Below is a more detailed discussion highlighting certain aspects
of that report.
According to IIROC, dealers are expected to have robust
policies and procedures for communicating with clients and the
public through advertisements and sales literature, including
through social media. According to the compliance report, IIROC
intends to review dealers' social media policies and procedures
over the course of the next year, with the results contributing to
the development of policy in this area.
OSC Mystery Shopping Project
Of further interest, IIROC noted that it is working with
the OSC on the mystery shopping project, described in the
Statement of Priorities for 2013-2014. The project is
intended to research the quality of investment advice provided
to retail investors in Ontario. According to the OSC, the mystery
shopping project will gauge the suitability of advice and identify
areas of concern.
IIROC stated in the report that some dealers
have failed to maintain sufficient written evidence of due
diligence processes and analyses, and IIROC staff intend to
meet with dealers to provide specific feedback.
Meanwhile, the report noted inconsistent practices in
respect of the arrangements made between carrying brokers that
provide back-office operations and portfolio managers.
Specifically, IIROC expressed concern with the written
services agreements governing such arrangements and the terms of
those agreements, and highlighted the importance of
demarcating the responsibilities between the dealer as
custodian of client assets and the portfolio manager as
discretionary investment manager to clients. The report also noted
that carrying brokers are not permitted to act as agent or provide
books and records for any party that is not also an IIROC-regulated
IIROC further identified underwriting deficiencies in respect of
margin requirements. Specifically, IIROC observed instances
where: (i) the CFO failed to review the supporting
underwriting agreements to verify accuracy of the underwriting
margin provision; (ii) public/private partnership deals were
not properly considered as a commitment requiring capital at the
"request for financing bid" stage of the project;
(iii) underwriting concentration was not considered for
commitments where margin was reduced for expressions of interest or
the use of a standard form new issue letter; and (iv) margin
was reduced for sales assumed to be ticketed by the lead
underwriter without receiving appropriate confirmation from the
The report also cited instances of inadequate controls in
respect of private placements to accredited investors.
Specifically, in some cases, information on the New Client
Application Form failed to support the exemption claimed in the
subscription agreement. As such IIROC reminded dealers of the
obligation to verify accredited investor qualifications prior to
permitting clients to participate in private placements.
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.
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