Course 1 - Chapter 3 Flashcards
Arbitration (2)
A method of dispute resolution in which an independent arbitrator is chosen to assist aggrieved parties recover damages
Arbitrator decision is binding
Autorite des marches financiers (Financial Services Authority) (AMF) (4)
The body that admin’s the regulatory framework surrounding Quebec’s financial sector:
- Securities sector
- Distrib’ of fin products and services sector
- Compensation sector
Canada Deposit Insurance Corporation (CDIC)
Federal Crown corp that insures depositors’ bank deposits against member-bank insolvency, up to 100k per account type (deposit category = chequing, savings, RRSP, GIC, etc.) per institution
8 deposit categories covered
Canadian Investor Protection Fund (CIPF) (4)
Fund that protects eligible customers in the event of the insolvency of an IIROC dealer member
Sponsored solely by IIROC and funded by quarterly assessments on dealer members
Covers each registered account (RRSP, RESP, etc.) up to $1million per account type (eg. RRSP and RRIF would be considered one account type as both are retirement funds)
Views cash, margin, short sale, options, futures and TFSAs as one combined, general acct covered up to $1milion in total
Canadian Securities Administrators (CSA)
A forum for the 13 securities regulators of Canada’s provinces and territories to coordinate and harmonize the regulation of the Canadian capital mkts
Client Focused Reforms
Regulatory requirements that came into force in 2021, covering key industry requirements for the KYC / KYP rules, conflict of interest, suitability and relationship disclosure
Front Running
Making a practice, directly or indirectly, of taking the opposite side of the market to clients, or effecting a trade for the advisor’s own acct prior to effecting a trade for a client
Full, true and plain disclosure
General principle underlying Canadian securities legislation that ALL pertinent facts by those offering securities for sale to the public MUST be disclosed
Gatekeeper (2)
Dealers and all of their EEs who are responsible for protecting the mkts from potentially illegal client activities
Universal Market Integrity Rules set out specific rules that ID the gatekeeper function and formal reporting procedures
Investment Industry Regulatory Organization of Canada (IIROC) (3)
The Canadian investment industry’s national self-regulatory org
Carries out its regulatory responsibilities by:
- Setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their reg’d EES and through setting
- Setting/enforcing market integrity rules regarding trading activity in CAD equity mkts
Investment Representative
A person who is licensed to sell securities but is not permitted to give investment advice
Mutual Fund Dealers Association (MFDA)
The SRO that regulates the distrib’ (dealer) side of the MF industry in Canada
Accounts are covered as part of a general acct or as a separate acct, each eligible for up to $1million
Does not apply to Quebec (see CSF)
Mutual Fund Dealers Association Investor Protection Corporation (MFDAIPC)
Provides protection for eligible customers of insolvent MFDA member firms
National Do Not Call List (DNCL)
The CRTC prohibit telemarketers and clients of telemarketers from calling numbers that have been reg’d on the DNCL for more than 31 days
National Registration Database (NRD) (3)
Web-based system that permits MF salespeople and IAs to file applications for registration electronically
Designed to enable a single electronic submission to satisfy all jurisdictions in Canada
Allows regulators to verify registration status in other jurisdictions
Office of the Superintendent of Financial Institutions (OSFI) (6)
Regulatory body for all federally regulated fin institutions
Responsible for regulating:
- Deposit-taking institutions
- Insurance companies
- main responsibilities regarding insurance companies and segregated funds are to ensure that the companies issuing the funds are financially solvent - Foreign bank representative offices
- Federally regulated pension plans
Does NOT regulate CAD Securities industry
Ombudsman for Banking Services and Investments (OBSI)
Independent org that investigates cx complaints against fin services providers
Not a binding decision, but firms publicly reported when they refuse recommendations
Risk capacity
A client’s ability to endure a potential fin. loss
Risk tolerance
A client’s willingness to accept risk
Securities and Exchange Commission (SEC)
US Federal body that protects investors (no Canadian equivalent)
Self-regulatory Organization (SRO)
An org recognized by the Securities Admin’s as having powers to:
- Establish and enforce industry regulations to protect investors and maintain fair, equitable and ethical practices in the industry
- Ensure conformity w/ securities legislation
includes IIROC and MFDA
SRO reg’s apply in addition to provincial reg’s
If an SRO rule differs from a provincial one, the most stringent rule applies
Functions of IIROC (5)
- FInancial compliance: Dealer members monitored to ensure they have enough capital to carry out op’s
- Business conduct compliance: Ensure policies and procedures are in place to properly supervise the handling of client accts
- Registration: oversees professional standards and educational programs to maintain industry EE competence
- Enforcement: enforces rules/reg’s that cover the sales, business, financial practices and trading activities of all members under IIROC’s jurisdiction
- Market surveillance: Includes real-time monitoring of trading activity on several exchanges, ensuring timely disclosure of info by publically traded companies in Canada, and carrying out trading analysis/compliance w/ trading rules
Chambre de la sercurite financiere (CSF)
Quebec’s SRO for Mutual fund and insurance industries
Demutualization
Refers to a company that was owned by its members converting to one owned by shareholders
Corporate governance
The system of rules, policies and procedures by which a company is controlled
Primary Objectives of Regulations (4)
- Consumer protection
- Fairness
- Economic stability
- Social objectives
Principles-based Regulatory Model (7)
Regulators set objectives for securities dealers and allow the firms themselves to decide how best to meet those objectives
Objectives apply to broad issues such as:
- EE proficiency
- EE integrity
- Suitability of recommendations
- Preventling client abuse of mkts
- Adequacy of capital
Requires careful analysis and monitoring by each dealer memebr
Methods used by Securities Act to protect investors (3)
- Registration of dealers and advisors
- Disclosure of facts necessary to make reasoned investment decisions
- Enforcement of laws and policies
Responsibilities of the Gatekeeper Role (3)
- Collect/record client info that is accurate and complete
- Monitor activity in client accts
- Report any suspicious txs or proposed txs in client accts
Required KYC Info (6)
- Personal circumstances
- Financial circumstances
- Investment knowledge
- Investment needs/objectives
- Risk profile
- Time horizon
Requirements for KYC Accuracy & Timeliness (4)
- Take reasonable steps to obtain client confirmation that the KYC info is accurate
- Update KYC info whenever there is a significant change
- Review KYC info every 36 months even if no contact
- Update KYC info on initial client contact & during annual reviews
Suitability Assessment needed when (5)
- A trade is accepted
- Recommendation is made
- Securities are transferred or dep’d
- Change of representative or PM
- Material changes to KYC info occur
KYP (3)
An understanding of the product being recommended including:
- How it’s constructed
- Its features, risks and costs
- A general idea of how it is likely to perform in various mkt conditions
Relationship Disclosure requirements (10)
- Description of nature/type of client’s acct
- Types of products/services offered by the firm
- Types of risks a client should consider when making a decision
- Description of the risks of using borrowed money to finance a security purchase
- Conflicts of interest
- Operating charges and the types of tx charges the client may be required to pay
- Firm’s complaint handling procedures
- Statment that firm must determine that any investment action for client is suitable for the client and puts their needs first
- General explanation of how investment performance benchmarks might be used
- Reporting that the client will receive, including the date on which acct statements and trade confirmations will be sent, plus a description of firm’s obligation to provide performance info
Arbitration eligibility criteria
- Attempts have been made to resolve dispute w/ investment dealer
- Claim does not exceed $500k
