Review of Advertisements, Sales Literature and Correspondence

GN-3600-21-002
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
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Executive Summary

Effective Date: December 31, 2021

This Guidance Note addresses Dealer Members’ obligations relating to 

  1. establishing policies and procedures for communicating with the public under subsection 3603(2),1  and
  2. the review of advertisements, sales literature and correspondence under section 3603.
  • 1In this guidance, all rule references are to the IIROC Rules unless otherwise specified.
Table of contents
  1. Introduction

Dealers Members (Dealers) should design policies and procedures relating to communication with the public that are appropriate for their size, structure, business and clientele, which may vary depending on the type of clients involved.

IIROC Rules apply to all communication methods used by a Dealer, including, but not limited to, LinkedIn, Facebook, Twitter, YouTube, blogs, and chat rooms. Dealers must ensure compliance with applicable regulatory laws and securities laws regardless of the method by which communication takes place and how social media websites may evolve.

This guidance addresses the unique compliance and supervisory issues Dealers, employees and their Approved Persons2  must consider when:

  • using social media websites to communicate with clients and the public for business purposes, and
  • designing Dealer policies and procedures for the review, supervision, retention and retrieval of these communication materials.
  1. Definitions

A Dealer’s policies and procedures should contain:

  1. clear and comprehensive definitions of what is considered advertising, sales literature and correspondence,3  and
  2. reference to all communications media, including
  • print,
  • broadcasting, and
  • electronic media.

Whether materials are considered correspondence, advertising or sales literature is determined by their content and purpose rather than how they are distributed. Accordingly, electronic communication, including social media websites, may constitute advertising, sales literature or correspondence depending upon their content and purpose.

  1. Password protected websites

A password protected website, such as a site designed solely for entering orders, would not normally fall under the definition of advertising. However, materials on the website regarding specific securities or strategies may constitute sales literature.

  1. Link to another website

A simple link at another entities’ website, whether or not paid for, is not an advertisement, unless the link is accompanied by text or graphics promoting a Dealers’ services.

  1. Communications to multiple clients

A letter, e-mail or other communication sent to more than one client, whether or not purporting to be tailored to their specific requirements or objectives, would generally fall within the definition of sales literature unless the communication includes a recommendation with respect to a security or trading strategy. Given that Approved Persons can send these types of communication, Dealers should ensure that their policies, procedures and educational efforts clearly define “sales literature”.

  1. General commentaries

General market and economic commentaries, as well as educational seminars not designed to sell specific securities, do not fall within the definition of advertising or sales literature. Nevertheless, Dealers’ policies and procedures should include a process that will ensure that these commentaries do not cross the line into advertising or general sales literature.

Dealers are encouraged to provide staff with training and guidance to ensure that they fully understand the boundaries between general commentary and advertising or sales literature.

  1. Compliance with law

A Dealer’s policies and procedures should be designed to ensure that all advertisements, sales literature and correspondence comply with Rule 3600 and all other applicable laws and securities laws. Other notable requirements include, but are not limited to, the following:

  • Canadian Investor Protection Fund (CIPF) disclosure,
  • disclosure of financial interest or underwriting liability,
  • restricted share terms disclosure,
  • related/connected issuer disclosure,
  • National Policy 47-201, Trading Securities Using the Internet and Other Electronic Means,
  • National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103),
  • mutual fund advertising restrictions under National Instrument 81-102, Investment Funds (NI 81-102),
  • research restrictions and disclosure requirements, and
  • requirements regarding the electronic delivery of documents.
  1. Prohibitions

A Dealer’s policies and procedures should clearly state if any specific types of advertising, sales literature or correspondence are prohibited.

  1. Reviews

The policies and procedures should set out the specific review requirements for each type of communication material used by a Dealer whether advertisement, correspondence or sales literature. Dealers have the ability to select the most effective means of monitoring communications, subject to subsection 3603(3). Monitoring may be done by any of the following means, as required or as the case may be:

  1. pre-use approval,
  2. post-use review, or
  3. post-use sampling.

Policies and procedures should also provide for cross-supervision. An individual should not be responsible for approval or supervision of their own materials.

Where a Dealer is organized in two or more separate business units or divisions, the Dealer may assign a Supervisor for each business unit of division responsible for ensuring the business unit’s or division’s compliance with section 3603.

The designated Supervisor should ensure that policies and procedures are:

  • adequate,
  • periodically reviewed to ensure that they remain adequate,
  • revised to incorporate relevant rule changes, as required, and
  • communicated to all applicable personnel on a timely basis.

The designated Supervisor should also ensure that any individuals assigned specific responsibilities under the policies and procedures are:

  • aware of their duties, and
  • properly fulfilling them.
  1. Pre-use approval

A Dealer must ensure the following are approved by a designated Supervisor:4

  • research reports,
  • market letters,
  • telemarketing scripts,
  • promotional seminar texts,
  • original advertising, and
  • any material used to solicit clients that contains performance reports or summaries.

The approval record should include the final copy (not a preliminary copy on which changes have been requested). Dealers should pre-approve a communication that has been materially changed, even though they pre-approved a previous version.

  1. Research 

Third party research is not governed by section 3603, but is dealt with under Part B of Rule 3600. However, material provided by a party not at arm’s length to the issuer, such as an investor relations firm, would constitute sales literature if disseminated by a Dealer.

Registered Representatives5  who are not employed as analysts, as defined under section 3606, but who nonetheless issue their own reports and recommendations that resemble research reports are governed by section 3603.

  1. Market letters

Market letters are distinguished from material similar to research reports which generally contain recommendations of securities.

Market letters must be approved prior to publication. Market letters include information on the following:

  1. market conditions,
  2. author expectations,
  3. economic forecasts, and
  4. other factors which may have an impact on security prices and investor profits.

 

  1. Original and Template Advertisements

Original advertising refers to the first use of a template advertisement. Dealers must pre-approve original advertising.

Template advertisements refer to advertisements that have a preset format which serves as a starting point each time it is used. The first use of a template advertisement requires pre-approval. However, minor changes to the template such as the name of the Registered Representative or location of the branch do not require approval. 

  1. Performance reports

Dealers must pre-approve any advertising, sales literature or correspondence used to solicit clients containing performance reports or summaries. This includes advertisements containing performance reports on mutual funds or asset allocation services. These materials should be reviewed for compliance with section 3603 and NI 81-102.

The following do not require pre-approval, but Dealers must review post-use:

  1. software-generated portfolio reports to clients,
  2. material containing price and volume charts for specific equities, or
  3. material containing yields for specific fixed income securities.

 

  1. Post-use or sampling

Where post-use or sampling reviews are used, Dealers’ policies and procedures should outline the following:

  1. the type of review required,
  2. the responsibility for conducting reviews and taking remedial action as required,
  3. the sampling frequency or techniques, and
  4. record retention requirements.

Post-use or sampling review may be appropriate for any of the following:

  1. specific instances of template advertisements,
  2. daily comments following up on published research, and
  3. correspondence to single clients or groups of similar clients. 

 

  1. E-mail communications

 

  1. Outside origination

Dealers should have policies which ensure that all business-related e-mails to clients and prospective clients are logged on the Dealer’s computer system for future reference. This can be done by taking any of the following steps:

  1. providing secure remote access for employees and agents to a Dealer’s e-mail systems,
  2. prohibiting the sending of business-related e-mails through non-Dealer e-mail systems, or
  3. requiring that all business-related e-mails are copied to a Dealer.

 

  1. Client Orders

Dealers should discourage clients and Registered Representatives from using e-mails to communicate orders. If a Dealer permits the practice, they should warn clients of the risks arising from sending orders through an e-mail, including delays in opening and executing instructions or inadequate instructions being given.  

  1. Suitability and Recommendations

Dealers must be mindful of the additional regulatory obligations that may be triggered as a result of the content of a communication delivered to clients. For instance, a “recommendation”, whether delivered via social media website or by way of written correspondence, must take into consideration the suitability requirements set out in Rule 3400. At the very least Dealers should implement measures to monitor and/or prohibit electronic communications that constitute a recommendation which must comply with IIROC’s suitability rules.

  1. Social Media Websites

 

  1. Supervision

Dealers may face supervisory challenges related to social media websites used for business purposes, such as blogs, LinkedIn, Twitter, YouTube, chat rooms and Facebook.

Whether a social media website is password protected or accessible to all does not determine whether or not it is an acceptable method of communicating with clients. Dealers and their representatives may use these sites and/or technology to communicate with clients and the public for business purposes as long as the websites satisfy the following conditions:

  1. they are adequately supervised, and
  2. they do not violate any regulatory or legislative requirements (for example, record retention).

Dealers may consider the following when designing and implementing compliant supervisory practices:

  1. prohibit access to social media websites that do not allow for compliant supervisory practices,
  2. prohibit or restrict the use of these types of sites by Approved Persons who have a history of non-compliant behaviour, and
  3. allow only those Approved Persons who have received appropriate training on the Dealer’s policies and procedures regarding social media websites to use this technology to communicate with the investing public.

Generally, there are two categories of social media websites: static content and interactive electronic forums.

Static content is usually characterized as follows:

  1. a profile, background or wall information,
  2. generally accessible to anyone,
  3. an “original template advertisement”, and
  4. must be pre-approved pursuant to subsection 3603(3).

On the other hand, an interactive electronic forum:

  1. may be a forum such as Facebook or Twitter,
  2. includes real time discussions,
  3. does not require prior approval, and
  4. must be supervised to ensure compliance with IIROC Rules and securities legislation.

In the event that interactive content becomes static, for example by posting the real-time interactive content in a static forum, such as a blog, this static content must be pre-approved if it is captured under subsection 3603(3).

  1. Anonymous communications

By making anonymous representations or recommendations in internet chat rooms or bulletin boards, Approved Persons may violate conflict of interest or other business conduct rules. Dealers should therefore have policies and procedures in place to restrict their Approved Persons from engaging in such activities.  

  1. Third Party Communications

Dealers should exercise extreme caution when engaging in third party communications, such as permitting third parties to comment or post on a Dealer’s website or providing links on a Dealer’s website to a third party website. Third party posts may be attributed to or considered an endorsement by the Dealer, thereby triggering regulatory and legislative requirements. 

For example, re-tweeting a client’s post or providing a “thumbs-up” may be considered an endorsement. Whether or not a third party communication will be considered to be Dealer’s communication will depend on the facts and circumstances of each case. 

Dealers should consider the following when determining whether or not the third party post reflects the views of the Dealer:

  1. the use of disclaimers, although this will not necessarily relieve Dealers of their responsibility for third party posts,
  2. the nature of a Dealer’s involvement in the preparation of the communication prior to posting, and
  3. any evidence of explicit or implicit endorsement or approval of the post.

The following are suggested best practices relating to third party communications:

  1. develop guidelines for use by third parties which sets out acceptable practices for third party posting on Dealer-sponsored websites,
  2. develop policies and procedures that address acceptable practices relating to responding to third party communication posted on Dealer-sponsored and personal websites,
  3. develop screening processes that will ensure that third party content complies with regulatory requirements and Dealer policies, and
  4. disclose Dealers policies regarding its responsibility for third party posts.  

 

  1. Record retention

Under subsection 3603(6), a Dealer must retain copies of all advertisements, sales literature and correspondence and all records of supervision. This should include the following:

  1. copies of materials reviewed,
  2. records of the reviews and approvals, and
  3. a record of corrective action if a post-use or sampling review discloses problems.

Additionally, Dealers must comply with their obligations pursuant to section 3804. Under clause 3804(1)(i), Dealers must maintain current records that properly record its business activities, financial position, financial operating results and client transactions.6

Whether a communication is related to the business of a Dealer, and therefore captured by this requirement, depends on the content of the communication. The type of device used to transmit the communication or whether it is a personal device or Dealer issued device is irrelevant.

Dealers must therefore design systems and programs with compliant record retention and retrieval functionalities for those methods of communication permitted by a Dealer. This includes the following:

  1. content posted on social media websites such as Twitter, Facebook, blogs, chat rooms, and
  2. all material transmitted through emails.

When designing and implementing compliant retention and retrieval policies and procedures, Dealers may consider policies that cover the following:

  1. the retention of copies of the material itself as well as records of reviews and approvals,
  2. where a post-use or sampling review uncovers a problem, the retention of a copy of the action taken to correct the problem,
  3. prohibited access to social media websites that do not allow for compliant retention practices, and
  4. use of personal communication devices for business communications as well the ability of retain, supervise and retrieve all business related communications made on these devices.

 

  1. Applicable rules

IIROC Rules this Guidance Note relates to:

  • Rule 3600, and
  • Rule 3800.
  1. Previous guidance note

This Guidance Note replaces Notice 11-0349 – Guidelines for the review, supervision and retention of advertisements, sales literature and correspondence.

  1. Related documents

This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.

  • 2As defined in subsection 1201(2).
  • 3“advertisement”, “sales literature” and “correspondence” are terms defined in subsection 1201(2).
  • 4As defined in subsection 1201(2).
  • 5As defined in subsection 1201(2).
  • 6Additionally, under NI 31-103, Dealers must retain records of their business activities, financial affairs, client transactions and correspondence with clients.