Presentation to Canadian Institute of Financial Planners

Transcription

1 Presentation to Canadian Institute of Financial Planners Erez Blumberger Deputy Director Compliance & Registrant Regulation Branch Ontario Securities Commission June 2011

2 Compliance and Registrant Regulation branch The CRR branch (CRR) is responsible for licensing and overseeing firms and individuals who are in the business of trading or advising in securities or commodity futures, and firms that manage investment funds in Ontario CRR mandate is to: register, suspend and revoke registration of firms and their representatives conduct compliance oversight of registrants and work with registrants to resolve deficiencies and non-compliance provide site review capability and specialized expertise in support of the other operating branches ensure that requirements on registrants are responsive to the needs of investors, capital markets and the securities industry (while accommodating industry innovation in products and services) by developing and implementing regulatory policy for registrant regulation with an increased focus on the retail investor considering requests for exemption from registration requirements and ongoing registrant obligations coordinate with other jurisdictions and the Self Regulatory Organizations (SROs) in the interests of harmonization and consistency in oversight approaches develop and apply new approaches on a timely basis to the increasing number of problematic registrants, including opportunities to be heard (OTBHs) begin to identify, assess and manage systemic risks related to registrants 2

3 CRR Branch Structure Susan Silma Director Marrianne Bridge Deputy Director Erez Blumberger Deputy Director Elizabeth King Manager, Portfolio Manager team Allison McBain Registration Supervisor Felicia Tedesco Manager, Investment Fund Manager team Oriole Burton Registration Supervisor Pat Chaukos Manager, Dealer team Donna Leitch Senior Registration Supervisor George Gunn Manager, Registrant Conduct and Risk Analysis team Helen Walsh Lead Risk Analyst 3

4 Overview of Registration Regime Securities are like consumer goods Issuers and investors rely on securities firms for their integrity and expertise in dealing, advising and underwriting Unscrupulous salespeople often prey upon vulnerable customers/investors use high pressure sales tactics and make unfounded or fraudulent claims Ontario Securities Act consumer protection legislation codifies prohibitions against a number of historic scams sets up an investor protection regime 4

5 The Registration Scheme Section 25 of Ontario Securities Act: Unless a person or company is exempt under Ontario securities law they [ ] shall not engage in [trading or advising in securities] unless they are registered. Registration a licensing regime Purpose to ensure proficiency, integrity, solvency of those licensed to trade, advise, or manage a fund National Instrument Registration Requirements, Exemptions and Ongoing Registrant Obligations Regulation/rule to the Ontario Securities Act represents largest ever overhaul of registration regime now have uniform, harmonized rules across Canada came into effect in September

6 The Registration Scheme cont d NI Registration Information Cousin to contains all the plumbing sets out specific information/forms that must be provided to regulators to allow review of fitness for registration (ie proficiency, integrity, solvency) Forms F1 through F6 for initial registration and updating registrant information companion policy: contains an explanation of each form a good read! 6

7 Requirement to Register When to apply? Business trigger Must register to engage in, or hold himself, herself, or itself out as engaging in the business of trading in securities, or advising anyone with respect to investing in, buying or selling securities (OSA s. 25 (1), (3)) Re Misir (1990) clients lottery winnings tempted lawyer to advise on investments Not solely incidental to his principal occupation Re Canadian Shareholders Association (1992) Held that the trigger for registration as an adviser is not doing one or more acts that constitute the giving of advice, but engaging in the business of advising 7

8 Proficiency, Integrity, Solvency Ittihad Securities (2010) Firm s CCO lacked the requisite proficiency, and as a result the firm s registration was suspended John Doe (2009) Applicant s repeated failure to disclose criminal conviction reflected a lack of integrity Chawky Sabeh (2009) Registrant s personal debt resulted in wage garnishment, which compromised his solvency 8

9 Categories of Registration Three general categories Dealer, Adviser, IFM Dealer Subcategories Investment Dealer Mutual Fund Dealer Scholarship Plan Dealer Restricted Dealer Adviser Subcategories Portfolio Manager Restricted PM 9

10 Individual Registration Categories Dealer Dealing Representative Chief Compliance Officer (CCO) Ultimate Designated Person (UDP bulls-eye ) Adviser Advising Representative Associate Advising Representative (apprentice) CCO UDP IFM No reps only CCO and UDP 10

11 Dealer Registration Requirement Summary Dealing Rep. Proficiency CCO Proficiency Minimum Capital and Insurance Financial Reporting Account Opening Investment Dealer (IIROC) Set by IIROC Set by IIROC Set by IIROC Set by IIROC (IFRS statements) KYC, suitability, referral arrangements and disclosure (IIROC, ) Mutual Fund Dealer (MFDA) CIFE, CSCE or IFICCE Rep. proficiency + PDOE, MFDCE, or CCOQE Set by MFDA Set by MFDA (IFRS statements) KYC, suitability, referral arrangements and disclosure (MFDA, ) Scholarship Plan Dealer RESPDAC sales rep proficiency exam Rep. proficiency + PDOE, MFDCE, or CCOQE $50K capital, $200K insurance Annual audits, quarterly reports KYC, suitability, referral arrangements and disclosure (31-103) Exempt Market Dealer CSCE, EMPE, or PM advising rep Rep. proficiency + PDOE, MFDCE, or CCOQE $50K capital, $200K insurance Annual audits KYC, suitability, referral arrangements and disclosure (31-103) 11

12 Adviser Registration Requirement Summary Advising Rep. Proficiency CCO Proficiency Minimum Capital and Insurance Financial Reporting Account Opening Portfolio Manager CFA and 1 yr experience or CIM and 4 yrs experience. (Associate Advising Rep: level 1 of CFA or CIM and 24 mo. exp.) CFA, LLB, CA, CGA, CMA, or CSCE and PDOE, or advising rep. proficiency + PDOE or CCOQE $25K capital, $200K min. insurance with access to client accounts Set by IIROC (IFRS statements) KYC, suitability, referral arrangements and client and relationship disclosure Investment Fund Manager N/A CFA, LLB, CA, CGA, CMA, or CIFC, CSC or IFICCE, PDOE, or portfolio manager CCO proficiency $100K capital, $200K min. insurance Set by MFDA (IFRS statements) Referral arrangements and client disclosure only 12

13 Applying to be Registered Prescribed forms: F4 Registration of Individuals and Review of Permitted Individuals F6 Firm Registration Since 2001 all investment dealers must also be members of IIROC and mutual fund dealers must be members of MFDA Permanent registration system (i.e. no yearly renewals) New director power to suspend registrant Carter (2010) First suspension case, based on lack of integrity (related party issuers) 13

14 Know Your Client (KYC) and Suitability KYC serves two functions: 1. Gatekeeper function know identity of client keep out unscrupulous actors 2. Learn about a client s risk profile forms basis for suitability analysis Suitability requires in-depth knowledge of all products Includes Know Your Product (KYP) Staff Notice , and CP s Suitability - to appropriately match investments with client risk tolerance and circumstances Re Sawh and Trkulja (2011) FPs/mutual fund dealers sold dubious investments without performing due diligence and suitability As a result they were suspended and refused reinstatement of registration 14

15 Dealer Liability KYC & Suitability plus OSC Rule duty for registered dealers and advisors to act fairly, honestly, and in good faith Do some registrants sell/advise with a primary view to maximizing their commissions? Common law: fiduciary duty for advisers who have full discretion over client accounts A debate underway about whether to create a statutory fiduciary duty for all registrants This would require all registrants to act in their clients best interest/put their clients interests first 15

16 Fiduciary Duty Internationally US: FD exists for investment advisors, and SEC (Dodd- Frank Act) is studying possibility of extending to brokerdealers UK: no FD, but new Conduct of Business Sourcebook rules ban commissions for personalised investment advice Australia: a 2009 Parliamentary Committee recommended a FD government considering banning commissions and create a statutory FD in

17 Compliance Issues: Cases Goldpoint Resources Corporation (May 2011) Boiler room, fraud, unregistered trading Hamdan (2010) Stealth advising non-registrant advises clients, using a registrant to execute trades as a cover Denied reactivation of registration for lack of integrity, proficiency, and breach of

18 Compliance Report Highlights NI stipulates that PMs must not delegate their KYC and suitability duties to other parties Financial Planners can enter into referral arrangements with PMs, but must not perform their suitability duties for them The CRR Branch 2010 Annual Report identified this issue as a deficiency trend FPs should be careful not to stray into registerable activity inadvertently the line is not always clear 18

19 Summary Investors can be vulnerable to abusive and fraudulent practices by dealers and advisors The registrant regulation regime protects investors and integrity of our markets by holding all registrants to standards relating to integrity, proficiency, and solvency Registrants must meet these standards not only at time of initial registration but as a continuing condition to their license 19