3.3.4 Disclosure

Understanding Disclosure in Canadian Securities

The general principle underlying Canadian securities legislation is the requirement for full, true, and plain disclosure of all pertinent facts by those offering securities for sale to the public. It is illegal to offer securities for public sale until such facts are disclosed to the satisfaction of the designated administrator. This process is usually carried out through a prospectus issued by the company and accepted for filing by the administrator concerned.

Methods to Safeguard Investors

Generally, the securities acts employ three methods to protect investors:

1. Registration of securities dealers and advisors
2. Disclosure of facts necessary to make reasoned investment decisions
3. Enforcement of the laws and policies

The industry also relies on the Self-Regulatory Organizations (SROs) to ensure that their members comply with legislation.

The laws are designed to protect against fraud as much as possible and to prevent investment service providers from applying deceitful, high-pressure sales tactics on uninformed investors. Nevertheless, no legislation can replace the fundamental rule that investors should inform themselves before purchasing an investment. Similarly, advisors should thoroughly investigate a product before recommending it.

Registration Requirements

For Investment Advisors (IAs) and Securities Dealers

Generally, every securities dealer and all of its Investment Advisors (IAs) must be registered with the applicable administrator. IAs are employees of the security dealer who are licensed to trade and give advice to their clients in Canada. Administrators have the power to grant registrations, as well as to suspend or cancel registration or discipline their registrants. For purposes of registration with IIROC, an IA falls under the category of Registered Representative.

IIROC Dealer Members

For IIROC dealer members, all employees who deal with the investing public must register with IIROC as well as with the administrator. Employees must meet IIROC’s requirements for approval, which include completing the Canadian Securities Course and an examination based on the Conduct and Practices Handbook Course, both offered by the Canadian Securities Institute (CSI).

To advise and sell securities to the public, new IAs must also complete a 90-day training program. After licensing, the registrant is subject to a six-month period of supervision by their supervisor. New registrants must also complete CSI’s Wealth Management Essentials Course (WME) within 30 months of becoming licensed as an IA. Participating in the industry’s continuing education program is also a condition for maintaining a license.

Investment Representatives (IRs)

Investment Representatives (IRs) are usually employed by self-directed brokerage firms where clients make their own investment decisions. Advisors in this category can trade in, but not provide advice to clients about securities. The proficiency requirements for IRs are similar to those for IAs, except that the training period is 30 days instead of 90 days, and the WME education component is not required.

Registered Firms and Employee Conduct

At fully registered firms, employees have significant latitude in their dealings with the public. However, at other firms like mutual fund dealers, employees are subject to limitations on their permitted activities. Investment Advisors should be aware of any such restrictions that may apply to their firms.

Key Takeaways

• Full, true, and plain disclosure is essential in Canadian securities legislation.
• Registration of securities dealers and advisors is crucial for protecting investors’ interests.
• IIROC plays a critical role in maintaining regulatory compliance among investment professionals.
• Ongoing education and professional development are mandatory for newly licensed Investment Advisors.
• Investment Representatives can trade securities but are not permitted to provide advisory services.

Frequently Asked Questions (FAQs)

1. What is the primary goal of disclosure in Canadian securities legislation?

The primary goal is to ensure that all pertinent facts are fully, truthfully, and clearly disclosed to the investing public before any securities are offered for sale.

2. What are the key methods used to protect investors under Canadian securities acts?

The three main methods are: Registration of securities dealers and advisors, disclosure of necessary facts, and enforcement of laws and policies.

3. What qualifications are needed for a new Investment Advisor?

New IAs must complete the Canadian Securities Course, the Conduct and Practices Handbook Course, a 90-day training program, and the Wealth Management Essentials Course within 30 months of licensing.

4. How do regulations for Investment Representatives differ from those for Investment Advisors?

Investment Representatives have a shorter training period (30 days instead of 90 days) and do not need to complete the Wealth Management Essentials Course.

Glossary

• Prospectus: A formal document that provides details about an investment offering to the public.
• IIROC: Investment Industry Regulatory Organization of Canada, the national self-regulatory organization that oversees all investment dealers.
• Registered Representative: The official title for Investment Advisors registered with IIROC.
• Wealth Management Essentials Course (WME): An advanced financial course that must be completed by IAs within 30 months of licensing.

Mermaids Examples

Registration Process Flowchart

    flowchart TD
	    A[Start] --> B[Complete Canadian Securities Course]
	    B --> C[Conduct and Practices Handbook Examination]
	    C --> D[90-Day Training Program]
	    D --> E[Licensing and Supervision]
	    E --> F[Complete Wealth Management Essentials Course]
	    F --> G[Continuing Education Program]
	    G --> H[Maintain License]
	    

Advisors Supervision Timeline

    gantt
	    title Supervision Timeline for New Investment Advisors
	    dateFormat  YYYY-MM-DD
	    %% Define sections and tasks below
	    section Training
	    Completion of Canadian Securities Course :done, cs, 2024-01-01, 2024-01-31
	    Conduct and Practices Handbook Exam     :done, cph, after cs, 10d
	    90-Day Training Program                 :active, tp, after cph, 90d
	    section Supervision
	    6-Month Supervisor Supervision          :active, ss, after tp, 180d
	    section Education
	    Wealth Management Essentials Course     :after ss, 2025-01-01, 30d