Canada: Proposed National Instrument 31-103: Registered Dealers And Advisers – What’s New?

Last Updated: April 4 2007
Article by Laurie J. Cook, Scott McEvoy and Kyle Pohanka

Most Read Contributor in Canada, September 2016

Proposed National Instrument 31-103 Registration Requirements1 harmonizes and streamlines the firm categories of registration across all of the CSA jurisdictions. A few new categories of registration have been added, but overall the number of categories has been reduced. Firms that today are registered as dealers and advisers generally will continue to be required to be registered, albeit in potentially different categories of registration: investment dealer, mutual fund dealer, restricted dealer, scholarship plan dealer, exempt market dealer, portfolio manager, restricted portfolio manager or investment fund manager. Several categories of registration will be eliminated: international dealer, limited market dealer, foreign dealer, international adviser, securities adviser and investment counsel. Firms carrying on more than one type of activity requiring registration generally will be required to obtain registration in each of the applicable registration categories.

All existing registrants and financial services firms will need to analyse the impact of the proposed "business trigger"—being in the business of dealing in securities, of advising on securities or of managing investment funds. Depending on the nature of their business, existing registrants may not need to continue to be registered. Conversely, the business trigger may mean that a firm will need registration.

What’s New?

Streamlined and harmonized firm categories of registration

Five dealer registration categories, with two new categories:

Exempt Market Dealer – similar to the limited market dealer registration category currently in effect in Ontario and Newfoundland and Labrador, exempt market dealers will be restricted to dealing in prospectus-exempt securities and with persons to whom prospectus–exempt distributions can be made.

Restricted Dealer – a ‘catch all’ registration category intended to accommodate limited dealing activities that do not fall within other firm categories.

Dealer categories being eliminated: limited market dealer, international dealer, financial intermediary dealer, foreign dealer, investment contract brokerage and exchange contracts dealer.

Two adviser registration categories: portfolio managers or restricted portfolio managers.

Firms acting as managers of investment funds will also be registered in a new category of investment fund manager.

Two new individual registration categories for all firms

Ultimate Designated Person – senior officer responsible for developing and implementing policies and procedures to discharge the registered firm’s obligations.

Chief Compliance Officer – responsible for day-to-day monitoring of adherence to policies and procedures. CCOs will be subject to proficiency requirements.

Individuals must also be registered if they are "dealing", "advising" or "associate advising" representatives.

Business Trigger

"Trade trigger" regime for dealers will be eliminated and changed to be consistent with current "business trigger" regime for advisers. Whether registration is required will depend on an assessment of whether the activity is "dealing" or "advising" in securities or managing investment funds and is conducted as a "business".

Fit and Proper Requirements (Proficiency)

Exam-based proficiency rather than course-based proficiency.

IDA and MFDA will determine minimum proficiency requirements of investment dealer representatives and mutual fund dealer representatives, respectively, of SRO members.

Minimum proficiency requirements for non-SRO dealer representatives proposed.

Exempt market dealer representatives will have minimum proficiency requirements.

Restricted dealers’ education and experience requirements will be at the discretion of regulator and determined in course of assessing suitability of an individual.

In some cases, less stringent proficiency requirements relating to work experience for advising representatives.

Fit and Proper (Capital)

Capital requirements for SRO members will be prescribed by the applicable SROs.

Minimum capital for dealers in all categories that are non-SRO members = $50,000; for advisers = $25,000 and; for investment fund managers = $100,000.

Fit and Proper (Financial Reporting)

All non-SRO dealers will have increased reporting obligations including first, second, and third quarter reporting of financial statements and reports of excess working capital together with annual financials and excess working capital reporting.

Portfolio managers will be required to file an annual report of excess working capital, in addition to filing annual financial statements.

Financial statements for portfolio managers and dealers will be required to be prepared on an unconsolidated basis.

Fit and Proper (Insurance)

Non-SRO dealers and portfolio managers will have a new computation methodology for calculating insurance requirements.

Depending upon the amount of assets under management, potentially more onerous insurance requirements for portfolio managers that hold, or who have access to, client assets.

Conduct Rules (Account Opening & KYC)

Dealers and portfolio managers must consider a client’s "financial circumstances" in determining whether a proposed purchase or sale is suitable for a client.

Enhanced client disclosure ("relationship disclosure document") must be provided to retail clients that, depending upon the circumstances, addresses certain prescribed matters including investment suitability, risk factors, conflicts of interest and client reporting.

Conduct Rules (Record Keeping)

The focus has moved from prescriptive lists of records that must be maintained to more general requirements to keep records that demonstrate compliance with securities legislation (e.g. a dealer must maintain records that demonstrate compliance with capital and insurance requirements).

Conduct Rules (Account Activity Reporting)

Aggregated information on confirmations with respect to transactions involving more than one trade or trades that take place in more than one marketplace will be permitted.

Dealers will have the option of giving clients a semi-annual summary of trades (following the initial confirmation) under automatic payment plans, automatic withdrawal plans or contractual plans for mutual funds, scholarship plans, educational plans and educational trusts.

Conduct Rules (Compliance Systems)

Compliance is a firm-wide responsibility; a registrant’s compliance system must comply with specified principle-based element.

Streamlined and Harmonized Conflicts Rules

Proposed NI 31-103 would consolidate conflicts of interest rules across all jurisdictions and streamline existing provisions relating to statement of policies and limitations on trading, advising and recommendations.

Registrants will be required to provide prior written disclosure of a conflict of interest to a client when there is a reasonable likelihood that the client would consider the conflict important when entering into a proposed transaction.

Proposed requirement to provide "issuer disclosure statement" to a client where registrant proposes to purchase or sell securities of related and connected issuers for that client.

Where there is a material change to the statement the registrant must notify client in writing of the change prior to further transactions in the security of a related or connected issuer.

Mobility exemption from registration

In certain circumstances, registrants will be permitted to continue to deal with clients (and their family members) who move to another province without registering in that other province under NI 31-103’s new proposed "mobility exemption".

Referral Arrangements

Non-SRO registrants will be required to follow rules regarding referral arrangements – disclosure, consent and written agreement reflecting the arrangements.


1 Proposed National Instrument 31-103 Registration Requirements was released for comment on February 20, 2007. The comment period ends on June 20, 2007.

For more information on proposed NI 31-103, please see BLG’s Investment Management Advisory Canadian Securities Regulators Release Comprehensive Registration Rule for Comment released by our Investment Management Group on February 20, 2007. This Investment Management Advisory is one of eight in the series: Keeping Reforms in Sight: Understanding the Registration Reform Proposals. BLG’s Investment Management Advisories are available on our website at [click on Publications and then select Capital Markets to search current publications].

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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