Investor Alert:
CIRO is issuing a warning to Canadian investors regarding Canada Token Trade.
Effective Date: December 31, 2021
IIROC is issuing this Guidance Note to set out our expectations relating to the distribution of PPNs by IIROC registered individuals.
On August 30, 2012, the Canadian Securities Administrators, except the securities regulator in Quebec (CSA) issued CSA Multilateral Staff Notice 46-306, Third Update on Principal Protected Notes (CSA Notice). The CSA Notice confirms the view of the applicable CSA jurisdictions, namely that compliance with the “know your client” and suitability obligations (Obligations) is a critical aspect of investor protection and should apply to sales by registrants of principal protected notes 1 (PPNs).
The CSA Notice goes on to discuss their understanding that PPNs that are not Specified PPNs2 are generally distributed through registered dealers, which would include IIROC Dealer Members. The CSA Notice also sets out their expectation that banks or other federal or provincial deposit-taking institutions that distribute PPNs that are not Specified PPNs will do so only through registered dealers in order to ensure the application of the usual know your client and suitability obligations.
The effect of the CSA Notice is to:
The recognizing regulators have asked the SROs to take appropriate actions to clarify the applicability of these know your client and suitability obligations to all dealings in PPNs by SRO-registered representatives.
Section 2554 of the IIROC Rules permits Registered Representatives and Investment Representatives to engage in another gainful occupation, provided certain conditions set out within the rule are met. The dual employment of Registered Representatives and Investment Representatives at investment dealers and affiliated financial institutions is permitted. In general, IIROC and securities regulators in Canada have accepted this practice, provided that the dual employment arrangement:
As such, and consistent with section 2554 governing outside employment, it is IIROC’s view that all sales of PPNs, including Specified PPNs, by an IIROC registered individual must be transacted solely in their capacity as an employee or agent of the Dealer Member.
IIROC expects all IIROC Dealer Members to have policies and procedures in place to give effect to the foregoing and for there to be adequate supervision and compliance oversight of this activity to ensure that the Dealer Member’s know your client and suitability obligations to clients are complied with.
IIROC Rules this Guidance Note relates to:
This Guidance Note replaces Notice 12-0384 – Guidance Notice – Sale of principal protected notes by Approved Persons of IIROC Dealer Members.
This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.