Effective Date: December 31, 2021
A number of Dealer Members (Dealers) have expressed an interest in providing clients with consolidated monthly statements that could include the clients’ full trading and portfolios, including transactions done and/or positions held at the Dealer, non-member affiliates of the Dealer, and in client name at non-related locations such as mutual fund companies.
In addition, some Dealers who introduce part of their business to a carrying broker have expressed interest in consolidating monthly statements to show both the introduced business and the business handled in-house.
While consolidation of statements would be useful to clients in that it organizes a portfolio on a single document, there are regulatory concerns that prevent full consolidation in many cases. This Notice is being issued to clarify the rules for Dealers wanting to issue consolidated information to clients.
The current rules specify the minimum disclosures to clients. Section 3808 of the IIROC Rules1 includes the requirements relating to client account statement disclosures.
The intent of the rules is to ensure that client account statements, delivered in the appropriate form, reflect only positions held by the Dealer on behalf of the client. The statements are not to reflect positions held in client name, or positions held by a related company on behalf of the client.
Section 2284 requires disclosure on monthly statements regarding Canadian Investor Protection Fund (CIPF) membership:
Account Statements and Confirmations. Each Dealer must include the following, in legible print, on all confirmations and account statements made available to clients:
- the CIPF Membership Symbol on the first page, and
- the CIPF Explanatory Statement.
Need for interpretation
While consolidated statements would be useful to clients by reporting their total portfolios on a single document, there are regulatory concerns that need to be addressed.
First of all, clients may be confused about the investor protection applicable to the positions shown in a consolidated statement. It might be unclear which investor protection agency (CIPF, CDIC, Assuris, or a provincial contingency fund) covers the assets, and which regulatory agency (IIROC, OSFI, MFDA, or CSA) oversees the activities of the company providing the information. The protection limits available to the investor might be difficult to interpret when the portfolios at affiliated entities are combined to reflect a consolidated portfolio that may exceed coverage limits, while the covered accounts may not exceed the individual coverage limits of the protection agencies.
Similar client confusion may exist with respect to the legal entity with which they are dealing. Clients may not know whom to contact for problems with transactions or positions on a consolidated statement. A client will also have multiple accounts on the same statement, and may have difficulty referring to the specific account when a problem arises.
Disclosure of segregated positions might also be limited on a consolidated statement, which may not be able to meet all of the requirements of the numerous regulatory agencies with jurisdiction over the various entities reporting on the statement.
In order to balance these concerns with client needs for consolidated information, Dealers may provide consolidated statements to clients in addition to, but not in place of, the monthly statements required by Rule 3800.
Consolidated statements or portfolio reports must meet the following standards:
- they must include a prominently displayed disclaimer that they are not official statements, that they are supplemental to the legal entity statements delivered to the client for each account with the Dealer or by other entities where the transactions occurred or the positions are held,
- they must clearly identify the legal entity at which each transaction occurred and/or which is holding each asset or money balance,
- they must include a disclaimer explaining that CIPF coverage does not necessarily apply to all of the positions disclosed and that the client should refer to the Dealer’s legal entity statements to determine the positions covered by CIPF. The disclaimer should also refer to the segregation information on the Dealer’s legal entity statements,
- they should not include the CIPF logo or mention any affiliation to CIPF, other than the above disclaimer,
- the form used for such statements or reports must be different from that used for the legal entity statements of the Dealer, and
- consolidated statements or reports as of the Dealer’s year end must include a reference to the Dealer’s legal entity statement mentioning the audit and asking clients to review the legal entity statement and report to the auditors any discrepancies that may exist.
A sample disclosure for a consolidated portfolio summary is attached as Appendix A. Dealer Members may draft their own disclosures provided they comply with the requirements described above.
Preparation of consolidated statements and portfolio reports
IIROC has been advised that some Dealers permit registered representatives to prepare consolidated statements and/or portfolio reports for their client accounts.
Dealers must have written policies, review procedures and internal controls in place to ensure that any statements or portfolio reports provided to clients – whether restating what is found only in the Dealer’s legal entity statements or consolidating information from several sources – are accurate and complete.
If such statements or reports include rates of return, such rates should be calculated on a fair and consistent basis following accepted methods such as those approved by the CFA Institute.
Consolidated statements for carried and non-carried accounts
Type 3 and 4 introducing brokers that have the necessary systems capabilities are permitted to show both carried and non-carried accounts in the same monthly statement issued under Rule 3800. The following guidelines apply:
- transactions for and positions held in the two types of accounts must be separated within the statement, and
- there must be an explanatory note on the statement as to which account(s) are carried and by which Carrying Broker, and which are not carried.
IIROC Rules this Guidance Note relates to:
- Rule 2200, and
- Rule 3800.
Previous Guidance Note
This Guidance Note replaces MR0087 - Consolidated Statements (8/2/2001).
This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.
Appendix A – Sample Disclosure for Consolidated Portfolio Reports
- 1In this guidance, all rule references are to the IIROC Rules unless otherwise specified.
Information relevant to the Guidance Note topic as follows:
This [portfolio summary] is prepared from information received from sources we believe to be reliable. It is not an official statement of your positions at [name of Dealer Member]. Some of the positions shown in this statement may be held at other financial institutions where they are not covered by the Canadian Investor Protection Fund.
Please consult the monthly statements you receive from [name of Dealer Member] to determine which positions are eligible for protection by the Canadian Investor Protection Fund, including information as to which positions are held in segregation.
If there are any discrepancies between the transactions or positions shown on the monthly statements you receive from [name of Dealer Member] and those shown in this [portfolio summary] as being transacted or held at [name of Dealer Member], please report them to [contact name or department].