Why IIROC matters to investors

In regulating all investment and trading activities across the country, the Investment Industry Regulatory Organization of Canada (IIROC) aims to protect investors while promoting fair and efficient capital markets. In its official brochure, IIROC enumerates the steps it takes to be able to achieve these goals.

Approves and trains advisors
IIROC checks advisors’ backgrounds and makes sure they are properly trained.

Before advisors can work at IIROC-regulated firms, they must pass financial, professional and personal background checks. Only those with the necessary training and education receive IIROC’s approval.

IIROC-approved advisors must complete courses before and after they are on the job. Courses included are provided by the Canadian Securities Institute subject to IIROC’s content approval, such as the Canadian Securities Course, the Conduct and Practices Handbook Course, and the Wealth Management Essentials Course. Advisors dealing with options, futures or managed accounts require additional courses.

IIROC-approved advisors must also complete continuing education programs covering compliance and professional knowledge and skills. These requirements help them stay up to date on financial products, rules and regulations, and industry trends.

To check an advisor’s approval information, investors can use IIROC’s AdvisorReport, which tells about an advisor’s training, whether an advisor works for an IIROC-regulated firm and has a regulatory disciplinary record.

Enforces client asset protection measures
IIROC-regulated firms must comply with rules that minimize the possibility of financial failure and protect client assets if they become insolvent.

• IIROC sets minimum capital requirements for firms to have enough capital for the type and scope of their business activities. It aims to reduce the possibility of firms failing by preventing excessive leverage and risky business practices.

• IIROC monitors firms’ financial condition, conducts surprise on-site audits, and requires comprehensive financial reporting. It reviews each firm’s books to verify if they are current, accurate and compliant with its regulations. It also requires firms to have their financial statements audited annually by independent IIROC-approved accounting firms.

• IIROC requires firms to keep their clients’ securities segregated from their assets. Firms must hold segregated assets in a trust to minimize the risk of client assets being lost if they suffer from failure or insolvency.

Accounts held at IIROC-regulated firms have additional protection through the Canadian Investor Protection Fund (CIPF), which was created so that client assets (including cash, securities and other properties such as segregated insurance funds) within defined limits are protected. All IIROC-regulated firms are members of the CIPF, so coverage is automatic when a client opens an account with them.

If a client’s assets are missing due to an investment dealer’s insolvency, CIPF covers the shortfall of up to $1 million per account. Many investors have a general account and a retirement account. In such cases, each account is eligible for $1 million in coverage. If an investor has several general accounts (such as cash, margin and US dollar accounts), they are combined into one general account for coverage purposes. Likewise, retirement accounts such as RRSP, RIF, LIF and LIRA accounts are combined into one retirement account for coverage purposes.

Ensures client needs are addressed
IIROC requires firms to have procedures in place for supervising client accounts and advice and transactions that reflect clients’ needs and instructions. It also monitors firms’ trading activities to address trading compliance and client needs.

To be able to achieve these outcomes, IIROC uses the following tools:

• Suitability and Know Your Client – Advisors must be familiar with a client’s financial situation, investment knowledge and objectives, and risk tolerance.

• Product Knowledge – Advisors must understand the products they sell. They must be aware of the risk/return of all securities before proceeding with a transaction and know the relevant information about the client.

• Supervision – Firms must have systems to supervise the activities of their advisors and clients.

• Marketing Materials – Firms must monitor and approve product marketing materials.

Deals with misconduct
IIROC investigates possible misconduct by firms or advisors and can bring disciplinary proceedings, which may result in penalties such as fines, suspensions, permanent bars for individuals or termination of membership for regulated firms.

For clients making a complaint directly to a firm, the firm is required to comply with IIROC’s standards for handling client complaints.

Meanwhile, clients of IIROC-regulated firms who wish to seek compensation have access to an independent arbitration program made available by IIROC and the Ombudsman for Banking Services and Investments. Quebec residents can also access a voluntary mediation service through the Autorité des marches financiers. These options may not be available if investors deal with a firm that is not IIROC-regulated.

Disseminates relevant information
As part of its commitment to share its knowledge and resources with stakeholders, IIROC provides information on its website about whether a firm is regulated, industry terminologies and recent regulatory developments (such as new policies and rule proposals), as well as links to other regulators, organizations, governments and investor education sites.