Effective Date: December 31, 2021
This Guidance provides an explanation of:1
- Registration Staff’s approach when reviewing an application for approval and in particular when conducting “fit and proper” reviews
- Registration Staff’s approach when reviewing material disclosures, and provides a list of supporting documents that may be required
- Hiring due diligence
- 1In this guidance, all rule references are to the IIROC Rules unless otherwise specified.
IIROC Registration Reviews
Pursuant to subsection 9204(2), an individual’s application will be approved unless:
- the applicant:
- does not meet IIROC requirements
- is likely not to comply with IIROC requirements, or
- does not satisfy securities legislation relating to or is not suitable for approval on the basis of training, experience, solvency or integrity, or
- the approval is otherwise not in the public interest.
An individual’s application may be approved subject to any terms and conditions that may be appropriate.2
IIROC’s approval regime is similar to the registration regime set out in securities legislation.
In each application for approval/registration3 , Staff will evaluate whether an individual meets the criteria set out in section 9204. This includes evaluating whether the individual is suitable “fit and proper” and/or whether the approval/registration is not in the public interest or objectionable.
A similar review may be conducted for existing Approved Persons under section 9207.4
The “Fit and Proper” Test
Three fundamental criteria determine whether an individual is “fit and proper”:
- Integrity, which includes honesty and good faith, particularly in dealings with clients, and compliance with IIROC rules and securities laws
- Financial solvency, which is considered relevant because it is an indicator of the risk that an individual will engage in self-interested activities at the expense of clients
- Competence, which includes prescribed proficiency and knowledge of the requirements of IIROC rules and securities law.
In evaluating a person’s integrity, Staff’s consideration will include but is not limited to whether the individual has been:
- convicted of any offence. Particular weight is given to offences of dishonesty, fraud, financial crime or an offence whether or not in Canada or other offences under legislation relating to securities, financial services, insolvency, insurance, and consumer protection, money laundering, market manipulation or insider trading
- the subject of any adverse finding or any settlement in civil proceedings, particularly in connection with investment or other financial business, misconduct, or fraud
- the subject of any existing or previous investigation or disciplinary proceedings, by IIROC, other securities regulatory authorities, other self-regulatory organizations or government bodies or agencies
- the subject of any proceedings of a disciplinary or criminal nature, or has been notified of any potential proceedings or of any investigation which might lead to those proceedings
- in contravention any requirements or standards of the securities regulatory system or equivalent standards or requirements of other regulatory authorities, professional bodies, or government bodies or agencies
- the subject of any complaints relating to regulated activities
- involved with a company, partnership or other organization that has been refused registration or approval, or that registration or approval was terminated
- a director, partner, or officer concerned in the management of a business that has gone into insolvency, liquidation or administration, while the person has been connected with that organization
- dismissed, or asked to resign and resigned, from employment
- the subject of an internal disciplinary action by an IIROC Dealer Member (Dealer) or other registered firm
- prohibited from acting as a director or officer of any issuer or registrant or has been ordered to resign one or more positions that the person holds as a director or officer of an issuer or registrant
- candid and truthful in all dealings with any regulatory body and whether the person demonstrates a readiness and willingness to comply with the requirements and standards of the regulatory system and with other legal, regulatory, and professional requirements and standards.
We treat each application on a case-by-case basis. We will take into account the seriousness of, and circumstances surrounding any matter that may impact the individual’s suitability, the explanation provided by the individual, the passage of time since the matter occurred, and evidence of the individual’s appreciation for the seriousness of the matter.
Dealers, applicants and Approved Persons should be mindful of the importance of true, complete and timely disclosures and that failure to provide the required information will be considered in the review.5
In evaluating a person’s financial solvency, our consideration will include but is not limited to the following on whether the individual has:
- been the subject of any judgment debt or award, in Canada or elsewhere, that remains outstanding or was not satisfied within a reasonable period
- made, in Canada or elsewhere, any arrangements with his creditors, filed for bankruptcy, had a bankruptcy petition served on him/her, or been adjudged bankrupt
- failed to meet a material financial obligation as it came due or has, or has had, any outstanding garnishment, unsatisfied judgments or directions to pay.
In evaluating a person’s competence and capability, our consideration will include but is not limited to whether the individual:
- satisfies the relevant minimum IIROC proficiency requirements in relation to the activity the person performs or is intended to perform
- has demonstrated by education, experience and training that the person is able, or will be able to if approved, to perform the activity.
Is approval/registration contrary to the public interest or objectionable?
IIROC Rules and securities legislation generally draw a distinction between whether:
- an applicant is suitable for approval or registration, or
- the approval is not in the public interest (or the registration is objectionable in the case of securities legislation generally).
In considering whether an approval is not in the public interest or a registration is otherwise objectionable, we will take into account:
- the public interest mandate of securities regulators:
- to provide protection to investors from unfair, improper or fraudulent practices, and
- to foster fair and efficient capital markets and confidence in capital markets
- whether approval/registration should be granted on broader public interest grounds, regardless of the determination of suitability.
Although in most cases the question of whether an individual's approval or registration is objectionable, or not in the public interest, is related to the same factors as those considered in the suitability assessment, we will also consider whether the approval or registration should be granted on broader public interest grounds regardless of the determination made based on the suitability criteria/factors.
IIROC’s response where issues arise
If we have concerns about an individual, we may recommend refusal, revocation, suspension, or impose terms and conditions on their approval/registration. In all such cases, individuals are given an opportunity to be heard before a decision is made on their approval/registration.6
Where issues give rise to terms and conditions, we will impose the terms and conditions on the individual’s approval/registration. We do not accept voluntary supervision as an appropriate regulatory response. The imposition of formal terms and conditions on the record provides transparency. These terms and conditions, while in effect, are disclosed on IIROC’s Advisor Report and also on the National Registration Search website. The disclosure will provide investors and other stakeholders with access to the information about approved/registered individuals.
We recognize the importance to Dealers of timely reviews and approvals. We may require additional time in cases where we have concerns about an individual based on the criteria set out in the Notice. Such reviews are ultimately in the best interest of investors and the industry itself. In order to facilitate our reviews it is important that Dealers provide prompt and complete responses to our questions.
Review of material disclosures and additional supporting documents
The following generally trigger extensive IIROC Registration Staff review:
- any approval or registration application (Form 33-109F4) or any notice filed by an existing approved or registered person that contains disclosure related to:
- item 12 (Resignations and Terminations);
- item 13 (Regulatory Disclosures);
- item 14 (Criminal Disclosures);
- item 15 (Civil Disclosure); or
- item 16 (Financial Disclosure)
- any material information about an approved or registered person that may otherwise come to our attention.
In these cases, we will typically request that the individual provide a letter (signed by both the individual and the Chief Compliance Officer) to explain the circumstances leading up to the relevant disclosure. In cases where we have serious concerns about an individual, we will also request letters from the Dealer and the individual explaining why they believe the individual is suitable for approval/registration and why the Dealer supports the individual’s application or continued approval/registration. Dealers should expect applications containing material disclosures to take additional time.
Additional supporting documents listed below may be required. Dealers should submit any relevant supporting documents to the IIROC lead jurisdiction as soon as practicable after the initial filing. We may also ask for additional information or documents at any time during the review process.
|Item 13 Form 33-109F4 – Regulatory Disclosure|
13.1.b) - Refusal of registration by a Securities Regulatory Authority (SRA)
13.1.c) - Exemption denied or license refused by a SRA
13.1.d) - Disciplinary proceedings or any order resulting in disciplinary proceedings by a SRA
13.2.b) - Refusal of approval by a Securities Regulatory Organization (SRO)
13.2.c) - Disciplinary proceedings conducted by any SRO or similar organization
13.3.b) - Refusal of registration or a license under any legislation relating to your professional activities
13.3.c) - Suspension or disciplinary actions by an non-securities regulator
|Item 14 Form 33-109F4 – Criminal Disclosure||
|Item 15 Form 33-109F4 – Civil Disclosure||
|Item 16 Form 33-109F4 – Financial Disclosures|
|For undischarged bankruptcy||
|For discharged bankruptcy||
|For unsatisfied consumer proposal debt / consolidation / garnishment / requirement to pay / debt obligations||
|For satisfied consumer proposal / debt consolidation / garnishment / requirement to pay||
Hiring due diligence
It is critical that Dealers conduct background investigation of prospective Approved Persons. This is an important part of determining regulatory risk for both the Dealer and its clients. In addition to reviewing and discussing the applicant’s 33-109F4 and contacting their previous employers, we recommend the following hiring best practices:
- discuss with the applicant the nature of their prior clients and the types of securities sold
- obtain from the applicant explanations regarding any client complaints and regulatory actions to determine the merit, to the extent practicable, of each
- ask applicants about the existence of and nature of any pending proceedings, client complaints, regulatory investigations, or civil litigation
- involve compliance and legal staff, as appropriate, in the hiring process. Designate an individual (above the branch office manager level) or a committee to review any circumstances of previous terminations for cause, client complaint history, previous disciplinary actions, or outstanding regulatory or civil proceedings
- review the applicant’s registration file, including Notices of Termination filed by previous employers, using the Registration Due Diligence Process described in IIROC Notice 15-0100
- ensure applicants understand the questions in Form 33-109F4 and have an opportunity to discuss questions in order to answer them correctly. We expect accurate and complete information. Carelessness or misunderstandings are not satisfactory explanations for non-disclosure
We strongly encourage Dealers to proactively consider the issues set out in this notice before hiring or promoting an individual and before submitting an application for approval/registration. Dealers should refer to National Instrument 31-103 (NI 31-103) Registration Requirements, Exemptions, and Ongoing Registrant Obligations, and its companion Policy as well as NI 33-109 Registration Information with regards to their due diligence obligations. Failure of a registered firm to take reasonable steps to discharge its due diligence responsibilities may be relevant to the registered firm’s own continued fitness for registration.
IIROC Rules this Guidance Note relates to:
- section 9204, and
- section 9207.
Previous guidance note
This Guidance Note replaces Notice 09-0192 - IIROC Notice – IIROC Registration – The Fit and Proper Test for Approved Persons.
This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.
- 2Subsection 9204(3) of the IIROC Rules.
- 3Registration under securities legislation in those jurisdictions where IIROC has been delegated statutory authority for individual registration by a securities commission.
- 4Under subsection 9207(1) terms and conditions may be imposed “to ensure continuing compliance with IIROC requirements.” Under subsection 9207(2) approval may be suspended or revoked if:
(i) the Approved Persons is not suitable for approval by reason of integrity, solvency, training or experience,
(ii) the Approved Persons has failed to comply with IIROC requirements, or
(iii) the approval is otherwise not in the public interest.”
- 5Please refer to CSA Staff Notice 33-320 The Requirement for True and Complete Applications for Registration
- 6Please refer to Rule 9400 Procedures for opportunities’ to be heard.