Securities Industry Communication Rules

• The securities industry has many rules on what can and cannot be done when contacting clients
• Rules impact client contact via telephone, electronic communication, and distribution of sales literature/advertising
• Understanding communication conditions is key for career compliance, in addition to knowing clients and product suitability
• Written materials recommending specific securities are considered sales literature and need authorization
• Internal materials should not be shared with clients
• Regulations and guidelines surrounding mutual funds are very detailed
• Information concerning mutual fund performance should only be distributed if authorized by someone familiar with regulatory requirements

Registration Requirements of a Registered Representative

• Various registration categories have different permitted activities and rules, but all registrants have communication regulations
• Good communication skills and having a value proposition is key for a registered employee of a dealer member
• National Instrument (NI) 31-103 states that individuals who want to trade or advise on securities in Canada, require approval/registration
• People must register under the dealing or advising representative categories
• The category reflects the firm type the representative works for
• Representatives of investment dealers who are members of CIRO, must get CIRO approval before registering with provincial securities administrators

CIRO Registration Categories

• Registered Representatives (RRs)
• Investment Representatives (IRs)
• Both RR and IR registrants must be registered where their clients are located
• CIRO must be notified of the customer type, whether retail or institutional, and products RR/IR will trade
• There is no requirement that either type be employed full-time, but employees must state the number of hours they work
• If employees work less than 30 hours per week, they must explain why
• Securities regulators in Canada have stringent registrant requirements
• Registrants must abide by rules, as status is a privilege, not a right
• Dealing representatives of CIRO member firms must adhere to SRO rules and provincial securities law
• Dealer members can allow employees to engage in outside business but only if the provincial regulator permits it
• Registrants must observe dealer member policies/procedures, which may or may not permit outside activities
• Stricter rules must apply where policies conflict with rules
• Registrant occupations must not bring the securities industry into disrepute
• All outside activities should be disclosed, and pre-approval from the dealer member is needed before engaging in outside activities

Proficiency requirements and categories of registration

• Provincial securities administrators and CIRO have rules on the initial and ongoing proficiency requirements for RRs and IRs
• Rules establish requirements for education/experience, periods of supervision, and times during which proficiencies remain valid

Registered Representatives

• Registered Representatives can advise on equity and fixed-income securities products
• RRs need extra proficiency for soliciting orders for or advising on trades regarding options, futures contracts, and futures contract options
• RRs are often called investment advisors or brokers, but those terms are not official registration categories
• A successful RR requires broad industry knowledge, including knowledge of individual securities, capital markets, economic cycles, performance of securities, and taxation issues
• RRs provide investment advice and bridge the gap between order takers and discretionary money managers
• Unlike dealing representatives registered to sell mutual funds only, RRs can sell more products provided by full-service dealers
• Successful RRs typically have strong communication skills and good understanding of the ethical decision-making process
• Before recommending any product, Know Your Client (KYC) and Know Your Product requirements apply

Registration requirements for Registered Representatives:

• Complete the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH)
• Courses are administered by the Canadian Securities Institute (CSI)
• During the 90-day training period, you cannot contact customers/prospects in obtaining/taking/soliciting orders for securities or advising on trades
• This prohibition extends to electronic platforms and social media
• Cannot receive commission splits as compensations during this period
• Permitted activities include gathering client information on behalf of another RR, assisting clients with inquiries, and giving quotes, provided that you do not open accounts until registered
• Other permitted activities include contacting the public by sending introduction letters, inviting to seminars, and forwarding non-securities information, with restrictions
• Other permitted activities include creating and researching lists of potential clients for future follow-up work
• You are placed under close supervisor following approval as RR
• The six-month period of supervision is not required if the RR/IR was previously approved for six months with a member of a self-regulatory organization (SRO) or a member of a recognized foreign SRO
• To deal with retail customers, you must complete the Wealth Management Essentials (WME) course within 30 months after approval, or suspension
• Participation in the industry’s CE program ensures maintaining one's license and satisfying the professional development/compliance portions
• RRs need requirements to solicit orders for or to advise on trades regarding options, futures contracts, and futures contract options
• Derivatives Fundamentals and Options Licensing Course or the Derivatives Fundamentals Course (DFC) and the Options Licensing Course (OLC) is required to deal in options trading
• To deal in futures/futures options, the DFC and the Futures Licensing Course is required

Portfolio Managers (PMs) and Associate Portfolio Managers (APMs)

• Full-service dealers have been providing holistic wealth management services to high-net-worth clients.
• Discretionary portfolio management is part of that value proposition
• Individuals who deal with or provide discretionary portfolio management for managed accounts must be approved as either PMs or APMs
• PMs and APMs must meet proficiency requirements and complete industry courses
• Candidates need to demonstrate a level of experience related to discretionary portfolio management activities, known as relevant investment management experience (RIME)
• Applicants need research/analysis and portfolio construction skills regarding individual securities
• CIRO assesses RIME for PM/APM approval by assessing exemption applications, review holistically, and use descriptions that are unique to the applicant's case

Registration Requirements for PMs

• Complete the CPH and Canadian Investment Manager designation, or the Chartered Investment Manager (CIM) designation, or the Chartered Financial Analyst (CFA) Charter
• For CIM designation achievement, at least four years of RIME; one year within the three years before requesting approval acceptable to CIRO
• For CFA Charter achievement, at least one year of RIME within the three years before requesting approval acceptable to CIRO

Registration Requirements for APMs

• Complete the CPH and Canadian Investment Manager designation, or the CIM Designation, or Level 1 or higher of the CFA Program
• Needs two years of RIME acceptable to CIRO within three years before requesting approval

Investment Representatives

• Investment Representatives only take/submit client orders for execution and cannot give clients investment advice
• The term IR refers solely to employees of CIRO investment dealer members
• Under NI 31-103, IRs, like RRs, are registered provincially as dealing representatives

Investment Requirements for IRs

• Complete the CSC, the CPH, and a 30-day training program for proficiency
• Subject to a six-month supervision period and to compliance portion of CE requirements
• Do not need to fulfill the 30-month WME requirement
• IRs can act as a sales assistant, or an IR at an Order Execution Only firm (online/discount broker)

Sales Assistant

• Registered sales assistants are IRs employed at full-service investment dealers to assist one or more fully registered RRs in managing business
• Involves administrative tasks, such as organizing client records/documentation and account applications
• Sales assistants may speak with clients but cannot give advice
• Sales assistants may also take unsolicited orders from clients for buying/selling securities
• Successful sales assistants have strong organizational and communication skills, industry knowledge, and familiarity of back-office operations
• Skills allow sales assistants to multitask and interrelate with RRs, clients, and other departments
• Sales assistant duties include processing transactions and solving problems related to account applications/procedures

Investment Representatives at Order Execution Only firms

• IRs take orders from clients and submit them for execution
• IRs recognize when an order goes beyond their authority and should pass it on to someone appropriately licensed
• Licensed IRs cannot accept orders from clients who reside in another province or they cannot accept option orders unless they are appropriately licensed

Restrictions on Non-Registered Staff

• SRO rules restrict activities of non-registered personnel working for a dealer member or a related financial services entity
• Non-registered staff cannot open client accounts, complete KYC information on account applications (other than biographical information), provide recommendations or advice on securities, solicit securities transactions, or assist clients in completing orders
• Non-registered staff can advertise services/products offered, deliver or receive securities to or from clients, or contact clients for appointments/deficiency notices
• Non-registered staff is also able to provide information on the status of a client’s account, provide account balances, quotes, and other market information
• Other tasks includes contacting the public, receiving filled accounts, and distribute applications

Important note

• Only a registered person can assist in completing account applications
• A supervisor must review the new account documentation to ensure compliance with KYC suitability rules

Ramesh Case Study

• Ramesh, an RR, decides strip bonds are attractive investments, and plans a prospecting campaign
• Because he will be spending a lot of time away from the office, he is worried he will not have enough time to serve existing clientele
• Ramesh's sales assistant, Helen, is unregistered but has taken the CSC and is enrolled in the CPH - Ramesh instructs Helen to take calls, place orders and persuade clients to take profits because he expects prices to dip

Ramesh Case Study Discussion

• Ramesh and dealer members are in violation of industry rules, which state that only those with the licensing/proficiencies can engage in registrable activities supported
• Accepting client orders and soliciting business from clients are not activity permitted for unregistered people
• For sales assistants to help with these duties they must be registered and acknowledged by regulators
• Dealer member could be guilty of failing to supervise RR and the sales assistant

Suggested Conduct to Ensure Compliance

• RRs should understand that sales assistants must be registered to assist with order-taking duties
• RRs must make arrangements to have another RR handle existing clientele, and should develop this type of "buddy system"
• Sales assistants and RRs must understand what a sales assistant with non-registered status is permitted to do
• Each dealer member should have a policy in place that would ensure that unlicensed people do not take orders
• Individuals enrolled in either 30-day or 90-day training programs cannot engage in activities of "in furtherance of a trade," even if the activity is non-registrable
• Registrants who deal and sell mutual funds can deal with their existing client base
• They must complete the CSC and CPH within 270 days of initial approval and upgrade to Registered Representative within 18 months of the initial approval

CIRO Registration Reviews: The Fit and Proper Test

• CIRO registration staff conducts suitability reviews, known as the fit and proper test, for individuals seeking CIRO approval/registration under securities legislation
• CIRO evaluates termination, regulatory, criminal, civil, and financial disclosures on the National Registration Database (NRD)
• CIRO and the provincial securities commissions carry out evaluations of individual registrations upon filings such as a notice of termination
• Best hiring practices guidance is provided by CIRO-regulated firms

Important Note about Registrants

• All regulatory filings are needed from registered people, and must be completed through the NRD
• An initial NRD submissions must be used when 1) applying for registration or 2) transferring, or 3) getting registered with an additional firm or 4) and reactivating registration
• A notice of NRD submission must be made when there are changes to registrations information or when an individual is planning to withdraw from the industry
• Registrants must notify the dealer members fast (within two business days) and whenever there is changes to their registration information
• The fit and proper test evaluates the applicant's integrity, financial solvency, and competence

Conditions for rejecting NRD applications

• The applicant does not meet any CIRO prescribed requirements
• The applicant will not comply with the CIRO rules/rulings
• The applicant is not qualified due to integrity, solvency, training, or experience issues
• The approval of the applicant is not in the public interest

Continuing Education

• Continuing education (CE) is needed and vital for ongoing licensing in the securities industry
• CE ensures proficiency, given the industry’s complexity and ensures you maintain proficiency
• CE helps one stay abreast of product developments, legal/compliance issues, emerging industry trends, and capital market development
• Dealer members design and deliver their own compliance and professional development courses per CIRO
• Rrs must complete 20 hours of a professional development course and 10 hours of compliance course and 5 hours of the compliance course must be allocated to Canadian compliance issues

Communication with the Public

• Registrants must be aware of what is/is not permitted by client contact
• CIRO has rules governing phone contacts, or mail/email transmittals
• Also rules regarding how you can represent yourself to clients from a marketing/advertising standpoint
• Registrants are not permitted to use the name of another registrant on signs or advertisements, unless the other registrant gives authorization in writing
• Registration certificates cannot be displayed by the registrant or the business location; however, course completion certificates may be displayed
• No registrant can represent that a securities administrator has approved the investments merits or financial standing/fitness/conduct
• Unsolicited Telecommunications Rules, National Do Not Call List (National DNCL) establish what times is ok to call, introductions, record maintenance, and penalties

Telemarketing Communication

• The Canadian Radio-television and Telecommunications Commission (CRTC) enforces an Unsolicited Telecommunications Rules
• The National Do Not Call List (DNCL) establishes when it is appropriate to call
• People and companies have to subscribe to the DNCL to consult the rules before marketing calls
• CRTC also enforce Canada's Anti-Spam Legislation (CASL), which establishes rules for sending commercial electronic messages (CEMs)
• Express or implied consent to send CEMs, such as email, is required, in certain circumstances, to contact people
• All electronic marketing messages must clearly identify the sender, and firms must include contact information and a way to unsubscribe
• Penalties exists (criminal/civil, personal liability) and monetary penalties can be serious

Rules for Marketing Materials

• The definition of trade under provincial securities legislation specifically includes advertisements or solicitations on a security
• Industry rules require that materials that dealer members use must present a fair/balanced view of a product's risks/benefits
• Communications to the public must not omit facts if that omission can be misleading

Electronic Advertising and Social Media Use

• Internet access provides investment information but makes sales communications hard to control
• Sales messages can be disseminated instantaneously through email and on social media, or online channels
• Regulators address the use of advertising/social media for marketing
• Dealer members must supervise communications delivered electronically as diligently as paper based delivery
• Regulations/guidelines apply equally to marketing and advertising conducted over the Internet.
• CIRO stance to Social Media is that Dealer Members must ensure compliance with applicable requirements and laws
• Method of transferring advertisement has no relevance as to the need to comply with legislation

Responsibilities for the industry

• Dealer members must retain records of business activities, financial affairs, client transactions, and correspondence
• Records include content posted on social media, materials sent by email, and notes that summarize communications
• Any investment recommendation, whether delivered through social media or in writing, must take is the suitability requirements
• Dealer members should evaluate systems to review all forms of communication and determine whether a need exists to prohibit access to certain websites
• Dealer member training is required on certain websites
• The registered person must ensure proper training so that they are aware of all conditions

Email or Voicemail orders

• RRs are discouraged from using email and voicemail for order instructions from clients but they are not prohibited from doing so
• Clients need to know that instruction may not be received immediately

Third Party Communications and Research

• Posting and copying clients posts, or any actions on social media on a third party post, may be considered an endorsement by the dealer member
• You need use of your firm's communications policy and procedures with social media

General regulations and guidelines for sales literature

• Advertising is commentaries or materials promoting business, and sales literature is communications for clients
• Dealer members must provide registrants with material containing information about investments such as: research reports, updates on company performance, new product information and new issue of prospectus
• Research reports contains information about the company's business, its management, its plans, financial and market performance but might also address market segments

Rules for all registrants per NI 81-102

• You CANNOT pass all information given to you by members on to clients, but recommendations that inform clients, they make, they should take care, that they treat the material for use
• All written correspondence and advertising must be approved and should be written on the rules
• Material should not be false, must provide promise of specific results, must not suggest unwarranted conclusions, must not be labelled, must fairly present risk
• Communications in advertisement for a mutual fund cannot mislead statements

The fund facts document

• The document must be delivered to investors before they purchases, and be plain language
• The requirements must summarize facts in two pages, should be understandable language, includes fund description, historical data, risk rating and the fees

NI 81-102 and Performance Data

• In the sales industry it is important that all the data is accurately measured whether the communication is in rating, ranking or volatility in the description
• NI 81-102 has two rules depending on the sale
• Standard performance data takes of either type, depending of the fund, is either a standard performance (such as current yield or effective yield) or follows specfications from NI 81-102
• NI 81-102 uses detail guidelines as to how the data is summarized but contains general guidelines, which must be adhered to, for them to be non-misleading
• Elements must include standard performance data, all elements of return, and reflect data (only for the time frame when it was distributed to the public under the terms of prospectus)
• It should not relate to funds that have common management, should reflect material changes to the fund or the time measurement
• It must indicate that there will be more current data obtained, if appropriate there must be provided the standard information and the ratings
• The ratings can only be made by an independent organization
• If rated by one+ organizations, the lowest rating is used and performance ratings will not be used in broad advertising
• Any changes can have a change as to disclosure, regarding fees, ownership, changes, to reflect to the material changes

Warnings for potential investors

• Investment/mutual funds are not guaranteed
• Given the performance as well, this performance is not necessarily guaranteed
• That they do not include trading costs, fees, and expenses

Misleading Information

• Avoid it by; giving clear explanation and limitations, do not represent future investment in 3 ways (income, loss, capital), avoid income without justification
• Deal wth interest/interest

Dealing with clients

• Registrant must be professional and therefore follow rules on conflicts of interests and handling of client data

Conflicts of Interest

• Conflict of interest appears in varying circumstances, such as someone who is different in opinions
• Actual conflicts are those with clear facts, potential are only foreseeable and perceived are those, that look to be that manner
• Actions can be taken to have potential conflicts stop (ie not occur based on prior reasons) while, those party may lack awareness or insight
• There are certain rules and regulations with their individual, some need to be understood and may not be avoidable
• Problems often occur, because the conflict and/or action may become unaddressed
• Any potential material conflict that cannot be addressed will not occur

Disclosure needed

• Disclosure is needed if one cannot address the issue

Jerome Case Study Analysis

• Jeff, who works on a corporate board with a RR, likes to recommend stock to other clients as he thinks they can benefit by telling client information, but lacks notice over the actions
• Jeff's position can influence his investment and is therefore seen to be a conflict of interest -This would not be valid, unless RRs can be approved with approval, to receive more information on outside activites

RR Personal financial dealings and outside activities

• Certain rules that deal with RRs engaging personal financial information are generally prohibited
• Other conditions may include the following
  • A person, can't act for the dealer member regarding of the behalf of client for any act, unless agreed
  • Entering into a settlement agreement, without the dealer's member permission
  • Client account lost, will not be able to payout their own funds, without permission
  • There cannot be client borrowing unless client is under act
  • Act on authority unless client is related to the person, or following the outlined and written rules
  • Edgar Case Study Analysis reveals that RR has a client, that has now become a friend because they had dealt for years -In the case they began renovations, but had great difficulty doing so
  • Edgar asked for additional time from his friend - now he's grown increasingly upset having his client ask, by his employer

Outside Activities

• Member dealer must be informed, and take approval before any activities
• Dealer member may have to file all outside activities on NRD with those time restrictions (NI 33-109)
• If actions are taken without the potential/approval of dealer interest, there is need for a registration update -Volunteer work does not need reporting but always consult with your dealer

Walter Case Study

• RR, participates and attends events. During his occupation and occupation the employer of the client, the client has now wondered if they support his actions

• The client should never feel that the employer is being implicated, the firm has interest in the personal activites

• As an RR your position is that of being prohibited; no personal name can be used while being in controlled or shared accounts unless approval is given to other members, statements must be reviewed monthly, in statements must be non clients as it shows in non current orders

• With banks and trust companies it must be ensured its through authorized members, and must be entered non-client orders

Important Note

• The Personal Protection Act provides documents and the set of those guidelines as, you need to share information to clients -You can only collect/use data for business in Canada, you need also follow guidelines in your specific market, for local privacy rules

Privacy and Cybersecurity

• There are many forms for a RR, and the client provides the consent and should be protected with compliance
• Cyber issues deal with many types of areas that require a team wide focus, cybersecurity, compliance and the member
• And in this environment, there may now, come certain attacks with significantly impaired or loss of functions
• Resources exist, such as the IROC, and all must report those to clients incidents, based on specific requirements.

Overall Registrant Takeaways

• Compliance, good communications, ensure client communication
• Follow the requirements to have a legal binding with your client