outside activity with NRD within the required time.

Privacy and Cybersecurity

• Confidentiality of client information must be protected according to the rules and regulations.

The Personal Information Protection and Electronic Documents Act

• Lays out the rules for the collection, use or disclosure of personal information in the course of commercial activities.
• Personal information must be confidential and cannot be disclosed to any third parties without the client's consent except to collect on a debit.
• Clients can grant consent for the specified disclosure to their personal information and clients reserve the right to revoke the consent at any given time.
• No registrant can require a client to disclose confidential information or the specific nature of the product.

Cybersecurity

• Growing concern in the financial operation compliance
• Cybersecurity-related issues represent challenges to the dealer members that are similar to the AML issues.
• Cyber-attacks threaten impair a dealer member's ability and reputation
• The firm must give consideration to this area
• Cybersecurity Best Practices and a Cyber Incident Management Planning Guide were published by IIROC
• Incidents are reportable within three days of discovering, in accordance with Guidance Note and registrants must be aware.

This learning content outlines the registration categories within the securities industry and the stringent rules governing client communication. It emphasizes compliance with industry regulations for all registered employees of a dealer member, as well as NI 31-103 requirements.