NOTICE OF AND REQUEST FOR COMMENT ON PROPOSED AMENDMENTS TO NATIONAL INSTRUMENT 31-103 REGISTRATION REQUIREMENTS AND EXEMPTIONS COMPANION POLICY 31-103CP REGISTRATION REQUIREMENTS AND EXEMPTIONS Exemptions from certain requirements for SRO Members Introduction As contemplated in the Notice published on April 15, 2011, the Canadian Securities Administrators (the CSA or we) are seeking comments on proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103 or the Rule) and Companion Policy 31-103CP Registration Requirements and Exemptions (the Companion Policy) related to the exemptions for SRO members and their dealing representatives in Parts 3 and 9 of the Rule. The comment period will end on July 18, 2011. Summary and purpose of the proposed amendments to the Rule and the Companion Policy We are proposing amendments to sections 3.16, 9.3 and 9.4 of the Rule in order to add, as a condition to the exemptions provided in these sections, that the registered individual or the registered investment dealer firm comply with the specified corresponding provision of the Investment Industry Regulatory Organization of Canada (IIROC) or, in the case of a mutual fund dealer firm, the Mutual Fund Dealers Association of Canada (MFDA). These proposed amendments are in Appendix A to this Notice. A blackline of these proposed amendments is in Appendix B to this Notice. The draft amendments are further to those in the amended Rule published on April 15, 2011, which are scheduled to come into force on July 11, 2011, subject to all requisite approvals, including ministerial approvals 1 . We are also proposing amendments to the Companion Policy to provide guidance on our expectations with respect to compliance with the SRO rules and policies. These proposed amendments are in Appendix C to this Notice. The proposed amendments are further to those in the amended Companion Policy published on April 15, 2011, which are scheduled to come into force on July 11, 2011. The purpose of these amendments is to ensure that all registrants are subject to the same enforcement regime in respect of a breach of the Rule. If necessary, we will update the references to IIROC and MFDA provisions in the appendices to the Rule so that at the time these amendments come into force, we refer to the most current corresponding IIROC and MFDA provisions. Request for comments We would like your input on the Rule and the Companion Policy. We need to continue our open dialogue with all stakeholders if we are to achieve our regulatory objectives while balancing the interests of investors 1 Pursuant to the amendments published on April 15, 2011, the title to NI 31-103 is being changed from “Registration Requirements and Exemptions” to “Registration Requirements, Exemptions and Ongoing Registrant Obligations”. As these amendments will not be in force before July 11, 2011, the title currently in effect is used in this Notice.
and registrants. All comments will be posted on the Ontario Securities Commission website at www.osc.gov.on.ca and on the Autorité des marchés financiers website at www.lautorite.qc.ca. All comments will be made publicly available. Please note that we cannot keep submissions confidential because securities legislation in certain provinces requires publication of a summary of the written comments received during the comment period. In this context, you should be aware that some information which is personal to you, such as your e-mail and residential or business address, may appear in the websites. It is important that you state on whose behalf you are making the submission. Thank you in advance for your comments. Where to send your comments Please address your comments to all CSA members, as follows: British Columbia Securities Commission Alberta Securities Commission Saskatchewan Financial Services Commission Manitoba Securities Commission Ontario Securities Commission Autorité des marchés financiers New Brunswick Securities Commission Superintendent of Securities, Prince Edward Island Nova Scotia Securities Commission Superintendent of Securities, Newfoundland and Labrador Superintendent of Securities, Northwest Territories Superintendent of Securities, Yukon Territory Superintendent of Securities, Nunavut Please send your comments only to the addresses below. Your comments will be forwarded to the remaining CSA member jurisdictions. John Stevenson, Secretary Ontario Securities Commission 20 Queen Street West, Suite 1903, Box 55 Toronto, ON M5H 3S8 Fax: 416-593-2318 E-mail: jstevenson@osc.gov.on.ca Me Anne-Marie Beaudoin Corporate Secretary Autorité des marchés financiers 800, square Victoria, 22e étage C.P. 246, tour de la Bourse Montréal (Québec) H4Z 1G3 Fax : 514-864-6381 E-mail: consultation-en-cours@lautorite.qc.ca Questions Please refer your questions to any of the following CSA staff: Sarah Corrigall-Brown Senior Legal Counsel, Legal Services Capital Markets Regulation Division British Columbia Securities Commission Tel: 604-899-6738 1-800-373-6393 scorrigall-brown@bcsc.bc.ca
Navdeep Gill Legal Counsel, Market Regulation Alberta Securities Commission Tel: 403-355-9043 navdeep.gill@asc.ca Curtis Brezinski Acting Deputy Director, Legal and Registration Saskatchewan Financial Services Commission Tel: 306-787-5876 curtis.brezinski@gov.sk.ca Chris Besko Legal Counsel, Deputy Director The Manitoba Securities Commission Tel. 204-945-2561 Toll Free (Manitoba only) 1-800-655-5244 chris.besko@gov.mb.ca Leigh-Ann Ronen Legal Counsel, Compliance and Registrant Regulation Ontario Securities Commission Tel: 416-204-8954 lronen@osc.gov.on.ca Sophie Jean Analyste expert en réglementation – pratiques de distribution Autorité des marchés financiers Tel: 514-395-0337, ext. 4786 Toll-free: 1-877-525-0337 sophie.jean@lautorite.qc.ca Brian W. Murphy Deputy Director, Capital Markets Nova Scotia Securities Commission Tel: 902-424-4592 murphybw@gov.ns.ca
Jason L. Alcorn Legal Counsel New Brunswick Securities Commission Tel: 506-643-7857 Jason.Alcorn@gnb.ca Katharine Tummon Superintendent of Securities Prince Edward Island Securities Office Tel: 902-368-4542 kptummon@gov.pe.ca Craig Whalen Manager of Licensing, Registration and Compliance Office of the Superintendent of Securities Government of Newfoundland and Labrador Tel: 709-729-5661 cwhalen@gov.nl.ca Louis Arki, Director, Legal Registries Department of Justice, Government of Nunavut Tel: 867-975-6587 larki@gov.nu.ca Donn MacDougall Deputy Superintendent, Legal & Enforcement Office of the Superintendent of Securities Government of the Northwest Territories Tel: 867-920-8984 donald_macdougall@gov.nt.ca Frederik J. Pretorius Manager Corporate Affairs (C-6) Dept of Community Services Government of Yukon Tel: 867-667-5225 Fred.Pretorius@gov.yk.ca May 13, 2011
APPENDIX A PROPOSED AMENDMENTS TO NI 31-103 1. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations is amended by this Instrument. 2. Section 1.1 is amended by (a) adding the following after the definition of “IIROC” “IIROC Provision” means a by-law, rule, regulation or policy of IIROC named in Appendix G, as amended from time to time; and (b) adding the following after the definition of “MFDA” “MFDA Provision” means a by-law, rule, regulation or policy of the MFDA named in Appendix H, as amended from time to time; 3. Section 3.16 is amended by (a) adding the following after subsection (1): (1.1) Subsection (1) only applies to a registered individual who is a dealing representative of a member of IIROC in respect of a requirement specified in any of paragraphs (1)(a) to (c) if the registered individual complies with the corresponding IIROC Provisions that are in effect. , and (b) adding the following after subsection (2): (2.1) Subsection (2) only applies to a registered individual who is a dealing representative of a member of the MFDA in respect of a requirement specified in paragraphs (2)(a) or (b) if the registered individual complies with the corresponding MFDA Provisions that are in effect. 4. Section 9.3 is amended by (a) adding the following after subsection (1): (1.1) Subsection (1) only applies to a registered firm in respect of a requirement specified in any of paragraphs (1)(a) to (q) if the registered firm complies with the corresponding IIROC Provisions that are in effect. , and (b) adding the following after subsection (2):
(2.1) Subsection (2) only applies to a registered firm in respect of a requirement specified in any of paragraphs (2)(a) to (m) if the registered firm complies with the corresponding IIROC Provisions that are in effect. 5. Section 9.4 is amended by (a) adding the following after subsection (1): (1.1) Subsection (1) only applies to a registered firm in respect of a requirement specified in any of paragraphs (1)(a) to (q) if the registered firm complies with the corresponding MFDA Provisions that are in effect. , and (b) adding the following after subsection (2): (2.1) Subsection (2) only applies to a registered firm in respect of a requirement specified in any of paragraphs (2)(a) to (k) if the registered firm complies with the corresponding MFDA Provisions that are in effect. 6. The Instrument is amended by adding the following appendices after Appendix F: APPENDIX G – EXEMPTIONS FROM CERTAIN REQUIREMENTS FOR IIROC MEMBERS (Section 9.3 [Exemptions from certain requirements for IIROC members]) NI 31-103 Provision IIROC Provision section 12.1 [capital 1. Dealer Member Rule 17.1; and requirements] 2. Form 1 Joint Regulatory Financial Questionnaire and Report - Part I, Statement B, “Notes and Instructions” section 12.2 [notifying the 1. Dealer Member Rule 5.2; and regulator of a subordination 2. Dealer Member Rule 5.2A agreement] section 12.3 [insurance – 1. Dealer Member Rule 400.2 [Financial Institution dealer] Bond]; 2. Dealer Member Rule 400.4 [Amounts Required]; and 3. Dealer Member Rule 400.5 [Provisos with respect to Dealer Member Rules 400.2, 400.3 and 400.4] section 12.6 [global 1. Dealer Member Rule 400.7 [Global Financial bonding or insurance] Institution Bonds] section 12.7 [notifying the 1. Dealer Member Rule 17.6; regulator of a change, claim 2. Dealer Member Rule 400.3 [Notice of Termination];
or cancellation] and 3. Dealer Member Rule 400.3B [Termination or Cancellation] section 12.10 [annual 1. Dealer Member Rule 16.2 [Dealer Member Filing financial statements] Requirements]; and 2. Form 1 Joint Regulatory Financial Questionnaire and Report section 12.11 [interim 1. Dealer Member Rule 16.2 [Dealer Member Filing financial information] Requirements]; and 2. Form 1 Joint Regulatory Financial Questionnaire and Report section 12.12 [delivering 1. Dealer Member Rule 16.2 [Dealer Member Filing financial information – Requirements] dealer] subsection 13.2(3) [know 1. Dealer Member Rule 1300.1(a)-(n) [Identity and your client] Creditworthiness]; 2. Dealer Member Rule 1300.2; 3. Dealer Member Rule 2500, Section II [Opening New Accounts]; and 4. Form 2 New Client Application Form section 13.3 [suitability] 1. Dealer Member Rule 1300.1(o) [Business Conduct]; 2. Dealer Member Rule 1300.1(p) [Suitability Generally]; 3. Dealer Member Rule 1300.1(q) [Suitability Determination Required When Recommendation Provided]; 4. Dealer Member Rule 1300.1(r) and Dealer Member Rule 1300.1(s) [Suitability Determination Not Required]; 5. Dealer Member Rule 1300.1(t) [Corporation Approval]; 6. Dealer Member Rule 2700, Section I [Customer Suitability]; and 7. Dealer Member Rule 3200 [Minimum Requirements for Dealer Members Seeking Approval Under Rule 1300.1(t) for Suitability Relief for Trades not Recommended by the Member] section 13.12 [restriction on 1. Dealer Member Rule 100 [Margin Requirements] lending to clients] section 13.13 [disclosure 1. Dealer Member Rule 29.26 when recommending the use
of borrowed money] section 13.15 [handling 1. Dealer Member Rule 2500B [Client Complaint complaints] Handling]; and 2. Dealer Member Rule 2500, Section VIII [Client Complaints] subsection 14.2(2) 1. Dealer Member Rules of IIROC that set out the [relationship disclosure requirements for relationship disclosure information information] similar to those contained in IIROC's Client Relationship Model proposal, published for comment on January 7, 2011; At the time of publication, IIROC had not assigned a number to the relationship disclosure dealer member rule in its Client Relationship Model proposal. We will refer to the dealer member rule number when IIROC has assigned one. 2. Dealer Member Rule 29.8; 3. Dealer Member Rule 200.1(c); 4. Dealer Member Rule 200.1(h); 5. Dealer Member Rule 1300.1(p) [Suitability Generally]; 6. Dealer Member Rule 1300.1(q) [Suitability Determination Required When Recommendation Provided]; 7. Dealer Member Rule 1300.2; and 8. Dealer Member Rule 2500B, Part 4 [Complaint procedures / standards] section 14.6 [holding client 1. Dealer Member Rule 17.3 assets in trust] section 14.8 [securities 1. Dealer Member Rule 17.2A subject to a safekeeping 2. Dealer Member Rule 2600 – Internal Control Policy agreement] Statement 5 [Safekeeping of Clients' Securities] section 14.9 [securities not 1. Dealer Member Rule 17.3; subject to a safekeeping 2. Dealer Member Rule 17.3A; and agreement] 3. Dealer Member Rule 200.1(c) section 14.12 [content and 1. Dealer Member Rule 200.1(h) delivery of trade confirmation]
APPENDIX H – EXEMPTIONS FROM CERTAIN REQUIREMENTS FOR MFDA MEMBERS (Section 9.4 [Exemptions from certain requirements for MFDA members]) NI 31-103 Provision MFDA Provision section 12.1 [capital 1. Rule 3.1.1 [Minimum Levels]; requirements] 2. Rule 3.1.2 [Notice]; 3. Rule 3.2.2 [Member Capital]; 4. Form 1 MFDA Financial Questionnaire and Report; and 5. Policy No. 4 [Internal Control Policy Statements – Policy Statement 2: Capital Adequacy] section 12.2 [notifying the 1. Form 1 MFDA Financial Questionnaire and Report, regulator of a subordination Statement F [Statement of Changes in Subordinated agreement] Loans]; and 2. Membership Application Package – Schedule I (Subordinated Loan Agreement) section 12.3 [insurance – 1. Rule 4.1 [Financial Institution Bond]; dealer] 2. Rule 4.4 [Amounts Required]; 3. Rule 4.5 [Provisos]; and 4. Policy No. 4 [Internal Control Policy Statements – Policy Statement 3: Insurance] section 12.6 [global 1. Rule 4.7 [Global Financial Institution Bonds] bonding or insurance] section 12.7 [notifying the 1. Rule 4.2 [Notice of Termination]; and regulator of a change, claim 2. Rule 4.3 [Termination or Cancellation] or cancellation] section 12.10 [annual 1. Rule 3.5.1 [Monthly and Annual]; financial statements] 2. Rule 3.5.2 [Combined Financial Statements]; and 3. Form 1 MFDA Financial Questionnaire and Report section 12.11 [interim 1. Rule 3.5.1 [Monthly and Annual]; financial information] 2. Rule 3.5.2 [Combined Financial Statements]; and 3. Form 1 MFDA Financial Questionnaire and Report section 12.12 [delivering 1. Rule 3.5.1 [Monthly and Annual] financial information – dealer] section 13.3 [suitability] 1. Rule 2.2.1 [“Know-Your-Client”]; and 2. Policy No. 2 [Minimum Standards for Account Supervision]
section 13.12 [restriction on 1. Rule 3.2.1 [Client Lending and Margin]; and lending to clients] 2. Rule 3.2.3 [Advancing Mutual Fund Redemption Proceeds] section 13.13 [disclosure 1. Rule 2.6 [Borrowing for Securities Purchases] when recommending the use of borrowed money] section 13.15 [handling 1. Rule 2.11 [Complaints] complaints] 2. Policy No. 3 [Complaint Handling, Supervisory Investigations and Internal Discipline]; and 3. Policy No. 6 [Information Reporting Requirements] subsection 14.2(2) 1. Rule 2.2.5 [Relationship Disclosure] [relationship disclosure information] section 14.6 [holding client 1. Rule 3.3.1 [General]; assets in trust] 2. Rule 3.3.2 [Cash]; and 3. Policy No. 4 [Internal Control Policy Statements – Policy Statement 4: Cash and Securities, and Policy Statement 5: Segregation of Clients’ Securities] section 14.8 [securities 1. Rule 3.3.3 [Securities]; and subject to a safekeeping 2. Policy No. 4 [Internal Control Policy Statements – agreement] Policy Statement 4: Cash and Securities, and Policy Statement 5: Segregation of Clients’ Securities] section 14.9 [securities not 1. Rule 3.3.3 [Securities] subject to a safekeeping agreement] section 14.12 [content and 1. Rule 5.4.1 [Delivery of Confirmations]; delivery of trade 2. Rule 5.4.2 [Automatic Payment Plans]; and confirmation] 3. Rule 5.4.3 [Content] 7. This Instrument comes into force on (insert date) 2011.
APPENDIX B Blackline of Proposed Amendments to NI 31-103 This Appendix blacklines the proposed amendments to NI 31-103 against the relevant portions of the consolidation of NI 31-103 published on April 15, 2011. NATIONAL INSTRUMENT 31-103 REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS ... 1.1 Definitions of terms used throughout this Instrument ... “IIROC Provision” means a by-law, rule, regulation or policy of IIROC named in Appendix G, as amended from time to time; ... “MFDA Provision” means a by-law, rule, regulation or policy of the MFDA named in Appendix H, as amended from time to time; ... 3.16 Exemptions from certain requirements for SRO-approved persons (1) The following sections do not apply to a registered individual who is a dealing representative of a member of IIROC: (a) subsection 13.2(3) [know your client]; (b) section 13.3 [suitability]; (c) section 13.13 [disclosure when recommending the use of borrowed money]. (1.1) Subsection (1) only applies to a registered individual who is a dealing representative of a member of IIROC in respect of a requirement specified in any of paragraphs (1)(a) to (c) if the registered individual complies with the corresponding IIROC Provisions that are in effect. (2) The following sections do not apply to a registered individual who is a dealing representative of a member of the MFDA: (a) section 13.3 [suitability]; (b) section 13.13 [disclosure when recommending the use of borrowed money]. (2.1) Subsection (2) only applies to a registered individual who is a dealing representative of a member of the MFDA in respect of a requirement specified in paragraphs (2)(a) or (b) if the registered individual complies with the corresponding MFDA Provisions that are in effect. (3) In Québec, the requirements listed in subsection (2) do not apply to a registered individual who is a dealing representative of a mutual fund dealer to the extent equivalent requirements to those listed in subsection (2) are applicable to the registered individual under the regulations in Québec. ...
Part 9 Membership in a self-regulatory organization 9.1 IIROC membership for investment dealers An investment dealer must not act as a dealer unless the investment dealer is a “Dealer Member”, as defined under the rules of IIROC. 9.2 MFDA membership for mutual fund dealers Except in Québec, a mutual fund dealer must not act as a dealer unless the mutual fund dealer is a “member”, as defined under the rules of the MFDA. 9.3 Exemptions from certain requirements for IIROC members (1) Unless it is also registered as an investment fund manager, a registered firm that is a member of IIROC is exempt from the following requirements: (a) section 12.1 [capital requirements]; (b) section 12.2 [notifying the regulator of a subordination agreement]; (c) section 12.3 [insurance – dealer]; (d) section 12.6 [global bonding or insurance]; (e) section 12.7 [notifying the regulator of a change, claim or cancellation]; (f) section 12.10 [annual financial statements]; (g) section 12.11 [interim financial information]; (h) section 12.12 [delivering financial information – dealer]; (i) subsection 13.2(3) [know your client]; (j) section 13.3 [suitability]; (k) section 13.12 [restriction on lending to clients]; (l) section 13.13 [disclosure when recommending the use of borrowed money]; (l.1) section 13.15 [handling complaints]; (m) subsection 14.2(2) [relationship disclosure information]; (n) section 14.6 [holding client assets in trust]; (o) section 14.8 [securities subject to a safekeeping agreement]; (p) section 14.9 [securities not subject to a safekeeping agreement]; (q) section 14.12 [content and delivery of trade confirmation]. (1.1) Subsection (1) only applies to a registered firm in respect of a requirement specified in any of paragraphs (1)(a) to (q) if the registered firm complies with the corresponding IIROC Provisions that are in effect. 2
(2) If a registered firm is a member of IIROC and is registered as an investment fund manager, the firm is exempt from the following requirements: (a) section 12.3 [insurance – dealer]; (b) section 12.6 [global bonding or insurance]; (c) section 12.12 [delivering financial information – dealer]; (d) subsection 13.2(3) [know your client]; (e) section 13.3 [suitability]; (f) section 13.12 [restriction on lending to clients]; (g) section 13.13 [disclosure when recommending the use of borrowed money]; (h) section 13.15 [handling complaints]; (i) subsection 14.2(2) [relationship disclosure information]; (j) section 14.6 [holding client assets in trust]; (k) section 14.8 [securities subject to a safekeeping agreement]; (l) section 14.9 [securities not subject to a safekeeping agreement]; (m) section 14.12 [content and delivery of trade confirmation]. (2.1) Subsection (2) only applies to a registered firm in respect of a requirement specified in any of paragraphs (2)(a) to (m) if the registered firm complies with the corresponding IIROC Provisions that are in effect. (3) [repealed] (4) [repealed] (5) [repealed] (6) [repealed] 9.4 Exemptions from certain requirements for MFDA members (1) Unless it is also registered as an exempt market dealer, a scholarship plan dealer or an investment fund manager, a registered firm that is a member of the MFDA is exempt from the following requirements: (a) section 12.1 [capital requirements]; (b) section 12.2 [notifying the regulator of a subordination agreement]; (c) section 12.3 [insurance – dealer]; (d) section 12.6 [global bonding or insurance]; (e) section 12.7 [notifying the regulator of a change, claim or cancellation]; (f) section 12.10 [annual financial statements]; (g) section 12.11 [interim financial information]; 3
(h) section 12.12 [delivering financial information – dealer]; (i) section 13.3 [suitability]; (j) section 13.12 [restriction on lending to clients]; (k) section 13.13 [disclosure when recommending the use of borrowed money]; (l) section 13.15 [handling complaints]; (m) subsection 14.2(2) [relationship disclosure information]; (n) section 14.6 [holding client assets in trust]; (o) section 14.8 [securities subject to a safekeeping agreement]; (p) section 14.9 [securities not subject to a safekeeping agreement]; (q) section 14.12 [content and delivery of trade confirmation]. (1.1) Subsection (1) only applies to a registered firm in respect of a requirement specified in any of paragraphs (1)(a) to (q) if the registered firm complies with the corresponding MFDA Provisions that are in effect. (2) If a registered firm is a member of the MFDA and is registered as an exempt market dealer, scholarship plan dealer or investment fund manager, the firm is exempt from the following requirements: (a) section 12.3 [insurance – dealer]; (b) section 12.6 [global bonding or insurance]; (c) section 13.3 [suitability]; (d) section 13.12 [restriction on lending to clients]; (e) section 13.13 [disclosure when recommending the use of borrowed money]; (f) section 13.15 [handling complaints]; (g) subsection 14.2(2) [relationship disclosure information]; (h) section 14.6 [holding client assets in trust]; (i) section 14.8 [securities subject to a safekeeping agreement]; (j) section 14.9 [securities not subject to a safekeeping agreement]; (k) section 14.12 [content and delivery of trade confirmation]. (2.1) Subsection (2) only applies to a registered firm in respect of a requirement specified in any of paragraphs (2)(a) to (k) if the registered firm complies with the corresponding MFDA Provisions that are in effect. (3) Subsections (1) and (2) do not apply in Québec. (4) In Québec, the requirements listed in subsection (1) do not apply to a mutual fund dealer to the extent equivalent requirements to those listed in subsection (1) are applicable to the mutual fund dealer under the regulations in Québec. ... 4
APPENDIX G – EXEMPTIONS FROM CERTAIN REQUIREMENTS FOR IIROC MEMBERS (Section 9.3 [Exemptions from certain requirements for IIROC members]) NI 31-103 Provision IIROC Provision section 12.1 [capital requirements] 1. Dealer Member Rule 17.1; and 2. Form 1 Joint Regulatory Financial Questionnaire and Report - Part I, Statement B, “Notes and Instructions” section 12.2 [notifying the regulator 1. Dealer Member Rule 5.2; and of a subordination agreement] 2. Dealer Member Rule 5.2A section 12.3 [insurance – dealer] 1. Dealer Member Rule 400.2 [Financial Institution Bond]; 2. Dealer Member Rule 400.4 [Amounts Required]; and 3. Dealer Member Rule 400.5 [Provisos with respect to Dealer Member Rules 400.2, 400.3 and 400.4] section 12.6 [global bonding or 1. Dealer Member Rule 400.7 [Global Financial Institution Bonds] insurance] section 12.7 [notifying the regulator 1. Dealer Member Rule 17.6; of a change, claim or cancellation] 2. Dealer Member Rule 400.3 [Notice of Termination]; and 3. Dealer Member Rule 400.3B [Termination or Cancellation] section 12.10 [annual financial 1. Dealer Member Rule 16.2 [Dealer Member Filing Requirements]; and statements] 2. Form 1 Joint Regulatory Financial Questionnaire and Report section 12.11 [interim financial 1. Dealer Member Rule 16.2 [Dealer Member Filing Requirements]; and information] 2. Form 1 Joint Regulatory Financial Questionnaire and Report section 12.12 [delivering financial 1. Dealer Member Rule 16.2 [Dealer Member Filing Requirements] information – dealer] subsection 13.2(3) [know your client] 1. Dealer Member Rule 1300.1(a)-(n) [Identity and Creditworthiness]; 2. Dealer Member Rule 1300.2; 3. Dealer Member Rule 2500, Section II [Opening New Accounts]; and 4. Form 2 New Client Application Form section 13.3 [suitability] 1. Dealer Member Rule 1300.1(o) [Business Conduct]; 2. Dealer Member Rule 1300.1(p) [Suitability Generally]; 3. Dealer Member Rule 1300.1(q) [Suitability Determination Required When Recommendation Provided]; 4. Dealer Member Rule 1300.1(r) and Dealer Member Rule 1300.1(s) [Suitability Determination Not Required]; 5. Dealer Member Rule 1300.1(t) [Corporation Approval]; 6. Dealer Member Rule 2700, Section I [Customer Suitability]; and 7. Dealer Member Rule 3200 [Minimum Requirements for Dealer Members Seeking Approval Under Rule 1300.1(t) for Suitability Relief for Trades not Recommended by the Member] section 13.12 [restriction on lending 1. Dealer Member Rule 100 [Margin Requirements] to clients] section 13.13 [disclosure when 1. Dealer Member Rule 29.26 recommending the use of borrowed money] section 13.15 [handling complaints] 1. Dealer Member Rule 2500B [Client Complaint Handling]; and 2. Dealer Member Rule 2500, Section VIII [Client Complaints] subsection 14.2(2) [relationship 1. Dealer Member Rules of IIROC that set out the requirements for relationship disclosure information] disclosure information similar to those contained in IIROC's Client Relationship Model proposal, published for comment on January 7, 2011; At the time of publication, IIROC had not assigned a number to the relationship disclosure dealer member rule in its Client Relationship Model proposal. We will refer to the dealer member rule number when IIROC has assigned one. 5
NI 31-103 Provision IIROC Provision 2. Dealer Member Rule 29.8; 3. Dealer Member Rule 200.1(c); 4. Dealer Member Rule 200.1(h); 5. Dealer Member Rule 1300.1(p) [Suitability Generally]; 6. Dealer Member Rule 1300.1(q) [Suitability Determination Required When Recommendation Provided]; 7. Dealer Member Rule 1300.2; and 8. Dealer Member Rule 2500B, Part 4 [Complaint procedures / standards] section 14.6 [holding client assets in 1. Dealer Member Rule 17.3 trust] section 14.8 [securities subject to a 1. Dealer Member Rule 17.2A safekeeping agreement] 2. Dealer Member Rule 2600 – Internal Control Policy Statement 5 [Safekeeping of Clients' Securities] section 14.9 [securities not subject to 1. Dealer Member Rule 17.3; a safekeeping agreement] 2. Dealer Member Rule 17.3A; and 3. Dealer Member Rule 200.1(c) section 14.12 [content and delivery 1. Dealer Member Rule 200.1(h) of trade confirmation] 6
APPENDIX H – EXEMPTIONS FROM CERTAIN REQUIREMENTS FOR MFDA MEMBERS (Section 9.4 [Exemptions from certain requirements for MFDA members]) NI 31-103 Provision MFDA Provision section 12.1 [capital requirements] 1. Rule 3.1.1 [Minimum Levels]; 2. Rule 3.1.2 [Notice]; 3. Rule 3.2.2 [Member Capital]; 4. Form 1 MFDA Financial Questionnaire and Report; and 5. Policy No. 4 [Internal Control Policy Statements – Policy Statement 2: Capital Adequacy] section 12.2 [notifying the regulator 1. Form 1 MFDA Financial Questionnaire and Report, Statement F [Statement of of a subordination agreement] Changes in Subordinated Loans]; and 2. Membership Application Package – Schedule I (Subordinated Loan Agreement) section 12.3 [insurance – dealer] 1. Rule 4.1 [Financial Institution Bond]; 2. Rule 4.4 [Amounts Required]; 3. Rule 4.5 [Provisos]; and 4. Policy No. 4 [Internal Control Policy Statements – Policy Statement 3: Insurance] section 12.6 [global bonding or 1. Rule 4.7 [Global Financial Institution Bonds] insurance] section 12.7 [notifying the regulator 1. Rule 4.2 [Notice of Termination]; and of a change, claim or cancellation] 2. Rule 4.3 [Termination or Cancellation] section 12.10 [annual financial 1. Rule 3.5.1 [Monthly and Annual]; statements] 2. Rule 3.5.2 [Combined Financial Statements]; and 3. Form 1 MFDA Financial Questionnaire and Report section 12.11 [interim financial 1. Rule 3.5.1 [Monthly and Annual]; information] 2. Rule 3.5.2 [Combined Financial Statements]; and 3. Form 1 MFDA Financial Questionnaire and Report section 12.12 [delivering financial 1. Rule 3.5.1 [Monthly and Annual] information – dealer] section 13.3 [suitability] 1. Rule 2.2.1 [“Know-Your-Client”]; and 2. Policy No. 2 [Minimum Standards for Account Supervision] section 13.12 [restriction on lending 1. Rule 3.2.1 [Client Lending and Margin]; and to clients] 2. Rule 3.2.3 [Advancing Mutual Fund Redemption Proceeds] section 13.13 [disclosure when 1. Rule 2.6 [Borrowing for Securities Purchases] recommending the use of borrowed money] section 13.15 [handling complaints] 1. Rule 2.11 [Complaints] 2. Policy No. 3 [Complaint Handling, Supervisory Investigations and Internal Discipline]; and 3. Policy No. 6 [Information Reporting Requirements] subsection 14.2(2) [relationship 1. Rule 2.2.5 [Relationship Disclosure] disclosure information] section 14.6 [holding client assets in 1. Rule 3.3.1 [General]; trust] 2. Rule 3.3.2 [Cash]; and 3. Policy No. 4 [Internal Control Policy Statements – Policy Statement 4: Cash and Securities, and Policy Statement 5: Segregation of Clients’ Securities] section 14.8 [securities subject to a 1. Rule 3.3.3 [Securities]; and safekeeping agreement] 2. Policy No. 4 [Internal Control Policy Statements – Policy Statement 4: Cash and Securities, and Policy Statement 5: Segregation of Clients’ Securities] section 14.9 [securities not subject to 1. Rule 3.3.3 [Securities] a safekeeping agreement] section 14.12 [content and delivery 1. Rule 5.4.1 [Delivery of Confirmations]; of trade confirmation] 2. Rule 5.4.2 [Automatic Payment Plans]; and 3. Rule 5.4.3 [Content]
APPENDIX C Proposed Amendments to Companion Policy The CSA are publishing changes to the Companion Policy for comment. The changes would come into effect on the implementation of the corresponding changes to the Rule. This Appendix shows the proposed amendments to the Companion Policy through the use of blackline relative to the relevant portions of the consolidation of the Companion Policy published on April 15, 2011. Companion Policy 31-103 CP REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS ... Division 3 Membership in a self-regulatory organization 3.16 Exemptions from certain requirements for SRO approved persons Section 3.16 exempts registered individuals who are dealing representatives of IIROC or MFDA members from the requirements in NI 31-103 for suitability and disclosure when recommending the use of borrowed money. This is because IIROC and the MFDA have their own rules for these matters. In Québec, these requirements do not apply to dealing representatives of a mutual fund dealer to the extent that equivalent requirements are applicable to those dealing representatives under regulations in Québec. This section also exempts registered individuals who are dealing representatives of IIROC from the know your client obligations in section 13.2. We expect registered individuals who are dealing representatives of IIROC or MFDA members to comply with the by-laws, rules, regulations and policies of IIROC or the MFDA, as applicable (SRO provisions). These individuals cannot rely on the exemptions in section 3.16 unless they are complying with the appropriate SRO provisions specified in NI 31-103. We regard compliance with IIROC or MFDA procedures, interpretations, notices, bulletins and practices as relevant to compliance with the applicable SRO provisions. ... Part 9 Membership in a self-regulatory organization 9.3 Exemptions from certain requirements for IIROC members 9.4 Exemptions from certain requirements for MFDA members NI 31-103 now has two distinct sections, section 9.3 and 9.4, which distinguish the exemptions which are available on the basis of whether or not the member of IIROC or the MFDA is registered in another category. This clarifies our intent with respect to the exemptions for SRO members and recognizes that IIROC and the MFDA have rules in these areas. Sections 9.3 and 9.4 contain exemptions from certain requirements for investment dealers that are IIROC members, for mutual fund dealers that are MFDA members and in Québec, for mutual fund dealers to the extent equivalent requirements are applicable under the regulations in Québec. However, if an SRO member is registered in another category, these sections do not exempt them from their obligations as a registrant in that category. For example, if a firm is registered as an investment fund manager and as an investment dealer with IIROC, section 9.3 does not exempt them from their obligations as an investment fund manager under NI 31-103.
However SRO members that are registered in multiple categories may use the forms prescribed by the SROs, on certain conditions. See sections 12.1, 12.12 and 12.14 for requirements on calculating working capital and the delivery of working capital calculations for SRO members that are registered in multiple categories. We expect registered firms that are members of IIROC or the MFDA to comply with the by-laws, rules, regulations and policies of IIROC or the MFDA, as applicable (SRO provisions). These firms cannot rely on the exemptions in Part 9 unless they are complying with the appropriate SRO provisions specified in NI 31-103. We regard compliance with IIROC or MFDA procedures, interpretations, notices, bulletins and practices as relevant to compliance with the applicable SRO provisions. ...
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