National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) prohibits an associate advising representative (AAR) from advising on securities unless that advice has been pre-approved by an advising representative (AR) designated by the firm to review that AAR’s advice.
There is no requirement for an AAR and the AR reviewing that AAR’s advice to work “side by side” in the same office. However, there are potentially greater compliance risks associated with having them work from separate locations, such as in the current environment where many people are working remotely from home. For example, the AR and AAR might be working somewhat different hours as they juggle professional and family responsibilities, and clients concerned about market volatility might be calling them at all hours for reassurance. These factors can make it more challenging for the AR to pre-clear the AAR’s advice to the client. Maintaining organized client files including documentation of the AR’s pre-approval of the AAR’s advice can also be more difficult when people are accessing files remotely.
Nevertheless, it is critical for the firm to have and maintain adequate controls and supervision to ensure compliance with the pre-clearance rule described above. The firm also should document how it has considered and addressed the risks that arise from the AAR and AR working from separate locations, as well as documenting on an ongoing basis the AR’s review and pre-approval of any advice to be provided by the AAR.
The COVID-19 pandemic continues to present regulatory challenges for firms as they operate in this “new normal”. AUM Law is helping clients assess whether their existing policies, procedures and controls address the emerging risks and we can help you too. Please do not hesitate to contact us.
May 29, 2020