Chapter 3 - The Canadian Regulatory Environment

Question 1

Can you explain the primary objectives of regulation?

Answer 1

Investor protection and market integrity.

Question 2

Can you compare principles-based regulation to rules-based regulation?

Answer 2

Principles-based - regulators set objectives for securities dealers and allow the firms to decide how to meet those objectives
Rules-based - impose detailed rules

Question 3

What is the purpose of the provincial securities acts?

Answer 3

• registration of securities dealers and advisors
• disclosure of facts necessary to make reasoned investment decisions
• enforcement of the laws and policies

Question 4

What does full, true and plain disclosure refer to?

Answer 4

The general principle underlying Canadian securities legislation.

Question 5

Can you describe how registration of Investment Advisors and Investment Representatives differ?

Answer 5

IA’s must register with applicable administrator, IIROC. They must complete the CSC and a Conduct and Practices course. They also must complete a 90 day training program and CSI’s Wealth Management Essentials Course.
IR’s have same requirements except the training period is 30 days and the WME component is optional.

Question 6

What is the National Registration Database?

Answer 6

A web-based system used by investment dealers and employees to file registration forms electronically when applying for approval by a stock exchange, the CSA, or IIROC.

Question 7

Can you explain the gatekeeper role that dealers and their employees play in the Canadian financial markets?

Answer 7

The guarding of markets from possible wrongdoing by unscrupulous clients.

Question 8

Can you explain the Know Your Client rule?

Answer 8

Learn the essential facts relative to every client and to every order or account accepted.
Verify that the acceptance of any order is within the bounds of good business practice.
Verify that recommendations made for any account are appropriate for the client’s investment objectives, personal circumstances and tolerance to risk.

Question 9

Who are the Canadian Securities Administrators (CSA) and what role do they play in the securities regulatory system?

Answer 9

An umbrella organization of Canada’s ten provincial and three territorial securities regulators designed to improve, coordinate and harmonize regulation of the Canadian capital market.

Question 10

What is a Self-Regulatory Organization (SRO)? Who are the SRO’s in Canada?

Answer 10

SRO’s are private industry organizations to which the provincial regulatory bodies have granted the privilege of regulating their own members.

Question 11

What is the Investment Industry Regulatory Organization of Canada (IIROC) mandate?

Answer 11

To set high quality regulatory and investment industry standards, protect investors and strengthen market integrity while maintaining efficient and competitive capital markets.

Question 12

What roles does IIROC play in the financial markets?

Answer 12

Financial compliance
Business conduct compliance
Registration
Enforcement
Market Surveillance

Question 13

Who is the Mutual Fund Dealers Association (MFDA)?

Answer 13

It is the mutual fund industry’s SRO responsible for regulating the distribution and sales of mutual funds by its members in Canada.

Question 14

Who does the Canadian Investor Protection Fund (CIPF) protect?

Answer 14

Protects eligible customers in the event of the insolvency of an IIROC dealer member.

Question 15

Can you explain the CIPF coverage?

Answer 15

All customer accounts are covered, either as part of the customer’s general account or as a separate account. Cash, margin, short sale, options, futures and foreign currency are COMBINED and treated as ONE general account entitled to the maximum coverage of $1 million.
Separate accounts, such as registered accounts and trusts, are each entitled to the maximum coverage of $1 million.

Question 16

Who does the MFDA Investor Protection Fund (IPC) protect?

Answer 16

Protects eligible customer in the event of insolvency of MFDA member firms.

Question 17

Can you describe the MFDA IPC coverage?

Answer 17

Same as CIPF coverage.

Question 18

Who is the Office of the Superintendent of Financial Institutions (OSFI)?

Answer 18

Outside of Quebec the financial sector is regulated separately from the securities industry by the Office of the Superintendent of Financial Institutions.

Question 19

Can you list who the OSFI regulates?

Answer 19

Life and property insurance firms, providers of deposit insurance and distributors of financial products.

Question 20

Who does the Canada Deposit Insurance Corporation (CDIC) protect?

Answer 20

A federal Crown corporation that provides deposit insurance.

Question 21

Can you describe the CDIC coverage?

Answer 21

CIDC insures eligible deposits up to $100,000 per depositor in each member institution (banks, trusts, loan companies) and reimburses depositors for the amount of any insured deposits if a member institution fails.

Question 22

Can you list what the CDIC does not insure?

Answer 22

Deposits at different branches of the same member institution are not insured separately.

Question 23

Who protects the deposits of credit union members?

Answer 23

In each province, one or more organizations exist to protect the deposits of credit union members.

Question 24

Can you compare Arbitration to the Ombudsman for Banking Services and Investments (OBSI)?

Answer 24

Arbitration is a method of dispute resolution in which an independent arbitrator is chosen to listen the the facts and arguments of both sides of the dispute. The decision of the arbitrator is binding.
The OBSI investigate customer complaints against financial service providers and provides a prompt and impartial resolution. It is not binding.

Question 25

Can you describe IIROC’s Client Relationship Model (CRM)?

Answer 25

These reforms imposed greater disclosure requirements to enhance the standards that advisors must meet when assessing the suitability of investments for their clients. The objective is increased transparency for investors regarding the fees they pay, the services they receive, potential conflicts of interest and the performance of their accounts.

Question 26

What is a relationship disclosure document? What kind of information does it cover?

Answer 26

Contains:

• the types of products and services offered
• the terms of the account relationship to which the client has consented
• the process used by the firm to assess investment suitability and the client’s KYC information
• the date on which account suitability will be reviewed
• all fees and charges associated with operating, transacting, and holding investments in the account
• the firm’s complaint handling procedures
• a description of all the reporting a client will receive

Question 27

How are conflicts of interest supposed to be addressed?

Answer 27

Avoiding the conflict
Disclosing the conflict
Otherwise controlling the conflict situation

Question 28

Can you list some examples of unethical sales practices in Canada?

Answer 28

• using high pressure selling techniques
• trading in one’s own account before effecting the same trade for a client (front-running)
• misleading a client as to the risk involved in purchasing a specific security

Question 29

Can you describe the purpose of the National Do Not Call List?

Answer 29

All telemarketers must subscribe to the list.
DNCL rules prohibit telemarketers and clients of telemarketers from calling any number that has been registered for more than 31 days.