Chapter Notes 2A - Updated.docx

Canadian Investment Regulatory Organization (CIRO)  Overview The Canadian Investment Regulatory Organization (CIRO) is a self-regulatory organization (SRO) that regulates investment dealers and mutual fund dealers, and acts as the regulation services provider for marketplaces that have retained it a...

Canadian Investment Regulatory Organization (CIRO)  Overview The Canadian Investment Regulatory Organization (CIRO) is a self-regulatory organization (SRO) that regulates investment dealers and mutual fund dealers, and acts as the regulation services provider for marketplaces that have retained it as such, including monitoring trading on those marketplaces for compliance with CIRO rules and securities legislation. CIRO carries out its regulatory responsibilities through setting and enforcing market integrity rules and dealer member rules regarding the proficiency, business and financial conduct of its member firms and their registered representatives. CIRO also operates the information processor (IP) for Canadian corporate and government debt securities and the name of the debt IP is CIRO IP. The two predecessor SROs, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA), amalgamated to continue as the New Self-Regulatory Organization of Canada (New SRO), effective January 1, 2023, which subsequently changed its name to CIRO on June 1, 2023. (Source: Ontario Securities Commission) Roles of CIRO CIRO is the national self-regulatory organization that oversees all investment dealers, mutual fund dealers and trading activity on Canada’s debt and equity marketplaces. CIRO is carrying on the regulatory functions of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada, and is committed to the protection of investors, providing efficient and consistent regulation, and building Canadians’ trust in financial regulation and the people managing their investments. CIRO Annual Priorities for fiscal 2024 This Bulletin summarizes the significant activities and initiatives that the Canadian Investment Regulatory Organization (CIRO). CIRO will focus on during our fiscal year: April 2023 – March 2024 (FY24). These activities and initiatives take place in the context of post-amalgamation of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) which closed on December 31, 2022, creating New SRO on January 1, 2023. In addition to the ongoing delivery of CIRO’s core mandate of investor protection and market integrity, we are focused on the following eight priorities: Determine mission, vision, values, and brand for CIRO and develop our three-year strategic plan. Promote the investor perspective through the Office of the Investor and Investor Advisory Panel. Harmonize our regulatory approach. Articulate the plan for an integrated fee model. Maintain an engaged, empowered, and unified staff. Continue to deliver on the regulatory mandate and support investors through industry and regulatory transformation. Strengthen stakeholder relationships. Demonstrate progress on the integration of corporate systems and processes. This year’s priorities build off the work and previous priorities of the two legacy self-regulatory organizations, the MFDA and IIROC. CIRO will continue to work closely with the Canadian Securities Administrators (CSA) to deliver on our mandate. Determine mission, vision, values, and brand for CIRO and develop our three-year strategic plan CIRO Strategic Planning During Fiscal Year 2024 CIRO will consult with all relevant stakeholders to seek input on the mission, vision and values for the new organization. Our strategic plan is an important forward-looking document that sets the vision of the organization. We will be seeking feedback on the strategic plan and all comments will be taken into consideration as we finalize and publish our strategic plan by the end of this Fiscal Year. Select and rollout new name and logo The Board and leadership of CIRO believed it was important to develop a new name as quickly as possible to establish a clear and distinct identity that evokes trust and integrity. In addition, we wanted to provide members with the new name as quickly as possible to ensure they are given a reasonable implementation period (until December 31, 2024) to make all updates necessary to reflect the new name and logo where they are required. The new name Canadian Investment Regulatory Organization (CIRO) will officially be used on June 1. Promote the investor perspective through the Office of the Investor and Investor Advisory Panel Development of IAP workplan and delivery of mandate We will support the Investor Advisory Panel (IAP) in the development of their workplan and delivery of their mandate. This includes providing education and guidance to Members and investors on key investor protection requirements in a number of areas including complaint handling, designating a trusted contact person and determining client risk profile. We will also engage in internal and external outreach to various stakeholders to discuss investor issues. Conduct an investor survey To help inform the strategic direction and future priorities of the Office of the Investor we will conduct an investor survey to gather data on their experiences and outcomes. Launch a dedicated site for the Office of the Investor and Investor Advisory Panel A dedicated section on the website will be developed for the Office of the Investor IAP to provide information relevant to the mandate of the office such as research and education materials. Harmonize our regulatory approach During the next fiscal year, we will continue to look for ways to harmonize both our teams and practices in the following areas: Compliance The integration of the compliance department and its operations with a focus on aligning Investment Dealer and Mutual Fund Dealer compliance processes where appropriate based on workplan. Furthermore, we will align our exam approach with the CSA for Client Focused Reform phase 2 work. Work will also begin on determining the best approach for an integrated risk model and align the best regulatory approach for consistency across the organization. Enforcement Work will soon commence with the integration of the Enforcement department and its operations with a priority of developing uniform Sanction Guidelines. We will also establish a centralized Complaint Intake Process for investors. Proficiency and Registration We will develop a work plan to harmonize Continuing Education requirements. We will also seek to obtain delegation which will lead us to begin planning to operationalize authorities in Québec with respect to Mutual Fund Dealer Representative Registration. Policy We will conduct a phased plan to consolidate Investment Dealer and Mutual Fund Dealer rules. Our first step will be to publish the proposed Phase 1 consolidated rules for public comment, followed by announcing the proposed approach on directed commission/personal incorporation to be made available to an expanded group of registered individuals. Articulate the Plan for an Integrated fee model Work has begun to determine the final fee model that addresses requirements set out in the Recognition Orders and Memorandum of Understanding. Maintain an engaged, empowered, and unified CIRO team CIRO will continue to demonstrate progress on Equity, Diversity, Inclusion, and Anti-Racism initiatives. A Staff Advisory Committee has been created and have been engaged on developing plans for Days of Significance and staff Lunch and Learns. All people leaders, from Managers to our Executive Leadership Team have participated in training about unconscious bias. People leaders have also begun to receive change leadership training providing best practices to effectively support their teams, while proving guidance on how to develop a custom action plan tailored to the leadership style of each manager and their team’s needs. The training has four modules and will be delivered in the coming months. Continue to deliver on the regulatory mandate and support the investor through industry and regulatory transformation Compliance CIRO will be finalizing a joint report with the CSA on the Client Focused Reforms sweep that was undertaken over the last year. We plan to enhance the Financial Operations examination program for business continuity planning testing, as outlined in the next steps of the Order-Execution Only Service Level working group. The Mutual Fund Division will also be conducting an examination to assess compliance with the Continuing Education Program. Obtain delegation and begin planning and operationalize authorities in Québec with respect to Mutual Fund Dealer compliance examinations. Enforcement CIRO will continue to pursue legislative authority across the country that will improve Enforcement’s ability to collect evidence and provide statutory protection against malicious lawsuits while performing our regulatory responsibilities in good faith. Proficiency and Registration Work continues to enhance our Proficiency Regime by finalizing the competency profiles for Investment Dealer approval categories, and by initiating a competitive request-for-proposal process to select new education service provider(s). Market Surveillance In 2022, IIROC signed a Memorandum of Understanding with the Montreal Exchange on cross-asset surveillance of the securities and derivatives markets to help mitigate the risk of market integrity breaches. We will continue to build on our cross-asset surveillance capability. We also plan to administer an industry-wide Business Continuity Planning test. Also, work continues with the CSA on the Short Selling Consultation. We will create a plan for external-facing access to aggregated Market Data (Public ADP). Policy CIRO will look to finalize and implement amendments to modernize Dealer Member rule requirements for derivatives that are materially harmonized with the implemented version of National Instrument 93-102 Derivatives: Business Conduct. CIRO has begun the process of finalizing and announcing implementation of rule amendments to support the industry’s move to T+1 trade settlement. Notice 23-0054 Amendments to facilitate the investment industry’s move to T+1 settlement was issued for public comment on April 20, 2023. We will develop a proposed harmonized rule requirement to facilitate more timely transfers of an expanded group of account assets amongst investment dealers and mutual fund dealers. We will continue to work with the CSA to determine a regulatory framework for the trading, and offering of, crypto assets to institutional and retail clients. Member Services and Innovation In April 2023, we conducted a roundtable exercise with Members who are approved to trade in crypto-asset products and some of their key counterparties. We look forward to conducting a cybersecurity table-top exercise with small and medium Dealer Members to improve their cybersecurity resilience. CIRO has established and will continue to promote availability of the Innovation function. The Innovation function at CIRO represents our continued commitment to supporting innovation and modernization in the investment industry to create better outcomes for investors and enhance capital market efficiencies. For the current fiscal year, the Innovation function will focus on initiatives including: Continuing industry engagement to discuss the modernization of rules around back-office arrangements and subordinated debt financing Conducting stakeholder outreach to determine areas of need, growth and transformation, and identify emerging trends Strengthen stakeholder relationships Developing and maintaining strong relationships is important to the work we do as an SRO. We will continue to find avenues to engage with our members on areas of interest to them. We will also work closely with the provincial and other regulators on areas of mutual interest. To strengthen our stakeholder relationships, we will: Determine optimal structure and role of regional and national councils. Determine revised advisory committee structure. Collaborate with the Financial Services Regulatory Authority of Ontario (FSRA) to become a credentialling body and support the creation of a public registry for financial advisors/planners. Collaborate with other regulators on financial title protection. Conduct innovation outreach to various stakeholder groups and prioritize areas of focus. Implement mechanisms for the smooth integration of new MFD members in Québec. Demonstrate progress on the integration of corporate systems and processes CIRO will facilitate the initiation of our year one integration plans and begin mid and long-term planning tied to strategic plan for years two and three. We will also complete all agreed IT changes in support of new brand launch. Our priorities for FY24 reflect the continued work since the amalgamation of IIROC and the MFDA. As a conduct and prudential regulator, we will continue to take a risk-based approach to business conduct, trading conduct, and financial and operational reviews of CIRO-regulated firms to ensure they comply with statutory and CIRO requirements, and to encourage a strong culture of compliance. As a market regulator, we will continue to oversee both debt and equity trading in Canada to ensure the integrity of our capital markets. Our Policy teams will continue to strive to deliver timely, relevant, comprehensible and proportionate regulation that minimizes undue impact. Our quarterly Policy Priorities publication is an important way we help Dealer Members, investors and other stakeholders anticipate, plan for and/or comment on our current and upcoming policy initiatives. In keeping with our oversight role, we will continue to investigate and enforce our rules and hold CIRO-regulated Dealers and individual registrants responsible for their actions through various disciplinary sanctions Interim Rules Investment Dealer and Partially Consolidated Rules Mutual Fund Dealer Rules Universal Market Integrity Rules Introduction The responses to these FAQs: are based on the interim rules for CIRO (interim rules) as currently drafted and attached and may not apply if there are subsequent changes or amendments to these rules, attempt to address various Member situations, and are meant to clarify that there will be no change in CSA delegation of registration for investment dealer or mutual fund dealer firms, or their registered and permitted individuals, as of January 1, 2023. Members are encouraged to reach out to CIRO staff to understand how the interim rules apply to their unique circumstances. General changes 1. Why will there be CIRO interim rules? To ensure minimal disruption to members and their employees and Approved Persons, each set of IIROC and MFDA Rules will be adopted by CIRO and will continue to apply with some key rule changes proposed in the interim to address structural impediments to the industry. The CIRO Day 1 interim rules will be comprised of the following rule sets: the Investment Dealer and Partially Consolidated Rules1 , the Universal Market Integrity Rules, and the Mutual Fund Dealer Rules. 2. When will there be a consolidated rule book? The Investment Dealer and Partially Consolidated Rules and the Mutual Fund Dealer Rules will be consolidated into a single, highly harmonized rule set over time after the establishment of CIRO. A consolidated rules plan is being developed and we will provide regular updates on this plan and our progress in carrying it out. For greater clarity, the Universal Market Integrity Rules will not be part of the consolidated rules plan. 3. What are the key changes proposed in the interim rules? The rule changes that will be incorporated within the interim rules (primarily within the Investment Dealer and Partially Consolidated Rules) are those designed to: eliminate IIROC District Council regulatory approval authorities while maintaining their advisory role, permit mutual fund dealers to introduce business to investment dealers, enabling greater mutual fund dealer client access to exchange traded funds, give mutual funds only registered individuals employed by firms registered as both investment dealer and mutual fund dealer (dual-registered firms) the option of conducting business primarily within the Investment Dealer and Partially Consolidated Rules on a permanent basis, permit mutual-funds-only registered individuals, retained or contracted as agents by a dual registered firm, to be able to direct commissions to an unregistered corporation, where permitted by local securities legislation, provided they are not in the process of upgrading their proficiencies to those of a securities licensed individual2 , facilitate the timely movement of accounts between affiliated firms (including situations where accounts are being moved to a dual-registered Affiliated Firm) without requiring the completion of new account documentation, under certain conditions, and allow for a sufficient Dealer Member implementation period to make changes to membership disclosure for the names of CIRO and the investor protection fund. Conducting mutual fund business and investment dealer business within the same legal entity (dual-registered firms) 4. What is the CIRO membership process for dual-registered firms? Firms will be required to complete and submit a membership questionnaire to CIRO that provides information on their plans to operate as both an investment dealer and a mutual fund dealer. Firms should also submit their business plan and include: details of new business lines, products and/or services being added if the firm is a dual-platform/affiliate firm, the legal entity within which they plan to house their combined operations3 the proposed organization structure of the dual-registered entity including whether operations will be integrated or there will be separate divisions for investment dealer business and mutual fund dealer business details of the transaction (e.g, purchase of or amalgamation with existing mutual fund dealer or investment dealer, transfer/onboarding of advisor(s), etc.)4 account transfer details and repapering timelines, if applicable policies and procedures for any new division, business lines or activities, and for any new applicable rule requirements to be approved as a dual-registered firm5 . See question #10 for additional considerations for single-platform mutual fund dealer firms, and question #11 for single-platform investment dealers details of any new systems, vendors, agreements details on the supervisory structure including whether there is a single UDP and CCO or separate (see question #34 for details) In addition to the CIRO membership questionnaire, firms will need to submit an abbreviated Form 33-109F6 Firm Registration to their principal regulator6 to register the firm as both an investment dealer and mutual fund dealer (or complete a Form 33-109F6 if it is an initial application for registration). The application will be reviewed by CIRO and CSA under a coordinated process recognizing the firm’s existing registration and membership status7 . Firms should consider whether any other exemptive relief would be required as part of their plans to become dual-registered. For example, there may be existing custodial arrangements that are acceptable under the Mutual Fund Dealer Rules that are not acceptable under the Investment Dealer and Partially Consolidated Rules. There are also differences in systems and books/records requirements (account statement generation and disclosures, trade confirmations, etc.). There may be a need to accommodate these arrangements through CIRO granting of exemptive relief. See question #9 for details. CIRO staff will advise such members if any additional other preliminary steps or approvals are required. 5. What are the individual registration category changes for dual-registered firms? Representatives of a dual-registered firm in the Approved Person category of “Registered Representative dealing in mutual funds only who is an employee of a firm registered as both an investment dealer and a mutual fund dealer” should register in the category of “dealing representative, mutual fund dealer” in NRD8 . Where the proposed dual-registered firm is currently registered as a mutual fund dealer only: There will be no change to the individual registration category for mutual fund dealing representatives. They will continue with the dual-registered firm under the registration category of “dealing representative, mutual fund dealer”. Where the proposed dual-registered firm is currently registered as an investment dealer only:   There will be no change to the individual registration category for mutual fund dealing representatives registered with the mutual fund dealer affiliate. They will continue with the dual-registered firm under the registration category of “dealing representative, mutual fund dealer”. Registered Representatives dealing in mutual funds only with an investment dealer will need to change their registration category to “dealing representative, mutual fund dealer” for which the corresponding approval category under the Investment Dealer and Partially Consolidated Rules is “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”. 6. Can firms other than dual-registered firms include new mutual fund or investment dealer business lines within one legal entity? Yes. A firm that is registered as an investment dealer and not registered as a mutual fund dealer will continue to be able to carry out both investment dealer business and mutual fund dealer business within one legal entity. However, unlike in the case of dual-registered firms, the investment dealer will continue to have to get the proficiencies of their mutual funds only licensed individuals upgraded to those required for individuals dealing in securities. 7. What rules apply to a dual-registered firm and their employees and Approved Persons? Dual-registered firms and their employees and Approved Persons will be required to comply with: CIRO Investment Dealer and Partially Consolidated Rules, and CIRO Mutual Fund Dealer Rules, where there is no corresponding requirement in CIRO Investment Dealer and Partially Consolidated Rules. See responses to questions #10 and #11 for clarification. Further guidance with respect to dual-registered firms will be provided later this year. 8. Will a dual-registered firm be considered as one or two Dealer Member(s) of CIRO? The dual-registered firm will be considered to be one Dealer Member of CIRO.9 9. What kinds of exemptive relief will CIRO consider for dual-registered firms? CIRO will consider permitting a dual-registered firm to conduct certain mutual fund dealer business as it would have been approved to do as a mutual fund dealer. For example, exemptive relief may be considered where a firm organizes its mutual fund and investment dealer businesses into two separate divisions. Some examples of exemptive relief from CIRO interim rules, subject to conditions, that will be considered for the mutual fund division or business unit of the dual-registered firm are: Permitting an introducing broker (for the investment dealer business) to maintain a separate/additional mutual fund dealer carrying broker, or to self-clear mutual fund operations Relief from investment dealer requirements respecting client reporting on the condition that the firm complies with mutual fund dealer client reporting requirements Trading in segregated funds through the mutual fund dealer division or business unit Allowing Approved Persons licensed as mutual fund dealing representatives to distribute deposit instruments outside of the firm. 10. My firm is a mutual fund dealer with no investment dealer affiliate. What additional information would the firm need to provide to CIRO to be approved as a dual-registered firm? As noted in question #7, dual-registered firms and their employees and Approved Persons will be required to comply with CIRO Investment Dealer and Partially Consolidated Rules except where there is no corresponding requirement in CIRO Investment Dealer and Partially Consolidated Rules, then CIRO Mutual fund dealer rules must be followed. A mutual fund dealer will therefore need to provide evidence of compliance with any new investment dealer requirements under CIRO Investment Dealer and Partially Consolidated Rules. In addition to the items identified in question #4, the information that a mutual fund dealer will need to provide are as follows: Proforma financial and capital projections to demonstrate ability to meet investment dealer minimum capital requirements and any enhanced requirements pertinent to new and additional business lines 10 Individual designated as a Chief Financial Officer Individual(s) registered as an Investment Representative or Registered Representative Individual(s) approved as Supervisor Details of new investment dealer operations and clearing arrangements including introducing/carrying arrangements (e.g., Type 1-4) Panel Auditor Policies & Procedures for New business lines and activities being added New rule requirements including for books and records, account transfers, back-office and operational requirements, trading-related requirements including best execution, and cybersecurity incident reporting obligations 11. My firm is an investment dealer with no mutual fund dealer affiliate. What additional information would the firm need to provide to CIRO to be approved as a dual-registered firm? As noted in question #7, dual-registered firms and their employees and Approved Persons will be required to comply with CIRO Investment Dealer and Partially Consolidated Rules. Mutual fund dealer rules must be followed where there is no corresponding requirement in CIRO Investment Dealer and Partially Consolidated Rules. Therefore, investment dealers wishing to add a mutual fund registration must provide policies and procedures and evidence to demonstrate compliance with those mutual fund dealer rules where there is no investment dealer rule. For example: Leveraged account (i.e., borrowing to invest) supervision and suitability obligations Branch review requirements 12. Can a mutual fund dealer that is also registered as an exempt market dealer (EMD), an investment fund manager (IFM) or both an EMD and an IFM retain these additional firm registrations if the firm becomes registered as an investment dealer? If the firm continues to have Approved Persons registered as exempt market dealing representatives, the firm will have to maintain its EMD registration. However, in the case of firms also registered as an exempt market dealer, these firms will also be subject to the requirements set out in the Investment Dealer and Partially Consolidated Rules that apply to exempt market dealer activities. As a reminder, in such cases, firms and individuals registered under a firm’s EMD/IFM registration categories remain under the jurisdiction of the CSA regulators. 13. Will an exemption be required to facilitate the movement of client accounts from the mutual fund dealer affiliate to the dual-registered firm? We have introduced a provision within the Interim Rules to facilitate the timely movement of accounts between Affiliated Firms (including situations where accounts are being moved to a dual-registered Affiliated Firm) without requiring the completion of new account documentation, provided: the account, products and services to be made available to the client the know-your-client information collected, the approach used to assess the information collected, and fees applicable to the account, at the new affiliated registered firm are materially the same as at the current firm, and the existing account agreement has an acceptable assignment clause. In other instances, the dual-registered firm will be required to execute the normal new account agreements and documentation but may be given more time (by way of an exemption) to execute these agreements and documentation11 . Other requirements, relief and/or approvals may be required by CIRO and/or CSA regulators, depending on the firm’s proposal. Please speak to CIRO and/or CSA staff about your firm’s specific proposal. 14. Will individuals registered as “dealing representative, mutual fund dealer” be permitted to continue to direct commission payments received from the dual-registered firm? Yes. Individuals registered as “dealing representative, mutual fund dealer” will continue to be permitted to direct commissions within those jurisdictions that permit it and in accordance with Mutual Fund Dealer Rule 2.4.1(b) and Investment Dealer and Partially Consolidated Rule subsections 2551(8) and 2551(9). 12 Introducing Broker/Carrying Broker Arrangements 15. What changes have been made to the Introducing Broker/Carrying Broker Arrangements in the interim rules? Under current MFDA Rules, an MFDA member may only enter an introducing broker/carrying broker arrangement with another MFDA member. Similarly, under the IIROC rules, an IIROC member may only enter an introducing broker/carrying broker arrangement with another IIROC member. The interim rules have been amended to permit mutual fund dealers to introduce to investment dealers. 16. What business can a mutual fund dealer member introduce to an investment dealer member? Under the revised interim rules, a mutual fund dealer member can introduce all or any part of its business to an investment dealer member. The services provided by the investment dealer carrying broker may include order execution, clearing and settlement, custody of funds and securities and maintenance of books and records. 17. Which Rules (mutual fund dealer member or investment dealer member Rules) apply to the mutual fund introducing dealer? A mutual fund dealer member still, primarily, operating as a mutual fund dealer will generally be subject to the Mutual Fund Dealer Rules. The only exception is where, for a particular activity, compliance by one introduction arrangement party to one set of Interim Rule requirements13 interferes with the ability of the other arrangement party to comply with a different set of Interim Rule requirements14 – in this case, both parties must seek exemptive relief from CIRO that specifies the manner in which the activity must be performed and the rule requirements that apply. 18. What is the approval process for new Introducer Broker/Carrying Broker Arrangements? As is currently required under Mutual Fund Dealer and Investment Dealer Rules, new Introducing Broker/Carrying Broker Arrangements (including the form of agreement) and any amendment to or termination of the arrangement or agreement must be approved by CIRO staff before it is to be effective. 19. What agreement needs to be signed between a mutual fund dealer introducing broker and an investment dealer carrying broker? There is no standard form agreement that is prescribed for mutual fund dealers who wish to enter into introduction arrangements with investment dealers. However, the agreement must be approved by CIRO and include provisions that address, at a minimum: Services being provided by the investment dealer carrying broker to the mutual fund dealer Regulatory responsibilities of the parties including responsibilities for compliance, supervision, etc. Client reporting requirements Disclosures to clients on the relationship between the parties Minimum notice of termination timelines and clauses The introducing/carrying agreement between the mutual fund dealer and the investment dealer is not valid or effective until formally approved by CIRO. Furthermore, as CIRO rulebooks are consolidated and harmonized over time, in the event of any inconsistency or conflict between the terms of the agreement and the CIRO rules and requirements, the CIRO rules will prevail. CIRO Regional Councils and National Council 20. What is the role of the CIRO Regional Councils and National Council? The 10 IIROC District Councils and five (5) MFDA Regional Councils will be replaced by seven (7) Regional Councils comprised of Dealer Members from the following regions: Atlantic, Québec, Ontario, Manitoba (including Nunavut), Saskatchewan, Alberta (including Northwest Territories) and Pacific (British Columbia and Yukon Territory). The Regional Councils will have an advisory role and provide regional perspectives and recommendations on regulatory policy matters to staff of CIRO. In addition, the Regional Councils will advise CIRO on industry trends and issues to ensure that CIRO is proactive in dealing with emerging issues. The National Council will be comprised of the Chairs and Vice-Chairs of each Regional Council and will act as a forum for cooperation and consultation among the Regional Councils and provide recommendations on regulatory policy matters. 21. What will be the Composition of the New Regional Councils and how will they be constituted? Each Regional Council will be composed of four to twenty Dealer Member representatives, as determined from time to time by the Regional Council, including a chair and vice-chair, and one or more ex-officio members appointed by the CIRO Board. A Dealer Member with offices in the Region may nominate a member of the Regional Council. The Dealer Members of each Region will meet at least annually for the purpose of electing members of the Regional Council. Elections will be held to constitute the CIRO Regional Councils. The first election will be held in the first half of 2023. District Hearing Committees 22. What is the CIRO Hearing Committee Structure? CIRO will have 10 District Hearing Committees which will replace the current IIROC District Hearing Committees and MFDA Regional Councils and be responsible for conducting hearings. Functions currently residing with IIROC District Councils relating to hearing committee nominations, and MFDA Regional Councils with respect to members sitting as hearing panel members, will be assumed by a CIRO Board Committee (Appointments Committee). The Appointments Committee will have responsibility for appointing members to District Hearing Committees. The Appointments Committee will be composed of at least seven Directors, including the President and CEO of CIRO, and a majority of which (including the chair of such committee) will be independent. 23. What will happen to the MFDA Regional Councils and IIROC District Hearing Committees? To ensure continuity of enforcement proceedings, elected or appointed members of a MFDA Regional Council or a IIROC District Hearing Committee prior to December 31, 2022 will automatically be deemed to be a member of CIRO Hearing Committee for the district in which the member resides and the term of each individual as a member of the CIRO District Hearing Committee will expire on the date that his or her term as a member of the MFDA Regional Council or IIROC District Hearing Committee will have expired. Compliance & Enforcement 24. Can a dual-registered firm integrate compliance and supervisory systems or do they have to remain separate? A dual-registered firm can choose to either integrate its compliance and supervisory systems or operate separate systems for its investment dealer and mutual fund dealer lines of business provided the member complies with applicable regulatory requirements and the CIRO Rules. 25. Will the dual-registered firm be subject to separate business conduct examinations for its investment dealer and mutual fund dealer operations? The CIRO business conduct examination approach to a dual-registered firm will depend on the nature of the member’s operations, organizational structure, lines of business and degree of integration. 26. Will the dual-registered firm be required to file reports on both the METs and COMSET systems? The dual-registered firm should file reports using the COMSET system, including reports related to activity that occurred at the time the member’s mutual fund dealer operations were run separately under an MFDA member. Registration/ Approval Changes 27. Will there be a change to the delegation of registration or registration responsibility by the CSA and CIRO? No. The CSA will continue to register all individuals seeking registration as “dealing representative, mutual fund dealer” whether such individuals are retained or contracted by a mutual fund dealer only firm or a dual-registered firm. CIRO will continue to register investment dealer dealing representatives in accordance with the current CSA delegations to IIROC. 28. Will there be a change to the registration/approval process for individual dealing representatives and approved persons at dual-registered firms? The CSA will prepare and provide guidance on NRD filing processes related to dual-registered firms and the individual registrants and Approved Persons. 29. Will I continue to have an opportunity to be heard if I disagree with a recommendation related to a registration/approval decision? Will I continue to have a right to appeal a registration/approval decision? Yes, these rights will continue to exist under the interim rules, in respect of recommendations and decisions which refuse registration/approval, deny exemptive relief, or impose terms and conditions. 30. If I am currently approved as a Registered Representative dealing in mutual funds only with an investment dealer, will there be changes to my proficiency requirements, including any post approval requirements? If you remain with the firm that is only an investment dealer, you will still be required to upgrade within 270 days. This includes completing the Canadian Securities Couse (CSC) and Conduct and Practices Handbook Course (CPH) within 270 days of your initial approval in that category. It also includes completing either the 90-day training program and upgrading to Registered Representative, or the 30 day training program and upgrading to Investment Representative, within 18 months of your initial approval. However, if your firm becomes a dual-registered firm, you will need to transition into the new approval category of “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”. For Continuing Education requirements, see question 37. 31. If I was previously registered as a dealing representative with an MFDA member firm, do I need to complete any additional courses or meet any different requirements under the interim rules? No, you do not need to complete any additional courses or meet any different requirements under the interim rules. For further information pertaining to the different registration categories, see response to question #5. 32. I am formerly approved as a “Supervisor over Approved Persons”, with an IIROC member firm. Do I need to complete any other courses to supervise individuals in the new category of “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”? No. 33. I am currently a branch manager with a former MFDA member firm. Do I need to be approved as a Supervisor under the interim rules in relation to activities of individuals approved to deal in mutual funds only? What are the proficiency requirements for a Supervisor? Yes, Branch Managers who are Supervisors within the meaning of the Investment Dealer and Partially Consolidated Rules will need to apply for approval as a Supervisor. If you were acting as a designated branch manager with a former Mutual Fund Dealers Association member during the 90 days before the interim rules come into effect, you do not need to complete any additional courses. Also, if you have previously completed certain courses that are considered acceptable alternatives, as set out in Investment Dealer and Partially Consolidated Rule subsection 2625(2), then you do not need to complete any additional courses. These acceptable alternative courses are subject to the validity requirements set out within this same subsection. Otherwise, in order to be approved as a Supervisor, you will need to meet the applicable requirements in Investment Dealer and Partially Consolidated Rule clauses 2602(3)(xiii) and 2602(3)(xxi). 34. Do dual-registered firms need to have two UDPs and two CCOs, i.e. one for the investment dealer operations and for the mutual fund dealer operations? No. Dual-registered firms must have a UDP and a CCO who meet the applicable requirements, including proficiency requirements. Depending on a firm’s scale and the kind of activities carried out by different operating divisions, the dual-registered firm may put forward more than one CCO. CIRO and CSA will consider applications on a case-by-case basis and applications for exemptive relief would need to be filed with CIRO and CSA if the firm proposes to have more than one UDP or one CCO. 35. I am approved as a Registered Representative dealing in mutual funds only and I have additional proficiencies to trade in exchange-traded funds and/or exempt market products. Will I be allowed to continue to trade in these products under the interim rules? Yes, provided you were permitted to trade in exchange-traded funds or exempt market products during the 90 days before the interim rules come into effect, you will be allowed to continue trading in those products. 36. I want to be able to trade in exchange-traded funds or exempt market products as a Registered Representative dealing in mutual funds only employed by a dual-registered firm. What are the proficiencies I will need to meet to be able to trade in these products? Will the continuing education requirements change? The proficiencies for new applicants are listed in Investment Dealer and Partially Consolidated Rule sections 2603(1)(ii) and 2603(2)(ii), respectively. The requirements for Continuing Education as listed in interim Mutual Fund Dealer Rule 900, which are unchanged from the current requirements, will continue to apply to you. For Continuing Education requirements, see question 37. 37. Will my Continuing Education requirements change? No, if you are currently registered in a category with either an investment dealer or a mutual fund dealer, and stay in that category, the requirements for Continuing Education and the reporting platforms for that category will continue to apply. Individuals in the new category of Registered Representative dealing in mutual funds only at a firm registered as both an investment dealer and a mutual fund dealer will be subject to the Mutual Fund Dealer Rules for Continuing Education if registered outside of Québec. They will also be required to comply with the Continuing Education requirements of the Chambre de la sécurité financière (CSF) if registered in Québec. Although the requirements are substantially similar, some individuals who are registered or approved under, and therefore subject to, both the Investment Dealer and Partially Consolidated Rules, and the Mutual Fund Dealer Rules (i.e., CCO, UDP, Supervisor) will need to report their Continuing Education under both sets of rules. Québec considerations 38. What are the implications for all Mutual Fund Dealers registered in Québec? What rules are they subject to on Day 1? Mutual Fund Dealers registered in Québec will be deemed members of CIRO on Day 1. During a transitional period, they will continue to be subject to Regulation 31-103 for their activities in Québec and to avoid regulatory duplication, they will not be required to comply with CIRO Rules, with the exception of provisions required to ensure the smooth operation of CIRO and to allow MFDs registered in Québec to participate as members in the consultations of CIRO and on the committees that it shall create. CIRO will exempt such Mutual Fund Dealers from compliance with the specified CIRO rules and requirements until the transitional period ends. CIRO interim rules will apply to the activities outside Québec of mutual fund dealers who are registered in Québec and other provinces/territories and Regulation 31-103 will continue to apply to their activities within Québec for a transitional period, as specified above. CIRO will continue to work cooperatively with the Autorité des marchés financiers (AMF) to oversee Mutual Fund Dealers who are registered in Québec and other provinces/territories. 39. Who will be performing the examinations for mutual fund dealers registered in Québec as of Day 1? On Day 1, the status quo will apply. The AMF will lead the examinations for activities in Québec and will continue to work cooperatively with CIRO for activities outside Québec. 40. Who will be in charge of enforcement proceedings? Mutual Fund Dealers who are only registered in Québec Mutual Fund Dealers who are only registered in Québec will continue to be subject to enforcement proceedings by the AMF for dealers and their executives. For their registered representatives, the CSF will continue to be in charge of enforcement proceedings. Mutual Fund Dealers who are registered in Québec and other provinces/territories For activities in Québec, the AMF will continue to be in charge of enforcement proceedings for the dealers and their executives. For activities outside of Québec, CIRO will continue to oversee enforcement proceedings for dealers and their executives. For their registered representatives, the CSF in Québec and CIRO outside Québec will continue to be in charge of their respective enforcement proceedings. Mutual Fund business of dual-registered firms who are registered in Québec and other provinces/territories CIRO will oversee enforcement proceedings for all dealers and their executives at dual-registered firms. For the mutual fund dealing representatives registered in Québec, the CSF will be in charge of the enforcement proceedings. 41. How will the AMF, the CSF and CIRO coordinate the application of their respective Enforcement decisions? The AMF and the CSF will inform CIRO of their respective enforcement decisions, allowing CIRO to take the appropriate measures. The AMF, CSF and CIRO will enter into a Memorandum of Understanding that will allow them to collaborate and coordinate regarding Enforcement decisions and other activities, where applicable. 42. Will dealing representatives of mutual fund dealers registered in Québec be required to become approved persons of CIRO, for their activities in Québec? No. Dealing representatives of Mutual Fund Dealers registered in Québec will only be required to register with the AMF, for their activities in Québec. (Source: CIRO)