Chapter 3 - Regulatory Environment

Question 1

What are the two federal regulators in Canada?

Answer 1

1. Office of the Superintendent of Financial Institutions (OFSI)
2. Canadian Deposit Insurance Corporation (CDIC)

Question 2

What is the OFSI responsible for regulating and supervising?

Answer 2

• Deposit-taking institutions (banks, trust & loan, cooperative credit assns)
• Insurance companies
• Foreign bank offices that are chartered/licensed by fed gov’t
• Federally regulated pension plans

Question 3

What is the OFSI NOT responsible for regulating?

Answer 3

The securities industry

Question 4

What does the CDIC do?

Answer 4

Provides deposit insurance up to $100k per depositor in each member institution (banks, trusts, loan companies).

Question 5

What is the CDIC NOT responsible for?

Answer 5

It does not insure:

• Mutual funds / stocks
• GIC or term depos that mature in over 5 years
• Bonds / T-Bills / Debentures
• Foreign currency deposits

Question 6

What does the Authorité des Marchés Financiers (AMF) do?

Answer 6

Administers the regulatory framework of Quebec’s finance sector:
Insurance, deposit insurance institutions, financial products/services, securities.
Also $100k insurance for Caisses Populaires.

Question 7

What is the CSA?

Answer 7

Canadian Securities Administrators
(13 provincial/territorial regulators joined together)
Goal is to coordinate and harmonize regulation of cap mkts across Canada

Question 8

What is the term for private industry organizations that regulate their members’ conformity with securities legislation?

Answer 8

Self-Regulatory Organizations (SROs)

Question 9

Who monitors the conduct of the SROs?

Answer 9

The provincial and territorial securities commissions (who also review the rules of the SROs to ensure they do not conflict with legislation)

Question 10

Which of the following are SROs?

• IIROC
• CDIC
• CSA
• AMF
• MFDA
• IIAC

Answer 10

• Investment Industry Regulatory Org of Canada (IIROC)

- Mutual Fund Dealers Assoc. (MFDA)

Question 11

What is the Investment Industry Association of Canada (IIAC)?

Answer 11

-A member-based professional assoc that represents the interests of market participants
-Represents investment industry’s views/interests to fed and prov gov’ts and to other SROs.
(Not an SRO itself)

Question 12

Whose mandate is to “set high quality regulatory and investment ind. standards, protect investors, and strengthen mkt. integrity while maintaining efficient & competitive cap mkts?”

Answer 12

IIROC

Question 13

What are IIROC’s five main roles?

Answer 13

1. Financial compliance (ensure dealers have enough capital)
2. Business Conduct compliance (ensure proper supervision of client accts)
3. Registration (prof standards & education)
4. Enforcement
5. Market surveillance

Question 14

What is the MFDA?

Answer 14

Mutual Fund Dealers Association

• SRO for regulating distribution and sale of mutual funds
• does not regulate the funds themselves (done by provincial securities commissions)

Question 15

What are the two Investor Protection Funds?

Answer 15

Canadian Investor Protection Fund (CIPF)

Mutual Fund Dealer Assoc. Investor Protection Corporation (MFDA IPC)

Question 16

What is “window dressing”?

Answer 16

Deliberately causing the last sale for the day in a security to be higher than warranted.

Question 17

What is bucketing?

Answer 17

Confirming a transaction where no trade has been executed.

Question 18

What is front running?

Answer 18

Effecting a trade for the advisor’s own account before effecting a trade for a client.

Question 19

What is the diff in registration between an IA and an IR?

Answer 19

Investment Advisor gives advice to clients, and has a 90-day training course. Investment Rep doesn’t advise and has 30-day course.
Both need to do Wealth Mgmt Essentials course within 30 months.

Question 20

What are the 8 registration categories within a dealer member?

Answer 20

• Dealing rep (incl. IA, IR, mutual fund rep)
• Trader
• Supervisor
• Executive
• Director (on board of directors)
• Ultimate Designated Person (CEO)
• CFO
• Chief Compliance Officer

Question 21

What is the NRD?

Answer 21

National Registration Database

Web-based system to file registration for approval by stock exchanges, the CSA, or IIROC

Question 22

What is the first step in complying with the KYC rule?

Answer 22

Complete the New Account Application Form (NAAF) prior to acceptance of any order

Question 23

What is the right of withdrawal?

Answer 23

Purchaser has the right to withdraw from an agreement to buy securities within 2 business days after receiving a prospectus or amendment. (New issue only)

Question 24

What is the right of rescission?

Answer 24

Purchasers have the right to cancel a contract to buy securities if the prospectus contains a misrepresentation. (180 days after purchase)

Question 25

What is the right of action for damages?

Answer 25

Anyone involved in the prospectus (including experts) can be sued for damages if there are misrepresentations. (May also be a criminal offense.)

Question 26

What are the two types of circulars related to take-over bids?

Answer 26

• Takeover bid circular (by the offeror)

- Directors’ circular (by the board of directors of the target company)