On June 13, 2013, the Canadian Securities Administrators (CSA) approved certain amendments to the Dealer Member Rules of the Investment Industry Regulatory Organization of Canada (IIROC), including Rule 43 - Personal Financial Dealings with Clients and Rule 18.14 - Outside Business Activities. These amendments will take effect on December 13, 2013.
Rule 43 - Personal Financial Dealings with Clients was introduced to prohibit an employee or Approved Person of an IIROC Dealer Member from directly or indirectly engaging in any personal financial dealings with clients, subject to limited exceptions.
Personal financial dealings with clients include, but are not limited to:
- Accepting any consideration, including remuneration, gratuity or benefit, from a person, other than the Dealer Member, for any activities conducted on behalf of a client.
Exceptions: Limited exceptions are provided where (i) the consideration is non-monetary, of minimal value and infrequent such that it will not cause a reasonable person to question whether it creates a conflict of interest or otherwise improperly influences the Dealer Member, employees or agents, or (ii) the compensation is received from a client in exchange for services provided through an approved outside business activity (OBA);
- Entering into a settlement agreement with a client without the Dealer Member's prior written consent or paying for client account losses out of personal funds without the dealer member's prior written consent;
- Borrowing from a client or lending to a client any money, securities or other assets, and includes providing or receiving a guarantee in relation to borrowing or lending money, securities or other assets to or from a client.
Exceptions: Limited exceptions are provided where (i) the client is a financial institution whose business includes lending money to the public and the borrowing is in the normal course of the financial institution's business; or (ii) the client is a "Related Person" under the Income Tax Act (Canada) and the transaction has been disclosed to and approved in writing by the Dealer Member prior to the transaction in accordance with the Dealer Member's policies and procedures.
- Acting as a Power of Attorney, trustee, executor, or otherwise having full or partial control or authority over the financial affairs of a client.
Exceptions: Limited exceptions are provided where (i) the client is a "Related Person" under the Income Tax Act (Canada) and the control or authority has been disclosed to and approved in writing by the Dealer Member in accordance with the Dealer Member's policies and procedures; or (ii) the control or authority relates to a discretionary or managed account for the client in accordance with applicable IIROC rules for such accounts.
Note that any existing arrangements that provide an employee or Approved Person with full or partial control or authority over the financial affairs of a client must be compliant with Rule 43 or unwound by June 13, 2014.
Rule 18.14 - Outside Business Activities has been amended to clarify that a Registered Representative (RR) or Investment Representative (IR) may engage in any business activity outside of the Dealer Member, including another gainful occupation, if:
- The RR or IR is not prohibited by the securities commission, securities legislation or policies in the applicable jurisdiction from devoting less than his or her full time to the securities business of the Dealer Member;
- The Dealer Member has procedures in place, acceptable to IIROC, to ensure continuous service to clients and to address potential conflicts of interest;
- The RR and IR has disclosed the OBA to, and has obtained the written approval of, the Dealer Member prior to engaging in such OBA.
- The Dealer Member has notified IIROC of the OBA within the time period and manner required by applicable National Instruments. [Note: Section 4.1 of NI-33-109 requires OBAs and changes to employment relationships to be filed on the National Registration Database (NRD) as an update to Item 10 of Form 33-109F4 for the RR or IR within ten (10) days of the change. Insurance activities conducted through a registered insurance provider or an affiliate or subsidiary of the Dealer Member should be reported under Item 13(3) of Form 33-109F4 and must include the name of the insurance firm], and
- The OBA is not:
- One which would bring the securities industry into disrepute; or
- With another dealer that is a member of a recognized
self-regulatory organization (SRO) unless:
- Such dealer is a related company of the Dealer Member employer of the RR or IR and a cross-guarantee pursuant to Rule 6.6 has been provided; and
- Such OBA is not contrary to the provisions of the applicable securities legislation or any policy made pursuant thereto.
IIROC considers an OBA to include any outside business activity that places an Approved Person in a position of influence over a client or potential client, whether or not it is a paid position. Examples include where an RR or IR has a leadership role in, or sits on the board (or similar body) of an organization, such as a social, charitable or religious organization. For further information, please refer to IIROC Notice 13-0163, issued June 13, 2013 and replacing MR 0434.
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.