On January 25, 2024 the Canadian Investment Regulatory Organization (CIRO) published its long-awaited Position Paper on the matter of the payment of commissions to a private corporation. Historically, mutual fund dealers have been permitted to pay commissions earned from registrable activity by Approved Persons who are in a principal/agent dealer relationship to a private unregistered corporation (except in Alberta and Québec). However, investment dealers could only pay commissions directly to their Approved Persons. CIRO aims to eliminate this anomaly. They have proposed three different policy options for consideration and stakeholder comment.

The three options put forward are:

  1. the Incorporated Approved Person approach;
  2. the Registered Corporation approach; or
  3. the Enhanced Directed Commission approach on an interim basis, while pursuing the permanent adoption of either approaches above.

If implemented, each of the three policy approaches would allow for both mutual fund dealer and investment dealer Approved Persons to have their commissions paid to a corporation. CIRO staff favour the policy option that would result in a new category of “Incorporated Approved Person” (the IAP Approach).

Taxation Considerations

CIRO specifically acknowledges that the taxation of compensation is a major motive underlying this policy initiative. The Position Paper explicitly states that compliance with tax laws is a not a matter considered by CIRO and that it only focuses on CIRO requirements and securities laws. CIRO’s position is that compliance with tax laws is the responsibility of Approved Persons and Dealer Members.

Discussion of the Three Approaches

  1. The IAP Approach

Under the IAP Approach, a personal corporation would be approved by CIRO to engage in non-registrable activities on behalf of the sponsoring dealer. The IAP would be a new non-individual Approved Person category. CIRO would have the same jurisdiction over the IAP as it currently has over individuals in all other Approved Person categories. The permissible activities under the IAP Approach would initially be limited to non-registerable activities, but if securities legislation changes are implemented in one or more jurisdictions in Canada to enable an IAP to engage in registerable activities, the full potential of this approach would be realized.

In the Position Paper, CIRO proposes numerous approval requirements for an IAP. The requirements include a written agreement between the sponsoring dealer, the IAP and the Approved Persons acting on their behalf. CIRO’s intention is to oversee IAP ownership, activities, and records. In addition, the IAP must be incorporated as a professional corporation in jurisdictions where that is possible under corporate law. Dealers will be required to supervise an IAP and will remain liable to clients and third parties for the acts and omissions of the IAP.

CIRO’s preliminary view is that the IAP Approach is the preferred approach because it:

  1. provides Approved Persons with the ability to engage in non-registerable activities through a corporation, through modification of CIRO rules alone;
  2. enhances investor protection as it provides CIRO with clear jurisdiction over the corporation that receives commissions, and provides Approved Persons with the future possibility of performing registerable activities through the corporation, should securities legislation in each Canadian jurisdiction evolve to allow for it; and
  3. imposes less incremental burden on individual Approved Persons, Dealer Members, CIRO and CSA registration staff than would be introduced under the Registered Corporation approach (described below).
  4. The Registered Corporation (RC) Approach

The RC Approach is similar to the existing mechanism in some provinces where a corporation is licensed to engage in the sale of life insurance products and may receive related sales commissions, including commissions received from the sale of segregated funds.

The permissible activities under an RC arrangement would include both non-registerable and registerable activities.

The CIRO approval requirements for an RC would be like those for an IAP. As with an IAP Approach, dealers would be required to supervise an RC and remain liable to clients and third parties for the acts and omissions of the RC.

However, a major disadvantage with the RC Approach is that it cannot be implemented through changes to CIRO Rules. Implementation across Canada would require changes in provincial and territorial securities laws.

  1. The Enhanced Directed Commission (EDC) Approach

The EDC Approach is the least complex option of the three options. In essence, it would involve making available (with “enhancements”) the current directed commissions arrangement enjoyed by CIRO mutual fund dealer Approved Persons to all CIRO investment dealer Approved Persons.

The proposed enhancements would include ownership limitations, limitations on activities and more stringent dealer oversight.

CIRO’s major concern with the EDC Approach is that the private corporation receiving directed commissions would not be approved by and thus not directly under the jurisdiction of CIRO. CIRO views the EDC Approach as acceptable as an “interim” measure, with the end goal being the implementation of either the IAP or RC Approach.


Regardless of the policy option that is adopted, CIRO recommends a two-year transition period to allow mutual fund dealers and their Approved Persons to comply with any new requirements.

Specific Questions for Response

CIRO has requested that stakeholders respond to specific questions, including identifying which rulemaking option is preferable (and why). Other questions include whether there are other requirements not discussed in the Position Paper that should be included in any rule amendments, or if there are other matters not discussed that CIRO should consider when assessing which policy option to pursue.

Conclusion and Call to Action

All stakeholders should review the Position Paper and make their views and preferences known to CIRO. Comments should be in writing and delivered by March 25, 2024. Look out for additional commentary and analysis from our colleagues at BLG.

January 31, 2024