On May 28, 2010, IIROC published for comment the proposed Personal Financial Dealing Rule and amendments to Dealer Member Rule 18.14. The proposed rule prohibits a Registered Representative (RR), Investment Representative (IR), Director, Executive, Supervisor or employee of a Dealer Member from directly or indirectly engaging in or permitting any associate to engage in any personal financial dealings with clients, subject to limited exemptions. The proposed rule also imposes a specific and positive obligation on RRs and IRs to disclose any outside business activities to the Dealer Member and to obtain the Dealer Member's prior approval. Outside business activities are not limited to other gainful occupations but include any outside business activities that a RR or IR engages in.
Personal financial dealings prohibited by the proposed rule include the following types of dealings:
- Benefit or other consideration - Accepting any material consideration, including remuneration, gratuity or benefit, from any person other than the Dealer Member for any activities conducted on behalf of a client. However, consideration that is non-monetary, of minimal value and infrequent would not be considered to be material consideration if it would not cause a reasonable person to question whether it created a conflict of interest or otherwise improperly influenced the Dealer Member, its employees or agents.
- Private settlement agreements – Entering into a private settlement agreement with a client or paying for client account losses out of personal funds without the Dealer Member's written consent.
- Borrowing from clients – Borrowing
money, securities or any other assets from a client,
unless:
- the client is a financial institution and the borrowing is in the normal course of the institution's business; or
- the client is a Related Person as defined by the Income tax Act (Canada) and the transaction is addressed in accordance with the Dealer Member's policies and procedures; and
- in the case of RRs and IRs, the transaction / arrangement has
been disclosed to and approved by the Dealer Member.
- Lending to clients – Lending money,
securities and other assets to a client or incurring any other
liabilities for a client, unless:
- the client is a Related Person as defined by the Income Tax Act (Canada) and the transaction is addressed in accordance with the Dealer Member's policies and procedures; and
- in the case of RRs and IRs, the transaction / arrangement has
been disclosed to and approved by the Dealer Member.
- Power of Attorney – Acting as a
power of attorney, trustee, executor or otherwise having full or
partial control or authority over the financial affairs of a
client, unless:
- the account is a discretionary or managed account;
- the client is a Related Person as defined by the Income Tax Act (Canada) and the existence of such control is addressed in accordance with the Dealer Member's policies and procedures; and
- in the case of RRs and IRs, the arrangement has been disclosed
to and approved by the Dealer Member.
Proposed amendments to IIROC Dealer Member Rule 18.14 further prohibit RRs and IRs from engaging in any outside business activity:
- that would bring the securities industry into disrepute; or
- with another dealer that is a member of a recognized self-regulatory organization unless
-
- such dealer is a related company of the Dealer Member employing the RR or IR and the Dealer Member and related company provide cross-guarantees pursuant to Rule 6.6, and
- such outside business activity is not contrary to the provisions of the applicable securities legislation or any policy made pursuant thereto.
Comment letters should be submitted to stabesh@iiroc.ca and a second copy to marketregulation@osc.gov.on.ca. The 90 day comment period is expected to expire on or about August 28, 2010.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
