To support transparency and help IIROC Dealer Members with compliance and the protection of their clients, this document answers questions we have received relating to issues associated with the coronavirus (COVID-19) pandemic.
Through these FAQs, IIROC is providing guidance and information regarding situations where temporary relief from the rules identified below may be available. (For further information on temporary relief, and the process to be followed in requesting such relief, please refer to IIROC Rules Notice 20-0063, COVID-19 Related Exemptions from IIROC Rules, March 31, 2020) This relief does not extend beyond the identified requirements noted below. IIROC is closely monitoring the situation and will determine if additional relief or guidance is necessary and these FAQs will be updated accordingly.
As coronavirus-related risks decrease, IIROC Dealer Members should expect to return to meeting any regulatory obligations for which relief has been provided. When appropriate, IIROC will publish a Notice announcing a termination date for the temporary relief.
Business Conduct Compliance
Although many clients now receive documents electronically, there are still clients that rely on the delivery of documents through Canada Post. On the Canada Post website there are references to possible COVID-19 related service disruptions. Are there alternative methods for document delivery that are acceptable to IIROC?
In 2016 IIROC issued Administrative Notice 16-0151, Delivery of Documents During a Postal Strike or Lockout. Although the current concerns relate to possible service disruptions resulting from COVID-19 issues, rather than a postal strike, the information provided in the notice is equally applicable to the current situation.
Added April 29, 2020
As per IIROC Dealer Member Rules 38 & 2500, firms are required to conduct periodic on-site reviews of all business locations. These rules allow firms to determine processes that are most effective, in the context of their particular business model and supervisory structure. Given the challenges associated with the current situation, it may be difficult for some firms to comply with their existing documented processes. Is a formal exemption request required in order for a firm to temporarily modify its business location review processes?
A formal exemption request is not required. Rather, firms should document alternate processes that are reasonable given the circumstances and ensure adequate supervision and monitoring of clients’ accounts and interests. When IIROC resumes normal course examinations, we will review the alternate processes that were implemented during this time period, and the firm’s plan for resuming normal activities.
Added April 15, 2020
Based on current circumstances, is there an alternate to the requirement to get a client's wet signature?
Yes, IIROC is prepared to consider and accept alternatives to wet signatures. The Dealer will need to apply for an exemption to use an alternative method in accordance with IIROC Notice 20-0063.
Note: IIROC permits the use of e-signatures that satisfy the requisites outlined in Notice 19-0051.
Updated April 29, 2020
What are IIROC's requirements regarding advisors having virtual meetings (Skype, Zoom etc.) with clients?
IIROC does not have specific rules or guidance on virtual client meetings as advisors already currently hold meetings in a variety of forums – be it in person, via phone or video – in order to accommodate geographic distances and other client requirements. It remains prudent for all IIROC-regulated individuals to deal fairly and openly with their clients, and to keep all their records and books updated to properly account for business activities, regardless of how they meet with clients. Advisors must also ensure their methods of communication are acceptable to their firms. Dealers must also ensure information security and privacy risks are addressed.
Added April 3, 2020
Is it a concern that individuals from the Contact Center are unable to record voice conversations with clients when accepting trades, while working remotely?
Voice recordings of client orders is not an IIROC regulatory requirement. However, Dealers should ensure that regardless of the method used to document client instructions, an adequate audit trail is maintained. Dealers should also be cognizant that there may be other regulatory requirements, beyond IIROC rules, with which Dealers may need to comply.
Added April 3, 2020
Various Canadian jurisdictions have identified capital markets as essential services. What does this mean for IIROC Dealer Members?
IIROC has confirmed that the Governments of Ontario, Quebec and British Columbia that capital markets participants including dealers and advisors are considered essential services. This information is accessible on our COVID-19 web section. The designation gives firms the ability to access their facilities, etc., to ensure continued service to their clients. To be clear, it does not require personnel to be onsite. As an example, IIROC will continue to perform its functions using a work from home model. However, we will have access to our facilities if required. It is our understanding that Dealers and their staff are able to continue to carry out similar services in other jurisdictions. Dealers should refer to the provincial/territorial government and/or CSA member website in their jurisdiction, on a regular basis as such classifications are subject to change given the fluidity of the situation. Links to all CSA members are also accessible through our COVID-19 section.
Added April 3, 2020
IIROC has confirmed with certain government authorities that the activities carried on by Dealer Members are considered an essential service. Will IIROC provide guidance on whether or not this also includes Dealer Member business locations?
There is no requirement for staff working from business locations to be working onsite. It is up to the Dealer Member to determine if certain business location facilities remain open to ensure they can continue to service their clients in a secure environment.
Added April 3, 2020
Mutual Funds held in client name – where assets are held at the mutual fund company in the name of the client, normally the client would have to sign all trade instructions before a mutual fund company would be able to complete a transaction. Some Dealers may have a Limited Trading Authorization ("LTA") or similar document on file where the client authorizes the Dealer to execute trades without the need to provide his or her signed written instructions to the mutual fund company.
Given the current circumstances, where Dealers do not have a signed LTA on file, they may temporarily permit Approved Persons to act on client instructions without obtaining a client signature for mutual funds registered in client name (i.e. to act as if an LTA is on file). Dealers may allow Approved Persons to "act" as if an LTA is on file provided they follow the same policies and procedures for where an actual LTA is on file or for nominee name trades.
Policies and procedures for LTA or nominee name trades would include adequate steps to authenticate the client before acting on instructions. For example, Dealers should not rely on e-mail instructions alone without additional steps such as telephone confirmation with the client to verify the authenticity of the instructions. Procedures would also include the requirement to maintain detailed notes and books and records of all client instructions and transactions.
Added April 3, 2020
Dealer Member Rule 2500 Part II requires that firms rely on "accurate and current" documentation as a fundamental input for "Know-Your-Client" processes. On March 25, 2020 FINTRAC issued a notice stating that, until further notice, government issued photo identification that has expired after March 1st 2020, can be considered as "valid and current pursuant to its issuing authority". https://www.fintrac-canafe.gc.ca/covid19/covid-2020-03-25-eng Will IIROC also consider such identification documents to be "current" as required under Rule 2500?
Yes, to the extent that expired identification documents are considered to be still valid and current by FINTRAC, IIROC will also accept such documentation as "accurate and current".
Added April 3, 2020
Finance and Administration
How do I submit payments to IIROC during the pandemic?
Dealer Members can submit payments to IIROC electronically by:
- Electronic Funds Transfer (EFT) or Wire transfer
- enrolling in a pre-authorized debit service to automatically transfer payments to IIROC.
Please refer to the email communication from IIROC dated March 23, 2020 for detailed instructions on and information about these options.
Added April 8, 2020
Financial and Operations Compliance
If my firm signs an underwriting agreement with a disaster-out clause that does not allow an underwriter to terminate the agreement without liability because of COVID-19-related events, would this still be considered a valid disaster-out clause for purposes of calculating underwriting margin under Rule 100.5?
Only disaster-out clauses that cover all future adverse events, actions, states, conditions and such, qualify for the applicable margin reduction. Therefore, if the disaster-out clause excludes the escalation or worsening of COVID-19-related events, then it is NOT a valid disaster-out clause for purposes of Rule 100.5.
For greater clarity, if the standard disaster-out clause language set out in Rule 100.5 (or substantially similar language) has been modified:
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to exclude all COVID-19 related events, both current and the future escalation/worsening of these COVID-19 related events, this is not considered to be a valid disaster-out clause for the purposes of calculating underwriting margin under Rule 100.5
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to specifically:
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exclude only current known COVID-19 related events, or
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include the future escalation/worsening of these COVID related events, or
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both exclude only current known COVID-19 related events and include the future escalation/worsening of these COVID related events, this is considered to be a valid disaster-out clause, for the purposes of calculating underwriting margin under Rule 100.5.
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Please note that IIROC is not taking a position on the legal enforceability of the clause but is assessing the risk, from a margin perspective, of the firm having to take any unsold positions into its inventory.
Added April 30, 2020
Are Dealer Members required to send account statements and trade confirmations in paper form only?
No.
IIROC does not have prescriptive rules on the method of delivery of statements and confirmations. They can be delivered by mail or electronically, for both client and broker trades. If there is a stated preference to receive the documents in paper form and it is not currently possible for the Dealer Member to deliver paper documents, it is acceptable for the Dealer Member to deliver the documents in electronic form currently, and subsequently send them in paper form.
Added April 8, 2020
Are Dealer Members required to notify IIROC if they trigger elements of their Business Continuity Plan (BCP)?
Dealer Members are requested to provide any updates on the status of their BCP to FINOPS, according to IIROC Communique to Dealer Members dated March 16, 2020.
Added April 8, 2020
The pandemic has affected operations in our back office particularly in the handling of physical certificates. What guidance can IIROC provide firms on compliance with the Rules related to these operations?
IIROC stipulates minimum standards of internal controls over physical securities in Rule 2600.
- Receipt and delivery of securities:
All securities must be handled in a restricted and secure area, often referred to as the "cage". If a firm's cage operations have been reduced or closed as a result of the BCP, firms should notify parties that may be impacted. We also request firms to contact the FINOPS relationship manager to report the reduction in cage operations and provide information on the potential impact and alternative operating procedures, if any.
- Custody:
- Securities held in current boxes are required to be counted at least monthly. If any reduction in cage operations impacts the firm's ability to perform this count, firms must contact the FINOPS relationship manager as soon as possible and provide information on the potential impact and alternative operating procedures, if any.
- Segregated and safekeeping securities must be counted at least once a year in addition to the annual external audit year-end count. IIROC is able to grant exemptive relief to Panel Auditors from being present at a physical security count, subject to certain conditions, according to IIROC Notice 20-0063. Please send your request for exemption to [email protected].
- Securities at third-party locations must be held at an acceptable securities location (ASL) and are subject to a standard form custody agreement in accordance with Rule 2000.1. If physical securities are being held at counterparties that would not qualify as an ASL because either the counterparty or the firm's cage operations have been closed, firms must contact the FINOPS relationship manager as soon as possible with information on the potential impact and alternative operating procedures, if any.
- Securities in-transit:
Dealer Members must have controls in place to track physical certificates in-transit. If physical securities in-transit are unable to be delivered to or accepted by the recipient due to closure of any operations, Dealer Members must contact the FINOPS relationship manager as soon as possible with information on the potential impact and alternative operating procedures, if any. As a reminder, Dealer Members must have adequate mail insurance coverage to cover the value of the securities in-transit.
Added April 8, 2020
What are some of the things that Dealer Members need to consider when looking for sources of financing and liquidity?
When looking for sources of funding not specifically addressed in the IIROC rules, Dealer Members should consider the following key regulatory implications:
- Whether the lending arrangement would qualify as "regulatory financial statement capital" (pursuant to Statement B, Line 4 of the Form 1)
- If the agreement imposes a lien or encumbrance by the loan provider on any liquid assets, the Dealer Member must report a capital charge for the amount of the lien as a contingent liability (on Statement B, Line 15 of the Form 1)
Issued capital
As a reminder, Dealer Members must notify IIROC with any changes to its capital structure according to Rule 17.12. A capital change resulting in a change of ownership of 10% or more requires the approval of the applicable District Council, pursuant to Rule 5.4.
Subordinated loans
IIROC is a signatory to subordinated loan agreements and, as such, all agreements, increases, redemptions and changes are subject to IIROC approval.
For changes to existing subordinated loan agreements:
Dealer Members must email the FINOPS relationship manager the following:
- the amended Attachment A signed by the Dealer Member and the loan provider
- for an increase, evidence of deposit of the additional funds
- for a decrease, confirmation from the UDP and CFO that the Dealer Member will not trigger early warning or a capital deficiency after redemption of the subordinated loan
For new subordinated loans:
Dealer Members must email the FINOPS relationship manager the following:
- the complete signed subordinated loan agreement and Attachment A
- evidence of deposit of funds
- if the subordinated loan provider is not an industry investor (as defined in Rule 1.1), background checks will need to be performed which may take some time.
IIROC will notify the Dealer Members once the subordinated loans are approved. Dealer Members must keep the original physical copies of the signed agreements in their possession until IIROC asks for them, at which point, we will sign them.
Added April 8, 2020
The Bank of Canada recently issued a press release temporarily expanding the list of eligible collateral for term repo transactions to include "own-name covered bonds", among other securities, in order to facilitate liquidity during the COVID-19 pandemic. If my firm enters into a repo transaction with the Bank of Canada and an equal and offsetting (i.e. back-to-back) resale/reverse repo transaction with my provider of capital, do I need to report a capital charge on Schedule 14 of Form 1 because the securities being received as collateral from my provider of capital, and then re-pledged to the Bank of Canada, have been issued by the provider of capital?
No.
Normally, a provider of capital charge, for the amount of the financing, would need to be reported in resale/reverse repo transactions between a Dealer Member and its provider of capital if the securities being received as collateral have been issued by the provider of capital. However, when the Dealer Member enters into an equal and offsetting repo transaction with the Bank of Canada and re-pledges the same securities as collateral, then the resale/reverse repo transaction with the provider of capital is considered to be subject to normal commercial terms and therefore, no provider of capital charge would apply.
Added April 8, 2020
Registration
In the current environment it is not possible to meet upcoming post licensing due dates. Are extensions being considered?
IIROC will continue to be flexible when reviewing requests for extensions and will consider each request on a case-by-case basis. With the CSI having resumed exam sittings in the majority of centers across the country, most approved persons are now able to book/rebook their exams. When evaluating extension requests, personal circumstances, availability, and the rescheduling dates of the examination will be considered. Any requests for an extension under Dealer Member Rule 2900 should be filed via the National Registration Database. Dealer Members should specify what alternate due date is being sought in the extension request. All other requests for exemptive relief requires an exemption request to the Board. Any such requests should be sent through [email protected]. Please refer to IIROC Notice 20-0063, for more information.
Updated August 10, 2020
Reviewing a former registrant’s file is part of a firm's hiring due diligence. Can a firm pay the corresponding file copy fee by credit card?
Canada Post is still delivering mail. Dealers requesting file copies can still complete the file copy form and mail it, along with a cheque, to the applicable IIROC office. Alternatively, EFT payments can be arranged by contacting IIROC’s Accounting department.
Added April 15, 2020
Are e-signatures acceptable on the 6-month supervision forms and the 30/90-day training certificates given the current COVID-19 situation where everyone is working from home?
e-signatures are acceptable. IIROC accepts e-signatures for IIROC-regulated Investment firms on contracts and consent forms. For more details, please consult Notice: 19-0051.
Added April 15, 2020
Given the cancellations of in-person conferences that help Advisors meet their CE credits, will IIROC be extending the CE deadlines for Advisors?
CE runs in 2-year cycles. The end of the current CE cycle is December 31, 2021, which is 21 months away. It is therefore premature to make any decisions about extending the deadline. We wish to remind those with CE requirements that there are many webinars, podcasts, etc., (including IIROC products) that can meet your CE requirements. We will continue to monitor the situation as it unfolds and make any adjustments as required.
Added April 15, 2020
My sponsoring firm will be submitting an application for my registration. Will the COVID-19 situation impact IIROC's turn-around time (review and approval of submissions)?
We will make every effort to review applications on a timely basis. The length of our reviews are dependent on the quality of the application received and how quickly and fully the applicant and their sponsoring firm respond to questions raised by IIROC staff in connection with the application.
Added April 15, 2020
In the current situation most Dealer Member staff are working from home. In normal circumstances many of these locations would have to be registered as business locations. Is relief available?
IIROC will be flexible due to the COVID-19 situation. We are treating these situations as we would do for normal work from home arrangements as per IIROC Notice 17-0036, February 10, 2017 - Business Locations-Registration and Compliance approach to work-from-home arrangements.
Added April 3, 2020
Trading Conduct Compliance
Rule 2800 could be interpreted to require all domestic debt trading in the office. Can working from home arrangements be allowed in the context of Rule 2800?
IIROC recognizes that some level of regulatory flexibility may be required to enable its Members to best serve investors and maintain market stability. If Members are able to meet the requirements from backup sites or with staff working from home, IIROC has no objection as long as appropriate measures are in place for supervisory, confidentiality and other regulatory requirements.
Added April 8, 2020
How do traders record time stamps while working at home?
Under the current circumstances, Dealers may rely on the time on the order if received electronically (e.g. via email) or if the order was received verbally, they may write a time on the order ticket based on a time source that is automatically updated (e.g. cell phone or a computer connected to the internet).
Added April 8, 2020