Frequently Asked Questions
Does my business need to be registered with the securities regulatory authorities?
In general, a firm must register with a securities regulator in Canada as a dealer or an adviser pursuant to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) if it trips the “business trigger” for registration in one or more provinces or territories, meaning that it is in the business of trading in or advising on securities.
If you wish to be registered as a mutual fund dealer or investment dealer, you will also need to apply to become a member of the Canadian Investment Regulatory Organization (CIRO).
Furthermore, in certain provinces (including Ontario and Quebec), a firm may be required to register if it conducts trading activities involving commodity futures contracts or commodity futures options, derivatives, if it is acting as an underwriter, or if it is acting as an investment fund manager.
Similarly, individuals must register with (or be approved by) the securities regulator if they trade, advise or underwrite on behalf of a registered dealer or adviser, act as the ultimate designated person (UDP), chief financial officer (CFO), chief compliance officer (CCO), chief operating officer (COO), a director or is a significant shareholder of a registered firm.
AUM Law can:
- Conduct a registration analysis to determine whether your business needs to be registered with securities regulators and whether membership in CIRO is required;
- Advise on whether the entities and individuals who need to be registered meet the registration criteria;
- Prepare and submit application materials to register those entities and related individuals, and prepare applications for exemptive relief from specific regulatory requirements as needed; and
- Engage with regulators on your behalf to resolve any outstanding issues and obtain the required registrations and exemption orders.
How can AUM Law help my firm stay on top of regulatory changes and ongoing responsibilities?
AUM Law offers fixed-fee annual compliance support plans as well as many other fixed-fee services, including:
- Preparing, reviewing and updating compliance manuals, tailored to your business so that they reflect the latest regulatory developments;
- Monitoring regulatory developments and advising you about the changes that might affect your operations;
- Preparing compliance calendars so that you can plan for upcoming regulatory obligations and filing deadlines;
- Assisting with regulatory inquiries or questionnaires;
- Reviewing and updating offering and other disclosure documents, client account documentation such as subscription agreements, investment management agreements, and know-your-client (KYC) questionnaires, and material business agreements as required to reflect changes in applicable laws;
- Training your firm’s employees regarding their legal and regulatory obligations;
- Reviewing business activities for potential conflicts of interest and providing legal advice on how to manage such conflicts and record such conflicts in your firm’s records;
- Advising on and helping your firm prepare and file reports to comply with anti-money laundering (AML) and anti-terrorism legislation;
- Conducting two-year effectiveness reviews of firms’ AML programs;
- Conducting general or targeted compliance risk assessments (aka “mock audits”) to help your firm prepare for regulatory examinations;
- Providing ongoing registration filing services and advice related to the National Registration Database (NRD), the System for Electronic Document Access and Retrieval (SEDAR+), and the System for Electronic Disclosure by Insiders (SEDI); and
- Preparing and filing prescribed reports such as Form 45-106F1 Report of Exempt Distribution (for privately offered securities).
Together with BLG, if a legal or regulatory issue arises that falls outside the scope of AUM Law’s services, we can seamlessly help to source the relevant expertise.
What do regulators expect from my firm under the Client Focused Reforms relating to conflicts of interest?
Firms must enhance their compliance controls to address conflicts of interest in the best interest of their clients. The introduction of the best interest standard was a fundamental change in the relationship between registrants (including firms and individuals) and their clients.
A conflict of interest can exist in several different scenarios, including:
- where the interests of the firm or individual registrant are inconsistent with the interests of the client;
- where a registrant may be influenced to prioritize their own interests ahead of their clients; or
- where benefits (either monetary or non-monetary) available to the registrant may compromise the trust that a reasonable client has in the registrant.
Firms must implement a process to identify, assess and address both actual and reasonably foreseeable conflicts. Both the firm and individual registrants are responsible for identifying conflicts. Firms are encouraged to implement an internal reporting process to support the identification process. Firms must also assess the materiality of the conflict, which may be determined in part by considering whether the conflict may be reasonably expected to affect, in the circumstances, the client’s decisions and/or the registrant’s recommendations or decision making. Inherent conflict of interests usually exist in paid referral arrangements, certain internal compensation practices, and trading in or recommending proprietary products. Whether a material conflict of interest can be addressed in the best interest of the client is a fact specific question. Firms must document how they have decided to address a conflict, along with evidence of the analysis conducted to support the decision.
AUM Law can assist you by:
- helping to identify various types of conflicts arising from your business model and determining whether existing controls are sufficient;
- helping with an initial conflict of interest record to be updated by your firm as new conflicts are identified or circumstances change;
- assessing and/or updating your policies and procedures to comply with the enhanced requirements, including with respect to outside activities and referral arrangements;
- revising your relationship disclosure information document or other disclosure documentation to reflect identified conflicts to clients; and
- providing training to your employees tailored to the conflicts identified for your business model.
Which employees at my firm must receive training under the CFRs and what must that training include?
As part of the revised rules brought about by the Client Focused Reforms (CFRs), registered firms are required to provide training with respect to compliance with securities requirements, including rules relating to:
suitability determinations; and
identifying, assessing, and addressing conflicts of interest.
While general training on all these topics is required, the Canadian Securities Administrators (CSA) have clarified that certain topics may require specific training. For example, where a material conflict of interest involves a referral arrangement, specific training on conflicts related to such arrangements will be needed. Ultimately, the CFRs do not outline specific content requirements to satisfy training expectations. As such, registrants are expected to exercise their professional judgement when developing the content and implementation of their training programs.
With respect to who must receive the mandatory training, the CSA have provided some guidance. The training requirement is expected to apply to all registered individuals, supervisory staff, compliance staff, and additional staff as may be necessary depending on their roles and responsibilities in your firm. Similar to the content of your training materials, registrants are expected to exercise professional judgement when assessing which staff require the training.
In addition to these requirements, your firm would benefit from ensuring staff are well-versed in other regulatory rule changes brought about by the CFRs, including new requirements to report all business titles and professional designations through the National Registration Database and changes to regulatory forms resulting from changes in reportable outside activities.
AUM Law can assist your firm to meet its training obligations by providing in-person or virtual training for your staff that is tailored to the regulatory requirements that apply to your firm.
The Ontario Securities Commission's Compliance and Registrant Regulation Branch just told me staff is undertaking a regulatory compliance audit of my firm. What do I do now?
Securities regulators, including staff at the Ontario Securities Commission, conduct compliance reviews of registered advisers, dealers, and investment fund managers to determine whether they are complying with applicable securities laws and regulatory expectations.
AUM Law can:
Prepare you and your staff for the compliance review so you know what to expect and are strategically better positioned to provide a vital, good first impression to the regulator’s staff in the initial meeting; and
To the extent possible during this limited time frame, identify and address material issues that would otherwise result in a more difficult and costly compliance review that could potentially result in regulatory sanctions.
We can also assist you to navigate through the review, including helping you with your responses.