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					Lawyers · Patent and Trade-mark Agents




                                           Securities Regulatory Changes:
                                         What’s New for Independent Advisors?


                                                  Independent Financial Brokers
                                                    2009 Toronto Fall Summit
                                                        November 3-4, 2009


                                                         Rebecca Cowdery
                                                Partner, Borden Ladner Gervais LLP

                                                                             Lawyers • Patent and Trade-mark Agents
Lawyers · Patent and Trade-mark Agents   Presentation


                                            The essence of securities regulation
                                            Impact of new regulation
                                            Compliance issues
                                            What’s next?




                                                                                    2
Lawyers · Patent and Trade-mark Agents   Securities Regulation: The Basics


                                            Securities legislation
                                                 10 provinces; 3 territories
                                            National Instrument 31-103 Registration
                                             Requirements and Exemptions
                                            National Instrument 45-106 Prospectus and
                                             Registration Exemptions
                                                 Amended version in force: September 29, 2009
                                                 After March 31, 2010 – only prospectus exemptions
                                            Registered mutual fund dealers – MFDA
                                            Registered investment dealers – IIROC

                                                                                                      3
Lawyers · Patent and Trade-mark Agents   National Instrument 31-103


                                            The Chief Compliance Officers and Lawyers
                                             Guaranteed Employment Act of 2009
                                            In force: September 28, 2009
                                            Comprehensive, modernized regulation
                                                Harmonized
                                                Streamlined
                                                Modernize
                                                Client relationships
                                            With harmonized SRO rule changes



                                                                                         4
Lawyers · Patent and Trade-mark Agents   National Instrument 31-103


                                            Touches all aspects of dealer
                                             business
                                                Proficiency
                                                Solvency, capital, insurance
                                                Record retention
                                                Compliance structure
                                                Referral arrangements
                                                Conflict of interest
                                                Relationship Disclosure “CRM”
                                                Suitability, KYC
                                                Complaint Handling, Dispute Resolution

                                                                                          5
Lawyers · Patent and Trade-mark Agents   Trading


                                           Firms and individuals “in the business of trading”
                                            must be registered
                                                Firm: as a dealer
                                                Individual: as a dealing representative acting on behalf of
                                                 registered dealer
                                           Dealers
                                                Mutual funds only = mutual fund dealer
                                                Exempt securities only = exempt market dealer
                                                Scholarship plans = scholarship plan dealer
                                                All securities = investment dealer
                                           Individuals
                                                Tied to dealer firm’s registration
                                                Principal/agent or employee
                                                Still no incorporated salesperson

                                                                                                               6
Lawyers · Patent and Trade-mark Agents   Trading (cont)


                                            No trade trigger for registration – now
                                             “in the business of trading”
                                            Factors to consider
                                                Holding out
                                                Acting as intermediary or market maker
                                                Carrying on activity regularly, with repetition
                                                Being or expected to be remunerated or
                                                 compensated
                                                Soliciting others for activity

                                                                                                   7
Lawyers · Patent and Trade-mark Agents   Advising


                                          Firms and individuals in the business
                                           of advising others about securities
                                           must be registered:
                                              Firm: adviser – portfolio manager
                                              Individual: advising representative
                                          Exemption: dealers (firms and
                                           individuals) can give advice where
                                           such advice is incidental to trading
                                           activities

                                                                                     8
Lawyers · Patent and Trade-mark Agents   Fund Managers


                                           Firms acting as investment fund
                                            managers: new category of
                                            investment fund managers




                                                                              9
Lawyers · Patent and Trade-mark Agents   Elements of Registration


                                            Registration is granted only where
                                             firm and individual meet the
                                             conditions of registration
                                                Proficiency
                                                Financial solvency: capital and insurance
                                                Integrity
                                                Financial reporting
                                            Once registered
                                                Compliance with on-going requirements

                                                                                             10
Lawyers · Patent and Trade-mark Agents   Registration Exemptions


                                           Limited after March 30, 2010
                                                Trades in specified debt
                                                Certain dividend reinvestments
                                           Before March 30, 2010
                                                Accredited investor
                                                Minimum purchase threshold
                                                Only in provinces other than Ontario and Nfld/Lab
                                           Transition for EMDs in provinces other than
                                            Ont and Nfld.
                                           Mobility exemptions (limited) available


                                                                                                     11
Lawyers · Patent and Trade-mark Agents   Mutual Fund Dealers


                                           Entities and individual that trade in
                                            mutual funds
                                           New clarity on what “mutual funds”
                                            includes:
                                                NI 81-102 mutual funds
                                                ETFs structured as mutual funds
                                                Commodity pools
                                                Privately placed “pooled funds” – structured
                                                 as mutual funds
                                                Scholarship plans (only in BC)

                                                                                                12
Lawyers · Patent and Trade-mark Agents   Exempt Market Dealers


                                           In the business of trading in
                                            securities issued under prospectus
                                            exemptions = additional registration
                                            as exempt market dealer
                                                Accredited investor
                                                $150,000 purchase
                                                Any security = including potentially privately
                                                 placed mutual funds and PPNs
                                           Insurance still excluded from
                                            definition of securities

                                                                                                  13
Lawyers · Patent and Trade-mark Agents   Registration categories - Dealers


                                           Dealing reps (with required
                                            proficiency)
                                           UDP
                                           CCO (with required proficiency)
                                           Grandfathered reps and CCOs (if
                                            registered as of September 30, 2009)
                                           New CCOs have 12 month transition
                                           Must designate CCO and UDP as of
                                            December 28, 2009

                                                                                   14
Lawyers · Patent and Trade-mark Agents   Client relationships


                                              KYC (NI 31-103)
                                              Suitability – MFDA
                                              Know-your-product – MFDA
                                              Firm supervision of reps – MFDA
                                              Trade confirmations – MFDA
                                                  Outsourcing issue
                                            Client relationship information – MFDA – not
                                             yet final
                                                  Information
                                                  Account performance information

                                                                                            15
Lawyers · Patent and Trade-mark Agents   Relationship information (MFDA)


                                           For each new account opened, the Member shall provide
                                               written disclosure to the client:
                                           (a) describing the nature of the advisory relationship;
                                           (b) describing the products and services offered by the Member;
                                           (c) describing the Member’s procedures regarding the receipt
                                               and handling of client cash and cheques. In the case of a
                                               Level 2 dealer, the disclosure must include an explanation
                                               that all client cheques shall be payable to the issuer or
                                               carrying dealer, as applicable;
                                           (d) describing the Member’s obligation to ensure that each order
                                               accepted or recommendation made for any account of a
                                               client is suitable for the client in accordance with Rule 2.2.1
                                               and advising when the Member will assess the suitability of
                                               the investments in the client’s account;



                                                                                                                 16
Lawyers · Patent and Trade-mark Agents   Relationship information (MFDA)


                                           (e) defining the various terms with respect to
                                              the know-your-client information collected by
                                              the Member and describing how this
                                              information will be used in assessing
                                              investments in the account;
                                           (f) describing the content and frequency of
                                              reporting for the account; and
                                           (g) describing the nature of the compensation
                                              that may be paid to the Member and referring
                                              the client to other sources for more specific
                                              information.

                                                                                              17
Lawyers · Patent and Trade-mark Agents   Record-keeping


                                           Maintain records to accurately record
                                            business and demonstrate
                                            compliance
                                           7 year maintenance
                                           Permits access by regulators
                                           Security




                                                                                    18
Lawyers · Patent and Trade-mark Agents   Compliance Systems


                                           System of controls and supervision
                                            sufficient to assure compliance with
                                            securities regulation and to manage
                                            risks associated with prudent
                                            business practice
                                           CCO and UDP – access to board




                                                                                   19
Lawyers · Patent and Trade-mark Agents   Additional MFDA detail


                                            Head office daily review
                                            Branch level daily reviews
                                            Trend reporting




                                                                          20
Lawyers · Patent and Trade-mark Agents   Conflicts of interest


                                            Reasonable efforts to identify existing and
                                             potential material conflicts of interest and
                                             respond to them
                                            Written disclosure to clients of conflicts
                                             where reasonable client would expect to be
                                             informed before entering into transaction
                                            Related and connected issuer disclosure
                                            Equity interests
                                            Outside business interests of dealing reps
                                            Referral arrangements

                                                                                            21
Lawyers · Patent and Trade-mark Agents   Outside Business Activities


                                            MFDA Member Regulation Notice – 40
                                                Reiterates basic concept – all securities
                                                 related activity through dealer firm
                                                Approved Persons can be dually employed:
                                                     If permitted to work part-time by securities
                                                      regulators
                                                     If not prohibited by securities regulators
                                                     If firm aware and approves the activity
                                                     Firm has procedures to prevent COI
                                                     Activity does not bring firm, industry into disrepute
                                                     Clear disclosure to clients and continuous service
                                                      to clients

                                                                                                              22
Lawyers · Patent and Trade-mark Agents   Outside Business Activities


                                            Dealer must monitor:
                                                Review advertising and websites
                                                Approve use of trade names
                                                Review trades for unusual activity
                                                 (redemptions to fund outside business
                                                 activity)
                                                Ask about OBA from new recruits
                                                Review commission reports



                                                                                         23
Lawyers · Patent and Trade-mark Agents   Impact of NI 31-103 on Rep
                                         relationships

                                            Recognition of principal agent
                                             relationships (not just employment)
                                            OBA considered part of conflicts of
                                             interest to be managed by firm
                                            Still left to MFDA to regulate details




                                                                                      24
Lawyers · Patent and Trade-mark Agents   Termination of Rep Relationship


                                            Special requirements when rep leaves
                                             or is fired or let go
                                            All in NI 31-103 and related rules
                                            Requires firm to complete specific
                                             form and notify regulator
                                            Rep can ask for form
                                            New firm to ask for form from rep
                                            Issues if terminated for cause

                                                                                    25
Lawyers · Patent and Trade-mark Agents   Referral arrangements


                                            Written agreements
                                            Includes rep/rep referrals
                                            Look for compensation
                                            Disclosure to client
                                            NI 31-103 and MFDA rules (stricter)




                                                                                   26
Lawyers · Patent and Trade-mark Agents   Complaint handling


                                           Policies
                                           2-year transition for
                                            arbitration/mediation services
                                           More from MFDA coming
                                                Verbal and written complaints
                                                “statement of grievance”
                                                Includes former clients or prospective clients
                                                Includes service complaints and matters in
                                                 ordinary course of business

                                                                                                  27
Lawyers · Patent and Trade-mark Agents   Complaint handling


                                           Informal complaints – fair review and
                                            response to client
                                           Formal resolution required for:
                                                Breach of client confidentiality
                                                Unsuitable investments or leveraging
                                                Theft, fraud, misappropriation of funds, unauthorized
                                                 trading etc.
                                                Engaging in securities related activity outside Member
                                                 firm
                                                Engaging in unauthorized occupation outside Member
                                                 firm
                                                Personal financial dealings with client, money
                                                 laundering, market manipulation

                                                                                                          28
Lawyers · Patent and Trade-mark Agents   Client Reporting


                                            Quarterly reporting – but 2 year
                                             transition
                                            Change to existing requirements




                                                                                29
Lawyers · Patent and Trade-mark Agents   Bottom Line – NI 31-103


                                            Focus on investor protection by regulating
                                             to prevent
                                                 Client confusion
                                                 Lack of accountability by rep and by firm
                                                 Dealer firm lack of supervision and controls
                                                 Lack of proficiency by sales rep
                                                 COI and sales rep self-interest
                                                 Fraud
                                                 Lack of regulatory control and ability to supervise
                                                 Improper recommendations and trading
                                            Still dealing with issues discussed in 1999
                                             Distribution Structures paper

                                                                                                        30
Lawyers · Patent and Trade-mark Agents   Bottom Line – NI 31-103


                                            More still to come
                                                Securities regulators
                                                MFDA
                                            Pay attention!




                                                                         31
Lawyers · Patent and Trade-mark Agents   What else?


                                           POS
                                                Amendments to National Instrument 81-101
                                                Fund facts to be delivered to clients in
                                                 advance of trade by dealers
                                                Administrative issues
                                                Compliance issues
                                                Better investor protection?
                                                Better investor decision-making?
                                                Differences from seg fund POS


                                                                                            32
Lawyers · Patent and Trade-mark Agents   What’s Next?


                                           MFDA rules – finalized
                                           Confirms and outsourcing
                                           Complaint handling – NI 31-103
                                            amendments
                                           POS status




                                                                             33
Lawyers · Patent and Trade-mark Agents




                                           Questions?


                                         rcowdery@blgcanada.com
                                              416-367-6340




                                                         Lawyers • Patent and Trade-mark Agents
Lawyers · Patent and Trade-mark Agents




                                         Thank You!




                                                 Lawyers • Patent and Trade-mark Agents

				
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