Securities Industry Regulations

• Understanding regulations regarding client contact is key for a securities industry career.
• Knowing your client and the suitability of product recommendations are standard business conduct obligations.
• Care should be taken with distribution of materials to clients, and must often be properly authorized before distribution.
• The industry has very detailed laws regarding mutual funds, so information concerning them, particularly performance, must be authorized prior to distribution.
• Essential to comply with regulations and within the limits of your registration category, regarding conflicts of interest, personal dealings with clients, and handling client data.

Registration

• Registration and licensing are important in the securities industry.
• Good communication skills are required when dealing with existing and prospective clients
• Investment industry registrants require a value proposition and must comply with regulations.
• National Instrument (NI) 31-103 requires those trading or advising on securities in Canada to be approved and registered as dealing or advising representatives.
• Those categories generally reflect the representative's firm type.
• Representatives of investment dealers that are members of CIRO must be approved by CIRO before registering with provincial securities administrators as dealing representatives.
• The most common CIRO registration categories for individuals at an investment dealer member are Registered Representatives (RRs) and Investment Representatives (IRs).
• Both types of registrants must register to operate in their clients' geographic location, and CIRO must be notified of customer type and products traded.
• There is no requirement for either type to be employed full-time however the number of hours worked must be stated.
• Securities regulators in Canada often impose stringent requirements on their registrants.
• Registered status is a privilege, and registrants must adhere to the terms and conditions.
• CIRO member firms adhere to SRO rules and applicable provincial securities law, and must observe policies and procedures of their dealer members.
• If a policy conflicts with a rule, the most stringent of the two applies.
• CIRO rules require that other occupations should not bring the securities industry into disrepute.
• All outside activities must be disclosed and pre-approval must be obtained from your dealer member before engaging in them.
• Provincial securities administrators and CIRO have prepared rules on initial and ongoing proficiency requirements for RRs and IRs.
• These requirements include education and experience and determine supervision periods and time limits for proficiency validity.
• RRs can provide advice on all equity and fixed-income securities products.
• Additional proficiency is needed to solicit orders for or advise on trades regarding options, futures contracts, and futures contract options.
• RRs are often called investment advisors or brokers, but these terms are not official registration categories.
• RRs require broad industry knowledge, including knowledge of individual securities, capital markets, economic cycles, performance, and taxation issues.
• Successful RRs typically have strong communication skills and understanding of ethical decision-making.

RR registration requirements

• Successfully complete the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH), administered by the Canadian Securities Institute (CSI).
• The 90-day period is a training period where one is not permitted to have contact with customers or prospects in obtaining, taking, soliciting orders, or giving advice.
• The prohibition extends to electronic platforms and social media and commission splits cannot be received.
• Activities during 90-day periods such as gathering information of clients on behalf of another RR is allowed, and assisting with inquiries and giving quotes, provided that you do not open any accounts until you are fully registered.
• Introduction letters and invitations to seminars are allowed, and creating and researching lists of leads is allowed.
• 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.
• Complete the Wealth Management Essentials (WME) course within 30 months after getting approval to deal with retail customers.
• Failure leads to immediate suspension until the course is completed.
• Participation in the industry's CE program is an important condition of keeping licenses active.
• It typically requires satisfying the professional development and compliance portions of the CE program for the CE cycle.
• Additional proficiency requirements are necessar to solicit orders for or to advise on trades with respect to options, futures contracts, and futures contract options.
• Options trading requires completion of Derivatives Fundamentals and Options Licensing Course or the Derivatives Fundamentals Course (DFC) and the Options Licensing Course (OLC).
• Futures and futures options require completion of the DFC and the Futures Licensing Course.

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

• Full-service dealers now provide holistic wealth management services to high-net-worth clients and discretionary portfolio management is a part of that.
• PMs and APMs must meet proficiency requirements and success completing industry courses.
• A high level of experience relevant to discretionary portfolio management activities, or relevant investment management experience (RIME), must be demonstrated.
• Applicants must demonstrate strong research and analysis and portfolio construction skills.
• CIRO assesses RIME by assessing each exemption application on its own merits and using unique case descriptions with specific information.

PM registration requirements

• Successfully complete the CPH and Canadian Investment Manager designation, or the Chartered Investment Manager (CIM) designation, or the Chartered Financial Analyst (CFA) Charter
• Four years of RIME if the Canadian Investment Manager designation or CIM designation is completed, with one year gained within the three years before requesting approval.
• For CFA Charter completion, one year of RIME within the three years before requesting approval is required.

APM registration 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 (IRs)

• Investment Representatives take or submit client orders for execution only and cannot give advice.
• Like RRs, IRs refer to employees of CIRO investment dealer members and are registered provincially as dealing representatives under NI 31-103.
• Proficiency requirements are similar to those for RRs but are less extensive.
• They must complete the CSC, the CPH, and a 30-day training program, and are subject to a six-month supervision period and the compliance portion of the CE requirements.

IR roles

• Sales assistant, who are IRs that are registered sales assistants employed at full-service investment dealers to assist one or more fully registered RRs by handling administrative tasks and documentation.
• Sales assistants are allowed to take unsolicited orders from clients to buy and sell securities.
• Good organizational skills, communication skills, industry knowledge, and familiarity of back-office operations are very helpful.
• IR at an Order Execution Only firm registered to take orders from clients.

Non-registered staff

• SRO rules restrict non-registered personnel from opening client accounts, completing KYC information, providing advice, soliciting transactions, and assisting clients in completing orders.
• Non-registered staff are permitted to advertise services and products, deliver/receive securities, and contact clients to arrange appointments or give notice regarding deficiencies in completed forms.
• Individuals enrolled in either the 30- or 90-day training program cannot engage in any activity “in furtherance of a trade".
• Registrants dealing only in mutual funds employed by firms registered as investment dealers (not mutual fund dealers) can purchase and sell their existing fund customer base, and can only deal with mutual funds.
• They must also complete the CSC and the CPH within 270 days of initial approval and register as an RR within 18 months of initial approval.
• During training they cannot transact in any non-mutual fund securities with anyone.
• An RR may receive a referral from someone not in the same registration category, such as a mutual funds only registered individual and in such cases, suitability must be carefully considered.

CIRO Registration Reviews: The Fit and Proper Test

• The fit and proper test is conducted by CIRO's registration staff, and is a review for individuals seeking CIRO approval or registration under securities legislation.
• Suitability reviews are conducted in those jurisdictions where CIRO has been delegated statutory authority for individual registration by a securities commission.
• CIRO also evaluates termination, regulatory, criminal, civil, or financial disclosures filed on the National Registration Database (NRD), and provides guidance on best hiring practices.
• Regulatory filings regarding registered individuals must be completed through the NRD.
• Registrants must notify their dealer members of registration information changes as soon as possible (within two business days).
• The fit and proper test is an evaluation by the registration staff of the applicant's integrity, financial solvency, and competence.
• This also includes the importance of having and maintaining appropriate proficiencies.
• CIRO has the authority to refuse an application for approval or transfer under certain conditions, the applicant does not meet requirements, will not comply with the rules, is not qualified, or the approval is not in the public interest.

Continuing Education (CE)

• Continuing education (CE) is a fundamental requirement in the Canadian securities industry for ongoing licensing.
• It helps maintain proficiency and stay updated on product developments, legal and compliance issues, and emerging industry trends.
• Dealer members can design/deliver their own compliance and professional development courses.
• RRs CE requirements consist of programs every two years, totaling 20 hours of professional development and 10 hours of compliance, with five hours dedicated to Canadian compliance issues.
• Registration can be suspended and dealer members may have to pay a fine if courses are not completed each two-year cycle.
• Partial or unreported CE credits can be transferred.

Communication with the public

• There are rules governing client contact, including phone calls, emails, and representation in marketing and advertising.

Rules for telemarketing and the National Do Not Call List

• The Canadian Radio-television and Telecommunications Commission (CRTC) enforces rules for telemarketing calls and other unsolicited telecommunications.
• The CRTC's Unsolicited Telecommunications Rules and the National Do Not Call List (National DNCL) create requirements concerning times of day to call, introductions, record maintenance, and penalties.
• The National DNCL must be subscribed to and consulted before telemarketing calls, unless direct consent has been provided.

Canada's Anti-Spam Legislation (CASL)

• The CRTC enforces the Canada’s Anti-Spam Legislation (CASL), which has established rules sending commercial electronic messages (CEMs).
• CASL requires express (opt-in) or implied consent to send CEMs and clearly identify the sender including all contact information.
• Organizations face criminal charges, civil charges, personal liability for company officers and directors, and monetary penalties for non-compliance.

Rules for Marketing Materials

• Provincial securities legislation defines trade as including advertisements or solicitations with respect to a security.
• Industry rules require sales materials and oral presentations to fairly and balanced view risks and benefits of products.
• Communications cannot omit any material facts or qualifications.

Electronic advertising and social media use

• It is now easy to disseminate sales messages through email and on social media sites.
• Regulators now specifically address electronic advertising and social media use for marketing.
• Communications delivered electronically must be supervised by dealer members, just like those delivered on paper or through other traditional media.
• CIRO (formerly IIROC) published guidance about social media use.
• CIRO’s stance is dealer members must ensure compliance with regulatory requirements and securities legislation regardless of the communication vehicle.

General Regulations and Guidelines for Sales Literature

• Communication used for clients relating to a security or strategy is considered sales literature.

The Fund Facts Document

• Key information can be found in a simple document and is required from mutual funds under NI 81 - 101.
• The purpose of the Fund Facts document is to provide investors with key information to make a knowledgeable decision about investing.

Dealing with clients

• Must be aware of the rules regarding conflicts of interest, personal dealings with clients, and handling client data.
• Conflicts of interest arise when a client's interests diverge.
• Any existing or potential material conflicts must be avoided if they can't be addressed fairly.
• Disclosing material conflicts is required, preferably when opening the account.
• Firms must address conflicts, especially those compensation-related.

Personal Financial Dealings and Outside Activities

• CIRO has rules for personal financial dealings with clients, outside activities, and accounts with other dealer members.
• Personal financial dealings are generally prohibited.
• Outside activities/accounts may be allowed under certain conditions.
• A non-client account is the name given to these transactions, and must be designated as such.

Prohibited activities with clients:

• Accepting consideration from anyone except the dealer member for activities relating to the client.
• Entering into a settlement agreement without the dealer member’s consent.
• Paying losses with personal funds.
• Borrowing/lending without being a Related Person under the Income Tax Act (Canada).
• Acting as a power of attorney/trustees, unless the client is that related person.

Privacy and Cybersecurity

• Collection of a great deal of information from clients is of paramount importance, and must be protected.
• The Personal Information Protection and Electronic Documents Act (PIPEDA) dictates personal information that can be gathered, used and disclosed.
• Registrants must keep client information confidential and cannot disclose it without consent, except in certain circumstances.
• Clients must consent and have the right to withdraw consent at any time, which a registrant cannot require.
• Cybersecurity is a growing operational and compliance concern with measures that must be implemented by senior management and permeate at all levels.
• IIROC has published resources, such as a best practice guide and a cyber incident management plan guide, to assist in designing cybersecurity programs.
• Cybersecurity incidents are reportable events by dealer members to CIRO within three days of discovery, requiring a firm provided report within 30 days.