Effective Date: December 31, 2021
Subsection 2246(2) of the IIROC Rules1 requires that Dealer Members (Dealers) notify IIROC in writing before any material change to their business activities.
- explains the purpose of this notification requirement,
- assists Dealers in determining the types of business activity changes they must notify us of, and
- provides details on the expected timing and content of the notice.
- 1In this guidance, all rule references are to the IIROC Rules unless otherwise specified.
What is the purpose of the notification requirement?
The notification requirement, amongst other things, allows us to:
- keep up-to-date with our Dealers’ existing and planned business activities,
- better prepare for the business conduct and compliance, financial and operations, and trade conduct reviews of our Dealers,
- assist Dealers in considering the regulatory implications of their planned business activity, and
- consistently apply IIROC requirements across Dealers who engage in similar activities.
What is a “material change” to a Dealer’s business activities?
What is a “material change” will depend on the facts and circumstances of each case. Dealers should use their professional judgement when determining materiality, considering the Dealer itself and its clients, and whether the change could result in increased risk to them or the capital markets. Generally, Dealers should report the following material changes:
- the introduction of a business model, line of business, client base, service or product offering that:
- is a marked departure from the Dealer’s existing business activities, and/or
- requires the Dealer or its staff to obtain new or additional registrations or approvals (new business),
- changes to material existing or new business-related operational processes relating to order submission, trade execution, trade clearing, trade settlement or position custody functions (changes to material operational processes), or
- the elimination of a business model, line of business, client base, service or product offering.
If a Dealer is not sure whether a planned change would be considered material for the purposes of subsection 2246(2), the Dealer should err on the side of caution and report the change.
Below we provide certain examples to assist Dealers determine whether a planned change in business activity triggers the notification requirement.
Examples of new business
Examples of new business Dealers should report include, but are not limited to:
- the offering of an account service by a Dealer that did not previously offer this service (e.g. advisory account, managed account, order execution only account, custody account, direct electronic access account),
- the establishment of a retail client business by a Dealer that previously only had institutional clients or vice versa,
- the establishment of a proprietary trading business by a Dealer,
- the introduction of online investment advisory services (also know as “robo advisor” services) by a Dealer that previously only offered “in person” advisory services or vice versa,
- the offering of new products or product-specific accounts with a significantly different risk profile, level of complexity or regulatory treatment than previously offered by the Dealer (e.g., contracts for difference, futures contracts, options, crypto assets or leverage accounts),
- the offering of carrying broker services to another Dealer, or
- when a Dealer becomes a Participant2 of a marketplace.
Examples of changes to material operational processes
Examples of changes to material operational processes Dealers should report include, but are not limited to:
- the introduction of an automated technology solution by a Dealer to meet regulatory requirements, or
- changes to existing or new business-related operational processes relating to order submission, trade execution, trade clearing, trade settlement or position custody functions.
How should a Dealer notify IIROC of a material change in their business activities?
A Dealer must submit a written notice (typically in electronic format) of a material planned change to its business activities. A Dealer’s notice should be in letter format and signed by the Dealer’s Ultimate Designated Person or the Executive responsible for the area of risk the material change relates to. The written notice should include the information necessary for us to fully understand and assess the material change.
What specific information should be included?
Dealers should consider including the following information in their notice:
- the proposed date of the business activity change,
- their business plan for the change, which includes:
- a comprehensive description of the change, including the new products and/or services being offered and the target client type,
- the functional areas impacted by the change, and
- how they plan to comply with all applicable laws,
- updated policies and procedures to address the change and any applicable requirements,
- any updated or new client account documentation, including any updated or new agreements,
- whether the Dealer anticipates it will require exemptive relief from IIROC to support the change,
- an indication as to whether other regulatory approvals or notifications are required, and
- any updates to the Dealer’s structure and Approved Person information, such as (where applicable):
- the name of the Supervisor(s) responsible for the new line of business,
- new business locations,
- any changes to the Dealer’s ownership structure, or
- any changes to the Dealer’s Executives or Directors, including to their Ultimate Designated Person, Chief Compliance Officer or Chief Financial Officer,
and when the Dealer plans to file such updates3 .
Once a Dealer has submitted a notice, we will review the notice and may ask follow-up questions or request additional details.
How far in advance should a Dealer notify IIROC of a material change?
Dealers must provide notice before effecting any material change to their business activities. Dealers should consider the specific facts and circumstances of their proposed change when deciding the timing of the notice. While we are committed to reviewing the notice in a timely and efficient manner, the more complex a planned change in business activity, the more time we would require to review the notice.
To whom should a Dealer send their notification?
Dealers should send their notice to the attention of our General Counsel’s Office at memb[email protected].
Other applicable laws
Dealers should consider any additional requirements under IIROC requirements, securities laws or applicable laws that may pertain to the planned change in business activities in addition to the notification requirement (e.g., other notices, filings or exemptions). Providing notice pursuant to subsection 2246(2) does not relieve Dealers of any such additional requirements.
Applicable IIROC Rules
This Guidance relates to subsection 2246(2).
Previous Guidance Note
This Guidance replaces Notice 10-0060.
This Guidance Note was published under Notice 21-0147.