ARM 2014 ANNUAL EDUCATIONAL CONFERENCE
March 2014
Laurie Cook
Marc Flynn
Partner,
Borden Ladner Gervais LLP
VP Regulatory Relations and Credentialing
Canadian Securities Institute
Agenda
A. Overview of the Canadian Regulatory
Framework
B. Registration Categories and Rules
C. IIROC Registration, Rules and
Proficiency Requirements
D. Proposed Reforms Currently Under
Review
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A. Overview of the Canadian Regulatory Environment
 Securities regulations = provincial and
territorial competence
 10 provinces and 3 territories
 Canadian Securities Administrators
(CSA) regroups all Commissions
 SRO: Investment Industry Regulatory
Organization of Canada (IIROC) =
FINRA
 SRO: Mutual Fund Dealers Association
of Canada (MFDA)
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National Federal Regulator – Is it On The
Horizon?




Challenge of existing framework
Hurdle: Constitutional division of powers
Recent Supreme Court decision
Ontario and BC Proposed Cooperative
Capital Markets Regulator (CCRM)
 Target launch date: July 2015
 More hurdles: Other provinces, another
court challenge (Quebec)
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B. To Register or Not To Register – That
Is The Question Concerning Canada
 National Instrument 31-103 Registration
Requirements, Exemptions and Ongoing
Registrant Obligations governs all
registration related matters in Canada.
A “harmonized rule” that applies in all
Canadian jurisdictions (with some
“carve-outs”)
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Exemptions From Registration
 International Dealer
 International Adviser
 Non-Resident Investment Fund Manager
(Ontario, Quebec, Newfoundland and
Labrador)
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International Exemptions
 Must operate within the limitations of the
exemption
 You must have an agent and address for
service in each province where you operate
 You will pay fees in Ontario and Saskatchewan
 You must file a notice with the requisite
regulator each year
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Exemptions From Registration
Important concepts to consider when
deciding whether to use an exemption:
“Foreign security”
“Canadian Permitted client”
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The International Dealer Exemption
 The Company must have its head office
in a non-Canadian (“foreign”) jurisdiction
 The Company must be registered or
operating under an exemption from
registration in the foreign jurisdiction
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What Activities Is An International Dealer
Allowed To Engage In?
a) an activity, other than a sale of a security, reasonably necessary
to facilitate a distribution of securities offered in a foreign
jurisdiction;
b) a trade in a foreign debt security where no prospectus has been
filed;
c) a trade in a foreign debt security other than during the security’s
distribution;
d) a trade in a foreign security unless the trade is made during the
security’s distribution and a prospectus has been filed in Canada;
e) a trade in a foreign security with an investment dealer;
f) a trade in any security with an investment dealer acting as
principal.
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The International Dealer Exemption Is Not
Available Unless
the Company’s head office is in a foreign jurisdiction
the Company is registered or exempt from registration
the Company engages in the business of a dealer
the Company is acting as principal or as agent for
i. the issuer of the securities,
ii. a permitted client, or
iii. a person or company that is not a resident of Canada;
e. the Company has filed the requisite Notice with the local
regulator
a.
b.
c.
d.
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The International Dealer Exemption is not
available unless
f. one of the following applies:
i. the Canadian permitted client is registered as an adviser or
dealer; or
ii. the Company has notified the Canadian permitted client of all of
the following:
 the Company is not registered in the local jurisdiction
 the head office is located in a foreign jurisdiction;
 all or substantially all of the assets of the Company are situated
outside of Canada;
 there may be difficulty enforcing legal rights against the
Company;
 the name and address of the agent for service of process of the
Company in the local jurisdiction.
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The International Adviser Exemption
a) the adviser’s head office is in a foreign jurisdiction;
b) the adviser is registered in the foreign jurisdiction;
c) the adviser engages in the business of an adviser;
d) not more than 10% of the consolidated gross revenue of the adviser and
its affiliates was derived from advising activities in Canada;
e) the adviser must notify the Canadian permitted client, before providing
any advice:
 that the adviser is not registered in the local jurisdiction;
 where the adviser’s head office is located;
 that all or most of the adviser’s assets may be situated outside of
Canada;
 there may be difficulty enforcing legal rights against the adviser;
 the name and address of the adviser’s agent for service.
f) the adviser has filed the requisite Notice with the local regulator.
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Non-Resident Investment Fund Manager
A. In Ontario, Quebec and Newfoundland & Labrador
 Are you acting as an IFM?
 Are you distributing funds in any of these jurisdictions?
 Then registration is required unless
 All of the security holders are permitted clients, then an exemption is
available
 Need to make a Notice filing with the requisite securities regulatory authority
B. Other Canadian jurisdictions
 Only need to register in these 10 jurisdictions if you are acting as an IFM
from a location inside these jurisdictions
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I can’t Use The International Adviser Or International
Dealer Or Investment Fund Manager Exemptions – Now
What?
Registration Requirements
 Proficiency
 Integrity
 Solvency
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Registration
 Provincial/territorial securities
commissions are responsible for
registration of all categories of
registration except investment dealers
 Investment Industry Regulatory
Organization of Canada (IIROC) has
been delegated registration authority for
investment dealers
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Passport System
 What is the passport system?
 Principal regulator
 Non-principal regulators
 How is the principal regulator
determined?
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Steps
 Enroll on NRD (Forms 1 and 3)
 Prepare the Application for registration
(Form 33-109F6)
 Apply for registration of individuals via
NRD (Form 33-109F4)
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Dealer Categories
1. Investment dealer
2. Mutual fund dealer
3. Scholarship plan dealer
4. Exempt market dealer
5. Restricted dealer
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Adviser Categories
6. Portfolio manager
7. Restricted portfolio manager
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Investment Fund Manager Category
8. Investment Fund Manager
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Categories of Individual Registration
1. Dealing representative
2. Advising representative
3. Associate advising representative
4. Ultimate designated person
5. Chief compliance officer
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Category of Individual Approval
1. Permitted individual
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Other Registration Related Rules
 National Instrument 33-109 Registration
Information (NI 33-109)
 National Instrument 31-102 National
Registration Database (NI 31-102)
 Multilateral Instrument 11-102 Passport
System (MI 11-102)
 National Policy 11-204 Process for
Registration in Multiple Jurisdictions (NP
11-204)
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C. IIROC – Investment Industry
Regulatory Organization of Canada
 Delegated powers of registration and supervision of all
securities dealers and their registrants
 200 member firms, 28,000 registrants
 Member and Market Regulation and Oversight
 Use National Registration Database (NRD) and provide
Advisor Report (= BrokerCheck)
 Investment Industry Association of Canada (IIAC) =
SIFMA
 CSI handles all exams for IIROC
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IIROC – Approved Person Categories
Standard
Reg. Rep
x
Inv. Rep
x
Trader
x
Supervisor
x
Executive
x
CFO, CCO
x
Retail
x
Institutional
Discretionary
Options
or
Futures
x
x
x
x
x
x
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IIROC – Proficiency Requirements
 Set out in IIROC Rule 2900
 All approved persons categories have course requirements
 Registered Rep (retail) (also known as Investment Advisor)
requirements:





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2 courses (9 exam-hours)
90-day internship
Additional course (6 exam-hours) within 30 months of registration.
On-going CE requirement.
Options and futures licensing requires additional courses.
Discretionary Management also required additional courses
 American RRs can take New Entrants Course (3 exam-hours)
to be registered in Canada.
 Canadians can top-up with Series 37/38 in the US.
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IIROC Proficiency Education and
Exams in Canada
 Course and exam development and administration provided
exclusively Canadian Securities Institute for over 40 years.
Contractual agreement with IIROC.
 All candidates must enrol in CSI courses which includes
exams. Focus on education rather than test-prep.
 CSI’s role:




Assist IIROC in updating proficiency standards
Develop and maintain course quality
Ensure and administer exams in dedicated centers throughout
Canada and internationally
Provide effective customer service and record-keeping
 CSI also offers “post-licensing” courses and credentials for all
financial services verticals
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IIROC – Recent Reforms
 Client Relationship Model
 Phase 1 : Relationship disclosure, conflicts of interest
disclosure and enhanced suitability
 Phase 2: Account performance and account
fee/charge reporting
 Phase 1: In force, gradual implementation
 Phase 2: Expect to be adopted by Summer 2014
 Use of Titles and Designations
 Plain Language Project
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D. Proposed Reforms Under Review

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Concept of Fiduciary Duty
Derivatives OTC Registration
Women on Boards
Changes to the Accredited Investor and
Minimum Investment Amount Prospectus
Exemptions
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THANK YOU!!
For further information, please contact:
Laurie J. Cook
Partner
Borden Ladner Gervais LLP
: (416) 367-6611
: lcook@blg.com
Marc Flynn
Senior Director-Regulatory Relations and
Credentialing
Canadian Securities Institute
(Moody’s Analytics)
: (514) 840-8706
: marc.flynn@moodys.com
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