IIROC Issues New Guidance on Reporting Material Changes to Dealer Business Activities

The Investment Industry Regulatory Organization of Canada (IIROC) recently published new guidance (New Guidance) on how dealer member firms should report material changes to their business activities.

The New Guidance replaces IIROC’s 2010 guidance on material change reporting and provides more details regarding IIROC’s reporting expectations, including:

  • An expanded discussion of what constitutes a “material change”. IIROC says this will depend on the facts and circumstances of each case and will require dealers to use their professional judgement, considering the dealer itself, its clients, and whether the change could result in increased risk to them or the capital markets. If a dealer member is not sure whether a planned change would be considered material for the purposes of this New Guidance, IIROC urges dealer members to “err on the side of caution” and report the change.
  • Examples of reportable 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.
  • Examples of reportable changes related to new business:
    • the offering of an account service not previously offered (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,
    • the introduction of online investment advisory services (“robo advisor” services),
    • the offering of new products or product-specific accounts with a significantly different risk profile, level of complexity or regulatory treatment than previously offered (e.g., contracts for difference, futures contracts, options, crypto assets or leverage accounts),
    • the offering of carrying broker services to another dealer, or
    • becoming a participant of a marketplace.
  • Examples of reportable changes to material operational processes:
    • 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.
  • Specific information dealers should include in their notice:
    • the proposed date of the business activity change,
    • the dealer’s 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 the dealer plans 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,
    • 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 updates.

The New Guidance is effective December 31. We invite you to contact any of the authors if you have questions regarding the New Guidance and how it may affect your business, including your policies and procedures.

IIROC material change

Authors

Subscribe

Stay Connected

Get the latest posts from this blog

Please enter a valid email address