The introduction of specific requirements for EMDs and PMs under NI 31-103 and, the Commissions’ ongoing guidance/ revisions have led many industry participants to question whether they are effectively operating on the same level as IIROC dealers.

The answer is a bit more complicated.

If one strips out all sales compliance requirements from the IIROC rule book, one will be surprised to find these are conceptually the same as for EMDs and PMs. IIROC does have a more rule-centered approach.  For example Dealer Member rule 2500 specifies that a member firm can maintain one account opening form for multiple accounts of the same client.  NI 31-103 does not comment on this.   However the basic sales compliance principals of suitability, appropriate sales practices, client disclosures, complaint handling and record keeping are the same.

What makes IIROC a bitter pill for smaller firms to swallow is regulatory capital, and associated fees/ costs.  For example an approved “panel auditor” must audit an IIROC firm’s statements.  Only 24 such firms have been approved in Canada.  The regulatory capital calculation form, the JFQ&R, is a healthy 27-page document and the capital requirements are substantially greater.  Regulatory capital requirements and costs for IIROC firms are higher because they can take on market risk.  For example IIROC Firms can let clients to trade on margin, can hold prop accounts or, underwrite securities on a principal basis.  IIROC firms can also act as participating organizations on public exchanges.  Firms who don’t require such activities as part of their business model are simply taking on unnecessary and substantially greater regulatory cost and burden.