Securities Law & Instruments



COMPANION POLICY 33-102CP

REGISTRANT DEALINGS WITH CLIENTS

 

TABLE OF CONTENTS

PART                      TITLE

 

Part 1 DISCLOSURE
1.1 Leverage Disclosure
1.2 Client Acknowledgement
1.3 Exemption for Margin Accounts

 

Part 2 COMPLIANCE AND SUPERVISORY ACTIVITIES
2.1 Registrant Premises
2.2 Registrant Responsibility to Prevent Client Confusion
2.3 Supervision of Sub-Branches

 

Part 3 RECORD KEEPING
3.1 Third Party Access to Information

 

Part 4 RETAIL CLIENT CONSENT
4.1 Retail Client Consent
4.2 Timing of Retail Client Consent

 

Part 5 PRODUCTS AND SERVICES
5.1 Opening an Account

 

Part 6 RELATIONSHIP PRICING
6.1 Relationship Pricing

 

COMPANION POLICY 33-102CP
REGISTRANT DEALINGS WITH CLIENTS

 

PART 1 DISCLOSURE

1.1 Leverage Disclosure - Registrants are reminded that leveraging is an important factor toconsider when determining suitability. National Instrument 33-102 (the "NationalInstrument") in no way implies that the one time provision of this disclosure statementfulfills the registrant's ongoing duty to its clients to ensure trades are suitable for theinvestment needs and objectives of its clients. There may be circumstances when a registrant,as part of the registrant's suitability responsibilities, should remind investors about the risksof leveraging.

1.2 Client acknowledgement - The acknowledgements of a retail client referred to insubsections 2.1(2) and 6.2(2) of the National Instrument may be obtained by a registrant ina number of ways, including requesting the retail client's signature, requesting that the retailclient initial an initial box or requesting that the retail client place a check in a check-off box.The registrant must draw the client's attention to the disclosure provided. Theacknowledgement must be specific to the information disclosed to the retail client (i.e.disclosure regarding the risks of using leverage to purchase securities or the description ofthe nature of securities) and must confirm that the retail client has read the relevantinformation.

1.3 Exemption for Margin Accounts - Section 2.2 of the National Instrument exemptsregistrants from the requirement to provide additional leverage disclosure to retail clientsopening a margin account. The exemption is provided because SRO rules already require thatclients with margin accounts acknowledge receipt of leverage disclosure in the accountopening form.

PART 2 COMPLIANCE AND SUPERVISORY ACTIVITIES

2.1 Registrant Premises - Securities legislation requires that a registrant designate one officeror partner, known as a compliance officer, to be responsible for ensuring compliance by theregistrant and its registered personnel with securities legislation and the registrant's writtenprocedures for dealing with its clients. Any office or branch office of the registrant may bedesignated by the registrant as its central location for a local jurisdiction.

2.2 Registrant Responsibility to Prevent Client Confusion - The registrant is responsible forensuring that clients understand with which legal entity they are dealing, especially if morethan one financial service firm is carrying on business in the same location. The client maybe informed through various methods, including signage and disclosure. Registrants arereminded of the obligation to carry on all registrable activities in the name of the registrant.Contracts, confirmations and account statements, among other documents, must contain thefull legal name of the registrant.

2.3 Supervision of Sub-branches - The Canadian securities regulatory authorities permit theoperation of sub-branch offices of registrants in certain circumstances. The activities ofregistrants operating within a sub-branch office are generally supervised by a branch managerin a location other than the sub-branch. The Canadian securities regulatory authorities are ofthe view that such supervision is appropriate in most circumstances. However, the Canadiansecurities regulatory authorities will consider the facts on a case-by-case basis to ensure thatan appropriate level of supervision is in place.

PART 3 RECORD KEEPING

3.1 Third Party Access to Information - All registrants have a duty to maintain proper booksand records and to ensure that there are proper safeguards in place to ensure that there is nounauthorized access to information, particularly confidential client information. If theregistrant maintains books and records in a central location to which employees of a thirdparty have access, the registrant should be particularly vigilant in ensuring these safeguardsare implemented and effective.

PART 4 RETAIL CLIENT CONSENT

4.1 Retail Client Consent - The retail client consent referred to in paragraph 3.1(b) of theNational Instrument may be obtained by a registrant in a number of ways, includingrequesting the retail client's signature, requesting that the retail client initial an initial boxor requesting that the retail client place a check in a check-off box. The Canadian securitiesregulatory authorities note that in some jurisdictions, the form of consent may be prescribedby legislation.

4.2 Timing of Retail Client Consent - Consent to the disclosure of confidential retail clientinformation is to be obtained by the registrant when the information is collected (i.e. uponaccount opening). However, in certain circumstances, consent with respect to the disclosureof the information should be sought after the collection of the information if the registrantwants to provide the information to a third party not previously identified or if the use by thethird party was not initially disclosed.

 

PART 5 PRODUCTS AND SERVICES

5.1 Opening an Account - The Canadian securities regulatory authorities note that the "productsor services" referred to in section 3.2, section 4.1 and section 5.1 of the National Instrumentinclude the opening of an account.

PART 6 RELATIONSHIP PRICING

6.1 Relationship Pricing - The Canadian securities regulatory authorities are aware that industryparticipants offer financial incentives or advantages to certain clients, a practice that iscommonly referred to as relationship pricing. The tied selling provision in Part 5 of theNational Instrument is intended to prevent certain abusive sales practices and is not intendedto prohibit relationship pricing or other beneficial selling arrangements similar to relationshippricing. By way of example, staff of the Canadian securities regulatory authorities are of theview that Part 5 of the National Instrument would not be contravened in a case where afinancial institution offered to make a loan to a client on more favourable terms or conditionsthan the financial institution would otherwise offer to the client as a result of the client'sagreement to acquire securities of mutual funds that are sponsored by the financialinstitution. Staff are of the view that Part 5 of the National Instrument would be contravened,however, if the financial institution refused to make the loan unless the client acquiredsecurities of mutual funds that are sponsored by the financial institution, where the clientotherwise met the financial institution's criteria for making loans.