New SRO Interim Rules – Frequently Asked Questions

Published on May 12, 2022

Introduction

The responses to these FAQs:

  • are based on the interim rules for the New SRO (interim rules) as currently drafted and attached and may not apply if there are subsequent changes or amendments to these rules,
  • attempt to address various Member situations, and
  • are meant to clarify that there will be no change in CSA delegation of registration for investment dealer or mutual fund dealer firms, or their registered and permitted individuals, as of January 1, 2023.

Members are encouraged to reach out to SRO staff to understand how the interim rules apply to their unique circumstances.

General changes

1. Why will there be New SRO interim rules?

To ensure minimal disruption to members and their employees and Approved Persons, each set of IIROC and MFDA Rules will be adopted by the New SRO and will continue to apply with some key rule changes proposed in the interim to address structural impediments to the industry.

The New SRO Day 1 interim rules will be comprised of the following rule sets:

  1. the Investment Dealer and Partially Consolidated Rules1 ,
  2. the Universal Market Integrity Rules, and
  3. the Mutual Fund Dealer Rules.

2. When will there be a consolidated rule book?

The Investment Dealer and Partially Consolidated Rules and the Mutual Fund Dealer Rules will be consolidated into a single, highly harmonized rule set over time after the establishment of the New SRO. A consolidated rules plan is being developed and we will provide regular updates on this plan and our progress in carrying it out. For greater clarity, the Universal Market Integrity Rules will not be part of the consolidated rules plan.

3. What are the key changes proposed in the interim rules?

The rule changes that will be incorporated within the interim rules (primarily within the Investment Dealer and Partially Consolidated Rules) are those designed to:

  1. eliminate any remaining District Council regulatory approval authorities,
  2. permit mutual fund dealers to introduce business to investment dealers, enabling greater mutual fund dealer client access to exchange traded funds, and
  3. revise the upgrade rule requirements to give mutual funds only Registered Representatives employed by firms registered as both investment dealer and mutual fund dealer (dual-registered firms) the option of conducting business primarily within the Investment Dealer and Partially Consolidated Rules on a permanent basis.

Conducting mutual fund business and investment dealer business within the same legal entity (Dual-registered firms)

4. How can a member firm combine operations within one legal entity?

Firms should submit simultaneously to their principal regulator2 and the New SRO their plan on how they wish to combine operations. As part of this plan, firms must:

  • explain how they intend to reorganize their operations and specify the legal entity within which they plan to house their combined operations, and
  • demonstrate that they can comply/continue to comply with the investment dealer requirements under the New SRO Investment Dealer and Partially Consolidated Rules in order to be approved as a dual-registered firm3 .

Firms should consider whether any other exemptive relief would be required as part of their application process. CSA and SRO staff will advise such members if any additional other preliminary steps or approvals are required.

Once the New SRO and CSA are comfortable with the firm’s submission, firms can then file a formal application with the New SRO and their principal regulator4 to register the selected legal entity as both an investment dealer and a mutual fund dealer.

Dealers who wish to combine investment dealer and mutual fund dealer activities within the same entity without having to upgrade their mutual funds only licensed individuals are required to register in both firm categories. They will need to apply to their CSA principal regulator5 and their application will be reviewed by the New SRO and CSA under a coordinated process recognizing the firm’s existing registration and membership status. 

Registration of individuals

Representatives of a dual-registered firm in the Approved Person category of “Registered Representative dealing in mutual funds only who is an employee of a firm registered as both an investment dealer and a mutual fund dealer” should register in the category of “dealing representative, mutual fund dealer” in NRD.

Where the proposed dual-registered firm is currently registered as a mutual fund dealer only, dealing representatives employed by the firm will continue their employment with the dual- registered firm without having to change their individual registration category from “dealing representative, mutual fund dealer”.

Similarly, where the proposed dual-registered firm is currently registered as an investment dealer only, dealing representatives employed by a mutual fund dealer affiliate will transfer their employment from a mutual fund dealer to the dual-registered firm without having to change their individual registration category from “dealing representative, mutual fund dealer”.6 However, registered representatives and investment representatives dealing in mutual funds only employed by the firm itself should change their individual registration category to “dealing representative, mutual fund dealer” when transferring their employment from the investment dealer to the dual registered firm.

“Mutual funds only” dealing representatives in dual-registered firms:

  • will be eligible within the Investment Dealer and Partially Consolidated Rules to be approved as a “Registered Representative dealing in mutual funds only who is an employee of a firm registered as both an investment dealer and a mutual fund dealer”. See Question 29 below for more details.
  • will not have to upgrade their proficiencies to those required for a Registered Representative dealing in securities, but will be required to meet proficiency requirements for the category of “Registered Representative dealing in mutual funds only who is an employee of a firm registered as both an investment dealer and a mutual fund dealer”
  • will be given 270 days from the date of their firm’s registration as both an investment dealer and mutual fund dealer to complete the Conduct Practices Handbook Course, the standard ethics course required for all client-facing investment dealer Approved Persons.

5. Can firms other than dual-registered firms include new mutual fund or investment dealer business lines within one legal entity?

Yes. A firm that is registered as an investment dealer and not registered as a mutual fund dealer will continue to be able to carry out both investment dealer business and mutual fund dealer business within the same legal entity. However, unlike in the case of dual-registered firms, the investment dealer will continue have to get the proficiencies of their mutual funds only licensed individuals upgraded to those required for individuals dealing in securities.

6. I am a mutual fund dealer that is also registered as an exempt market dealer (EMD), an investment fund manager (IFM) or both an EMD and an IFM. Can I retain these additional firm registrations if I become registered as an investment dealer?

Yes, these additional firm registrations can be retained. However, in the case of firms also registered as an exempt market dealer, these firms will also be subject to the requirements set out in the Investment Dealer and Partially Consolidated Rules that apply to exempt market dealer activities. As a reminder, in such cases, firms and individuals registered under a firm’s EMD/IFM registration categories remain under the jurisdiction of the CSA regulators.

7. What rules apply to a dual-registered firm and their employees and Approved Persons?

Dual-registered firms and their employees and Approved Persons will be required to comply with:

  • the New SRO Investment Dealer and Partially Consolidated Rules, and
  • the New SRO Mutual Fund Dealer Rules, where there is no corresponding requirement in the New SRO Investment Dealer and Partially Consolidated Rules.

8. Will a dual-registered firm be considered as one or two Dealer Member(s) of the New SRO?

The dual-registered firm will be considered to be one Dealer Member of the New SRO.

9. Will an exemption be required to facilitate the movement of client accounts from the mutual fund dealer affiliate to the dual-registered firm?

Exemptive relief from the new account documentation requirements within the interim rules will be generally available where the products and services to be offered to the client and the know your client information collection and assessment processes at the dual-registered firm are materially the same as at the mutual fund dealer affiliate.

Where the existing affiliated mutual fund dealer account agreement has an acceptable assignment clause and the products and services to be offered and the know your client information processes are materially the same, the dual-registered firm may be exempted from the requirement to execute the normal new account agreements and documentation.7

In other instances, the dual-registered firm will not be exempted from the requirement to execute the normal new account agreements and documentation but may be given more time (by way of an exemption) to execute these agreements and documentation.8

Other requirements, relief and/or approvals may be required by the New SRO and/or CSA regulators, depending on the firm’s proposal. Please speak to SRO and/or CSA staff about your firm’s specific proposal.

10. Will individuals registered as “dealing representative, mutual fund dealer” be permitted to continue to direct commission payments received from the dual-registered firm?

We will continue to allow commission redirection by those individuals registered as “dealing representative, mutual fund dealer” within those jurisdictions that permit commission redirection and in accordance with Mutual Fund Dealer Rule 2.4.1(b).

Introducing Broker/Carrying Broker Arrangements

11. What changes have been made to the Introducing Broker/Carrying Broker Arrangements in the interim rules?

Under current MFDA Rules, an MFDA member may only enter into an introducing broker/carrying broker arrangement with another MFDA member.  Similarly, under the IIROC rules, an IIROC member may only enter into an introducing broker/carrying broker arrangement with another IIROC member. The interim rules have been amended to permit mutual fund dealers to introduce to investment dealers, subject to certain conditions.

12. What business can a mutual fund dealer member introduce to an investment dealer member? 

Under the revised interim rules, a mutual fund dealer member can introduce all or any part of its business to an investment dealer member. The services provided by the investment dealer carrying broker may include order execution, clearing and settlement, custody of funds and securities and maintenance of books and records.

13. Which Rules (mutual fund dealer member or investment dealer member Rules) apply to the mutual fund introducing dealer?

A mutual fund dealer member that is introducing an insignificant portion of business in exchange-traded funds/platform-traded funds is still, primarily, operating as a mutual fund dealer and, as a result, will be subject to the Mutual Fund Dealer Rules.

However, where a significant portion of the mutual fund dealer member’s business is carried by an investment dealer member, the mutual fund dealer member will be subject to Investment Dealer Rules, including those relating to: capital, margin, insurance, handling client cash, client reporting, segregation of client cash and securities.

14. What is considered “significant business”?

In reviewing and approving the arrangement, New SRO staff will make the determination of what is significant based on the consideration of different factors (e.g. the economic value of the carried business / the percentage of the mutual fund dealer member’s overall business that is represented by the carried business). Such factors will be considered in conjunction with related matters, such as the business, and business model, of the mutual fund dealer member. 

15. What is the approval process for new Introducer Broker/Carrying Broker Arrangements?

As is currently required under MFDA and IIROC Rules, new Introducing Broker/Carrying Broker Arrangements (including the form of agreement) and any amendment to or termination of the arrangement or agreement must be approved by New SRO staff before it is to be effective.

New SRO Regional Councils and National Council

16. What is the role of the New SRO Regional Councils and National Council?

The 10 IIROC District Councils and 5 MFDA Regional Councils will be replaced by 7 Regional Councils comprised of Dealer Members from the following regions: Atlantic, Quebec, Ontario, Manitoba (including Nunavut), Saskatchewan, Alberta (including Northwest Territories) and Pacific (British Columbia and Yukon Territory).

The Regional Councils will have an advisory role and provide regional perspectives and recommendations on regulatory policy matters to staff of the New SRO. In addition, the Regional Councils will advise the New SRO on industry trends and issues to ensure that the New SRO is proactive in dealing with emerging issues.

The National Council will be comprised of the Chairs and Vice-Chairs of each Regional Council and will act as a forum for cooperation and consultation among the Regional Councils and provide recommendations on regulatory policy matters.

17. What will be the Composition of the New Regional Councils and how will they be constituted?

Each Regional Council will be composed of four to twenty Dealer Member representatives, as determined from time to time by the Regional Council, including a chair and vice-chair, and one or more ex-officio members appointed by the New SRO Board.

A Dealer Member with offices in the Region may nominate a member of the Regional Council. The Dealer Members of each Region will meet at least annually for the purpose of electing members of the Regional Council. 

Elections will be held to constitute the New SRO Regional Councils.

District Hearing Committees

18. What is the New SRO Hearing Committee Structure?

The New SRO will have 10 District Hearing Committees which will replace the current MFDA Regional Councils and be responsible for conducting hearings. Functions currently residing with IIROC District Councils relating to hearing committee nominations, and MFDA Regional Councils with respect to members sitting as hearing panel members, will be assumed by a New SRO Board Committee (Appointments Committee). The Appointments Committee will have responsibility for appointing members to District Hearing Committees. The Appointments Committee will be composed of at least seven Directors, including the President and CEO of the New SRO, and a majority of which (including the chair of such committee) will be independent.

19. What will happen to the MFDA Regional Councils and IIROC District Hearing Committees?

To ensure continuity of enforcement proceedings, elected or appointed members of a MFDA Regional Council or a IIROC District Hearing Committee prior to December 31, 2022 will automatically be deemed to be a member of the New SRO Hearing Committee for the district in which the member resides and the term of each individual as a member of the New SRO District Hearing Committee will expire on the date that his or her term as a member of the MFDA Regional Council or IIROC District Hearing Committee will have expired.

Compliance & Enforcement

20. Can a dual-registered firm integrate compliance and supervisory systems or do they have to remain separate?

A dual-registered firm can choose to either integrate its compliance and supervisory systems or operate separate systems for its investment dealer and mutual fund dealer lines of business provided the member complies with applicable regulatory requirements and New SRO Rules.

21. Will the dual-registered firm be subject to separate business conduct examinations for its investment dealer and mutual fund dealer operations?

The New SRO business conduct examination approach to a dual-registered firm will depend on the nature of the member’s operations, organizational structure, lines of business and degree of integration.

22. Will the dual-registered firm be required to file reports on both the METs and COMSET systems?

The dual-registered firm should file reports using the COMSET system, including reports related to activity that occurred at the time the member’s mutual fund dealer operations were run separately under an MFDA member.

Registration/ Approval Changes

23. Will there be a change to the delegation of registration or registration responsibility by the CSA and New SRO?

No. The CSA will continue to register all individuals seeking registration as “dealing representative, mutual fund dealer” whether such individuals are employed in a mutual fund dealer only firm or a dual-registered firm. The New SRO will continue to register investment dealer dealing representatives in accordance with the current CSA delegations to IIROC.

24. Will there be a change to the registration/approval process for individual dealing representatives and approved persons?

There will be no changes to the NRD filing process for firms.

25. Will I continue to have an opportunity to be heard if I disagree with a recommendation related to a registration/approval decision? Will I continue to have a right to appeal a registration/approval decision?

Yes, these rights will continue to exist under the interim rules, in respect of recommendations and decisions which refuse registration/approval, deny exemptive relief, or impose terms and conditions.

26. If I am currently approved as a Registered Representative dealing in mutual funds only with an investment dealer, will there be changes to my proficiency requirements, including any post approval requirements?

No, you are still required to upgrade within 270 days. This includes completing the Canadian Securities Couse (CSC) and Conduct and Practices Handbook Course (CPH) within 270 days of your initial approval in that category. It also includes completing either the 90-day training program and upgrading to Registered Representative, or the 30 day training program and upgrading to Investment Representative, within 18 months of your initial approval.

However, if your firm becomes a dual-registered firm, you will need to transition into the new approval category of “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”.

For Continuing Education requirements, see question 33.

27. If I am currently registered as a dealing representative with an MFDA member firm, do I need to complete any additional courses or meet any different requirements under the interim rules?

No. However, if your firm becomes a dual-registered firm or you move to a dual-registered firm, you must transition into the new approval category of “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”. If you have not already completed the CPH course, you will need to complete this course within 270 days of your firm’s registration as both an investment dealer and mutual fund dealer.

28. I am currently approved as a “Supervisor over Approved Persons”, with an IIROC member firm. Do I need to complete any other courses to supervise individuals in the new category of “Registered Representatives dealing in mutual funds only who are an employee of a firm registered as both an investment dealer and a mutual fund dealer”?

No.

29. I am currently a branch manager with an MFDA member firm. Can I continue to act as a Supervisor under the interim rules in relation to activities of individuals approved to deal in mutual funds only?

Yes, provided that you were acting as a designated branch manager with a Mutual Fund Dealers Association member during the 90 days before the interim rules come into effect, you do not need to complete any additional courses.

Also, if you have previously completed certain courses that are considered acceptable alternatives, as set out in Investment Dealer and Partially Consolidated Rule subsection 2625(2), then you do not need to complete any additional courses. These acceptable alternative courses are subject to the validity requirements set out within this same subsection.

Otherwise, in order to be registered/approved as a Supervisor, you will need to meet the applicable requirements in Investment Dealer and Partially Consolidated Rule clauses 2602(3)(xiii) and 2602(3)(xxi).

30. Do dual-registered firms need to have two UDPs and two CCOs, i.e. one for the investment dealer operations and for the mutual fund dealer operations?

No. Dual-registered firms must have a UDP and a CCO who meet the applicable requirements, including proficiency requirements.

Depending on a firm’s scale and the kind of activities carried out by different operating divisions, the dual-registered firm may put forward more than one CCO.

The New SRO and CSA will consider applications on a case-by-case basis and applications for exemptive relief would need to be filed with the New SRO and CSA if the firm proposes to have more than one UDP or one CCO.

31. I am approved as a Registered Representative dealing in mutual funds only and I have additional proficiencies to trade in exchange-traded funds and/or exempt market products. Will I be allowed to continue to trade in these products under the interim rules?

Yes, provided you were permitted to trade in exchange-traded funds or exempt market products during the 90 days before the interim rules come into effect, you will be allowed to continue trading in those products.

32. I want to be able to trade in exchange-traded funds or exempt market products as a Registered Representative dealing in mutual funds only employed by a dual-registered firm. What are the proficiencies I will need to meet to be able to trade in these products? Will the continuing education requirements change?

The proficiencies for new applicants are listed in sections 2603(1)(ii) and 2603(2)(ii), respectively. The requirements for Continuing Education as listed in interim Mutual Fund Dealer Rule 900, which are unchanged from the current requirements, will continue to apply to you.

For Continuing Education requirements, see question 33.

33. Will my Continuing Education requirements change?

No, if you are currently registered in a category with either IIROC or the MFDA, and stay in that category, the requirements for Continuing Education for that category will continue to apply.

Individuals in the new category of Registered Representative dealing in mutual funds only at a firm registered as both an investment dealer and a mutual fund dealer will be subject to the Mutual Fund Dealer Rules for Continuing Education if registered outside of Quebec. They will also be required to comply with the CSF’s Continuing Education requirements if registered in Quebec.

Québec considerations

34. What are the implications for all Mutual Fund Dealers registered in Québec? What rules are they subject to on Day 1?

(a) Mutual Fund Dealers who are registered only in Québec

Mutual Fund Dealers who are registered only in Québec will continue to be subject to Regulation 31-103 for their activities in Québec. To avoid regulatory duplication, all Mutual Fund Dealers registered only in Québec will not be required on Day 1 to comply with the New SRO Rules.

(b) Mutual fund dealers who are registered in Québec and other provinces/territories

New SRO interim rules will apply to their activities outside Québec and Regulation 31-103 will continue to apply to their activities within Québec.  New SRO will continue to work cooperatively with the AMF to oversee Mutual Fund Dealers who are registered in Québec and other provinces/territories.

35. Who will be performing the examinations for Mutual fund dealers registered in Québec as of Day 1?   

Day 1, status quo will apply. The AMF will lead the examinations for activities in Québec and will continue to work cooperatively with the New SRO for activities outside Québec.

36. Who will be in charge of enforcement proceedings? 

(a) Mutual Fund Dealers who are only registered in Québec

Mutual Fund Dealers who are only registered in Québec will continue to be subject to enforcement proceedings by the AMF for dealers and their executives. For their registered representatives, the Chambre de la sécurité financière (CSF) will continue to be in charge of enforcement proceedings.

(b) Mutual Fund Dealers who are registered in Québec and other provinces/territories

For activities in Québec, the AMF will continue to be in charge of enforcement proceedings for the dealers and their executives. For activities outside of Québec, the New SRO will continue to oversee enforcement proceedings for dealers and their executives. For their registered representatives, the CSF and the New SRO will continue to be in charge of their respective enforcement proceedings.

37. How will the AMF, the CSF and the New SRO coordinate the application of their respective Enforcement decisions?

The AMF and the CSF will inform New SRO of their respective enforcement decisions, allowing the New SRO to take the appropriate measures. The AMF, CSF and New SRO will continue to collaborate and coordinate regarding Enforcement decisions and other activities, where applicable.

38. Will dealing representatives of mutual fund dealers registered in Québec be required to become approved persons of the New SRO, for their activities in Québec?

No. Dealing representatives of Mutual Fund Dealers registered in Québec will only be required to register with the AMF, for their activities in Québec.

  • 1

    The title of this rule set has been changed from “IIROC Rules” to “Investment Dealer and Partially Consolidated Rules” to clarify that these interim rules:

    o     in most areas only apply to investment dealers and, where applicable, their employees and Approved Persons
    o     in certain areas:

    ▪   apply to both investment dealer and marketplace Regulated Persons, including investment dealers and their employees and Approved Persons 
    ▪   represent partially consolidated rules of the New SRO in that apply to both investment dealer and marketplace Regulated Persons, including persons subject to the Universal Market Integrity Rules (UMIR), but do not apply to mutual fund dealer Regulated Persons, including their employees and Approved Persons.

  • 2Principal regulator and the OSC, if the OSC is not the firm’s principal regulator.
  • 3Refer to question 8 for clarification on the rules that apply to dual-registered firms and their Approved Persons.
  • 4Principal regulator and the OSC, if the OSC is not the firm’s principal regulator.
  • 5Principal regulator and the OSC, if the OSC is not the firm’s principal regulator.
  • 6If the “transferor” firm in either of these scenarios will no longer require registration after transfer, that firm should apply to (i) the CSA to voluntarily surrender its registration, and (ii) the New SRO to terminate its membership.
  • 7The exemption would not extend to the regular required know your client information updates.
  • 8Ibid.