Effective Date: December 31, 2021
IIROC is publishing guidance for firms establishing principal and agent relationships with Registrants. In this Guidance Note we set out the requirements under IIROC Rules 2300 for an agreement between IIROC and Dealer Members (Dealers) who wish to establish principal and agent relationships, as well as the required content of the agreement between Dealers and agents who are entering a principal and agent relationship.
Agreements between IIROC and Dealers
Before entering into any principal/agent relationship, a Dealer must enter into an agreement with IIROC. The format of the agreement can be found in section 2303 of the IIROC Rules.1 The agreement should be signed by an authorized partner, officer or director of the Dealer. The contents of the agreement may not be changed.
When filing the completed agreement with IIROC, a Dealer must outline plans for compliance with the disclosure requirements of subsection 2303(4), “Agreement between a Dealer Member and IIROC” clauses 4 and 5. The Dealer must also file its account application form containing the disclosure required under subsection 2303(4), “Agreement between a Dealer Member and IIROC” clauses 4 and 5.
Agreements between Dealers and agents
Under subsection 2304(3), before entering into any principal/agent relationship, a Dealer must obtain approval from IIROC regarding the form of its agency agreement. The agency agreement must contain all of the terms in subsection 2304(7). In order to assist IIROC in the review process, Dealers drafting their own agreements should consider providing IIROC with a concordance showing the provisions that meet each of the requirements. Where an agreement’s compliance with subsection 2304(7) is unclear, IIROC may request that the Dealer obtain and file a legal opinion that it does comply.
A Dealer must obtain IIROC approval of any changes to the form of its agency agreement. Any details regarding the commercial aspects of the agreements do not require IIROC approval.
Written disclosure of respective responsibilities to clients
The Dealer or its agents must disclose to clients at account opening:
- the securities-related business activities conducted by the agent for which the Dealer is responsible, and
- other business activities conducted by the agent for which the Dealer is not responsible.
The disclosure is to be made in the account application form using the specific language provided in clause 2304(7)(vi).
Financial Institution Bond Insurance
To comply with clause 2304(7)(xi), a Dealer must have an “agent” rider added to its Financial Institution Bond (FIB) insurance policy. This is to ensure that all its agents and the employees of those agents are covered by its FIB insurance policy to the same extent as the firm’s own employees. IIROC’s Financial and Operations Compliance department will review the Dealer’s compliance with clause 2304(7)(xi) during its regular examinations.
Compliance with Tax Laws
Under subsection 2304(6), a Dealer must provide satisfactory evidence to IIROC that agreements between it and its agents comply with applicable tax laws. Such evidence may take the form of a legal opinion or a Canada Revenue Agency ruling, and should be filed with the Dealer’s IIROC Business Conduct Compliance Manager.
Books and Records
Clause 2304(7)(x) requires that all books and records prepared and maintained by the agent be in compliance with IIROC requirements. Dealers are reminded that this provision covers all other record-keeping requirements contained in the IIROC Rules including, among others, the maintenance of client account records under subsection 3212(1) and compliance review or approval records under section 3804.
Individual Registration Filings
Registration applications for individuals in an agency rather than an employment relationship with a Dealer must disclose that they are agents. The disclosure must be made on the “Current Employment” screen of the National Registration Database by entering “Agent” as part of the disclosure in the text box for the response to:
“Describe the type of business of employment and your duties. If you are seeking registration or acceptance for which specified experience is a requirement, provide detailed experience below”
Dealers are reminded that all regular registration filings apply equally to agents, including notification of business locations or outside employment and uniform termination notices.
IIROC Rules this Guidance Note relates to:
- Rule 2300,
- section 3212, and
- section 3804.
Previous Guidance Note
This Guidance Note replaces MR0217 – Principal and Agent Relationships.
This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.
- 1In this guidance, all rule references are to the IIROC Rules unless otherwise specified.