Rule Consolidation Project Update

As a key integration initiative of its first Strategic Plan,1  the Canadian Investment Regulatory Organization (CIRO) is currently in the process of consolidating the CIRO Investment Dealer and Partially Consolidated (IDPC) Rules and the CIRO Mutual Fund Dealer (MFD) Rules into one set of rules, the CIRO Dealer and Consolidated (DC) Rules, applicable to both investment dealers and mutual fund dealers.

Strategic Plan

A primary focus of CIRO’s initial Strategic Plan is to deliver on its commitment to integration. In this regard, the CIRO Rule Consolidation Project represents a hallmark initiative of CIRO’s comprehensive integration program.

Primary objectives

CIRO is conducting the Rule Consolidation Project according to the following guiding objectives:

• Rule Harmonization: minimize regulatory arbitrage between investment dealers and mutual fund dealers.
• Rule Consistency: like dealer activities should be regulated in a like manner.
• Rule Scalability: apply principles-based rule requirements to facilitate rules that are scalable and proportionate to the different types and sizes of dealers and their respective business models.
• Rule Clarity: improve access to and clarity of the rules applicable to all CIRO Dealer Members.

Project Status and Timeline

The Rule Consolidation Project is being pursued in phases to minimize the amount of stakeholder disruption that will be caused during the development of the new consolidated rules. The status of the project and CIRO’s anticipated timeline are as follows:

Phase 1 – Establish new rule set structure including adoption of general standards of conduct

• Published for comment on October 20, 2023
• Comment period closed on December 19, 2023.
• 17 comment letters received.
• Phase 1 comment letters are available on CIRO’s website.

Phase 2 - Adopt rules that are unique to the IDPC or MFD Rules and have been assessed as not having a material impact on stakeholders

• Published for comment on January 11, 2024
• Comment period closed on March 11, 2024.
• 8 comment letters received.
• Phase 2 comment letters are available on CIRO’s website.

Phase 3 – Adopt rules that are common to the IDPC and MFD Rules and have been assessed as not having a material impact on stakeholders

• Published for comment on April 18, 2024
• Comment period closed on July 17, 2024.
• 13 comment letters received.
• Phase 3 comment letters are available on CIRO’s website.

Phase 4 – Adopt rules that are mostly unique to the IDPC or MFD Rules and have been assessed as having a material impact on stakeholders

• Anticipated publication for comment Fall 2024

Phase 5 – Adopt rules that are common to the IDPC and MFD Rules and have been assessed as having a material impact on stakeholders

• Anticipated publication for comment Winter 2024-25

Publication of the complete DC Rules for comment

• Anticipated publication for comment Winter 2025-26
• Please see below for further details

Comment period participation

CIRO appreciates all stakeholder comments and feedback received regarding Phases 1-3. Given the importance of the Rule Consolidation Project to the entire CIRO membership, and to all relevant stakeholders, we encourage and invite greater participation in future comment periods so that all viewpoints are heard. Please contact CIRO for any questions in this regard and we are available to help facilitate stakeholder comment period participation.

Update regarding decisions made to date

Taking into consideration stakeholder comments received regarding Phases 1-3, the following decisions have been made relating to the Rule Consolidations Project:

• Additional account types and services we are proposing to allow mutual fund dealers to offer
  • Whether to propose expansion of the account types that can be offered by mutual fund dealers: After discussing stakeholder comments with the Canadian Securities Administrators (CSA), it has been determined that CIRO will not proceed to propose to allow mutual fund dealers the ability to offer discretionary accounts, managed accounts or order execution only accounts as part of the Rule Consolidation Project. Any such proposals would be developed in consultation with the CSA as part of a separate policy project with a separate timeline.
  • Whether to propose expansion of the account services that can be offered by mutual fund dealers: After discussing stakeholder comments with the CSA, it has been decided that CIRO will proceed to propose to allow mutual fund dealers the ability to:
    • offer margin accounts to clients, and
    • use client free credit cash balances within their operations if they pay clients interest in return for using these balances.
  • As is the case with all the proposed Rule Consolidation Project amendments, these proposed expansions to the account services that can be offered by mutual fund dealers are subject to CSA review and approval. Further, should we receive a significant number of material comments on these proposed expansions that suggest that pursuing them will be highly controversial, we may decide to pursue them as separate proposals to not delay the completion of the Rule Consolidation Project.
• Extended comment periods: Stakeholders will have extended comment periods of 90 days for Phases 4 and 5 of the Rule Consolidation Project.
• Publication of the complete DC Rules for comment: Following the respective publications and comment periods for each of Phases 1 through 5 of the Rule Consolidation Project, the proposed DC Rules will be published as a comprehensive whole so that stakeholders will have another opportunity to review and provide their comments accordingly.
• Implementation: The DC Rules will not be implemented in a phased manner. Rather, the entire set of DC Rules will be implemented as a whole with an appropriate transition period. 
• Business conduct provisions: Consolidation of the IDPC and MFD Rules regarding business conduct matters (IDPC Rules 3100-3600, 3900) will be moved from Phase 5 to Phase 4 of the Rule Consolidation Project. Stakeholders will have an earlier opportunity to consider the consolidation amendments regarding these important business conduct provisions.

Appendix 1

CIRO Dealer and Consolidated (DC) Rule organization and numbering structure

Appendix 2

Topical chart of rule types to be included within each DC Rule phase

Phase 1 – Establish new rule set structure including adoption of general standards of conduct

The first consolidated rule development phase focused on the establishment of rules relating to:

• the interpretation and application of the new rule set, which includes rule interpretation provisions, definitions to be applied throughout the rules and the provisions under which rule exemptions can be granted
• general standards of conduct applicable to all activities of the dealer and their employees and Approved Persons

Phase 2 - Adopt rules that are unique to the IDPC or MFD Rules and have been assessed as not having a material impact on stakeholders

Rules published in this phase include rules relating to:

• margin requirements
• debt markets and Inter-Dealer Bond Brokers (IDBBs)
• trading (including trading on markets that are not subject to UMIR)

Phase 3 – Adopt rules that are common to the IDPC and MFD Rules and have been assessed as not having a material impact on stakeholders

Rules published in this phase include rules relating to:

• membership and member business activity approval matters
• examination, investigation and enforcement procedures
• clearing and settlement of trades and trade delivery standards

Phase 4 – Adopt rules that are mostly unique to the IDPC or MFD Rules and have been assessed as having a material impact on stakeholders

Rules to be published in this phase include rules relating to:

• approval and proficiency for individuals, where the adoption of a more expansive Approved Person regime may materially impact mutual fund dealers and their Approved Persons
• managing significant areas of risk, where the mandatory adoption of principles-based supervision framework may impact smaller dealers who have a small number of executives and may have segregation of duties challenges
• Business conduct, where both consistency of rule wording and rule application needs to be agreed upon

Phase 5 – Adopt rules that are common to the IDPC and MFD Rules and have been assessed as having a material impact on stakeholders

Rules to be published in this phase include rules relating to:

• financial solvency, where whether to maintain one capital formula or two must be assessed and determined
• books and records and client periodic and transaction reporting, where there are differences in the reporting requirements applicable to accounts with nominee name versus client name holdings
• client asset use, where there are significant differences in a dealer’s ability to use client assets within their operations
• outsourcing and service arrangements, where there are significant differences in permissible principal/agent arrangements, introducing broker/carrying broker arrangements, service arrangements and external custody arrangements
• continuing education, where both previous SROs had a different regime and regime changes are expected to directly impact a considerable number of registered individuals
• reporting and handling of complaints, internal investigations and other reportable matters, where both previous SROs had a different regime and regime changes are expected to directly impact a considerable number of registered individuals

• 1As part of its primary responsibility to deliver efficient and effective regulation, CIRO recently published its first three-year Strategic Plan which is available at the following link: CIRO Releases Three-Year Strategic Plan