3.4 New Registrant Training and Supervision, Approved Person Reporting, and Proficiency Currency
Key Takeaways
New salespersons must complete the dealer's training program within 90 days and are supervised concurrently for six months: in the first 90 days every new account is pre-approved, every trade is reviewed within one business day, and recommended leverage is reviewed before execution.
In the second 90 days, accounts are approved before or within one business day, the branch manager reviews each day the greater of 5 or 10% of trades and each month the greater of 5 or 10% of client files, and recommended leverage is still pre-reviewed.
Approved Persons must report written complaints, serious-misconduct allegations, criminal charges, relevant civil claims, licence denials, bankruptcy and garnishments to their dealer within 2 business days (MFD Rule 600).
An exam counts toward registration only if passed within 36 months before applying, unless the person was registered in the same category or gained 12 months of relevant experience in that period (NI 31-103 s.3.3).
Representatives selling alternative mutual funds, and their supervisors, need Rule 1000 proficiency (a bridge course, Derivatives Fundamentals, the CSC, or portfolio manager courses).
3.4 New Registrant Training and Supervision, Approved Person Reporting, and Proficiency Currency
Quick Answer: Registration is only the start. A new mutual fund salesperson must complete the dealer's training program within 90 days and spend six months under concurrent supervision that becomes less intensive after the first 90 days. Every Approved Person must report specified events to the dealer within two business days so the dealer can report them to CIRO. Proficiency exams expire for registration purposes after 36 months unless an exception applies, and selling alternative mutual funds requires extra proficiency for both the representative and the supervisor.
The Six-Month Supervision Program for New Salespersons
MFD Rule 1.2.4 requires every Member to develop and document a training and supervision program for newly registered salespersons, and Rule 100 sets the minimums. Concurrent supervision lasts six months from the date of initial registration, in two 90-day segments:
| Requirement | First 90 Days | Next 90 Days |
|---|---|---|
| New account approval | Branch manager pre-approves every new account before any trade is processed | Approval before or within one business day after the first trade |
| Trade review | All trades reviewed and signed off no later than one business day after the trade date | Each day, review the greater of 5 trades or 10% of the salesperson's trades (all of them if fewer than 5), giving particular attention to high-risk trades |
| Client file review | (Covered by the full trade and account review) | Each month, review the greater of 5 client files or 10% of the files the salesperson handled that month (all of them if fewer than 5) |
| Leverage | Every leveraged trade the salesperson recommended reviewed before execution | Same: pre-execution review of recommended leverage |
When reviewing files, the branch manager checks that the New Account Application Form is on file with complete KYC information, and looks for unusual items such as signed blank forms. All supervision of new salespersons must be documented and kept at the branch. At the end of the program the supervisor completes the Rule 100 report certifying that the salesperson was supervised. If the salesperson is not meeting expectations, the dealer must extend the training and supervision period.
These requirements are in addition to the ordinary Rule 200 account supervision that applies to all salespersons.
Approved Person Event Reporting (MFD Rule 600, Part A)
Under MFD Rule 1.4(b) and Rule 600, an Approved Person must report the following to their Member within 2 business days:
- being the subject of a written client complaint;
- awareness of a complaint, written or not, about themselves or another Approved Person, alleging theft, fraud, misappropriation, forgery, money laundering, market manipulation, insider trading, misrepresentation or unauthorized trading; a breach of client confidentiality; securities business outside the Member; an undeclared outside activity; or personal financial dealings with a client;
- having contravened, or possibly contravened, securities legislation or regulatory requirements, or being named in a proceeding alleging this;
- being charged with, convicted of, or pleading guilty or no contest to any criminal offence;
- being named as a defendant in a civil claim about client accounts or trading or advising in securities;
- being denied a registration or licence, or having one cancelled, suspended, terminated or made subject to conditions;
- bankruptcy, insolvency, or an arrangement with creditors; and
- outstanding garnishments.
The Member designates a head office compliance officer to receive these reports, then reports to CIRO through METS (generally within 5 business days, or 20 business days for written complaints). The Approved Person also has separate NRD obligations: most changes on Form 33-109F5 within 15 days, and address, citizenship, outside activity and employment changes within 30 days (see section 3.1). A branch manager who learns of such an event must make sure the reports are made, not assume the representative made them.
Proficiency Currency and Added Proficiency
The 36-Month Rule
Under NI 31-103 s.3.3, an individual is deemed not to have passed a required exam unless they passed it within 36 months before applying for registration. The rule does not apply if, during those 36 months, the individual was registered in the same category somewhere in Canada (periods of suspension excluded) or gained 12 months of relevant securities industry experience. The MFD Rules apply a similar currency rule to the branch manager exams. CIRO may accept an older pass if it is satisfied the person's knowledge remains current.
Alternative Mutual Funds (MFD Rule 1000)
An Approved Person who trades or advises in alternative mutual funds, whether prospectus-qualified "liquid alts" or prospectus-exempt hedge funds, and the individual designated to supervise those trades, must have passed one of the following:
- a bridge course: the IFSE Investing in Alternative Mutual Funds and Hedge Funds course or the CSI Alternative Strategies: Hedge Funds & Liquid Alts for Mutual Fund Representatives course;
- the CSI Derivatives Fundamentals Course;
- the Canadian Securities Course; or
- the courses required for registration as a portfolio manager advising representative.
The BCO's registration controls should block alternative fund orders from anyone who does not meet the rule, and the BCO must make sure that whoever reviews those trades is qualified too.
Titles and Designations
Under MFD Rule 1.2.5, an Approved Person who deals with clients may not use any title, designation, award or recognition that is misleading, or that is based partly or entirely on sales activity or revenue. They may not use a corporate officer title unless actually appointed to that office, nor any title the Member has not approved. Business cards, email signatures, websites and social media profiles are all checked against this rule.
Monitoring Representatives After the First Six Months
Supervision does not end when concurrent supervision does. The branch keeps monitoring every representative through:
- the daily Rule 200 trade review and new account approvals;
- trend reviews of switching, early redemptions and commission or AUA changes;
- complaint and METS history, including repeated complaints about the same issue;
- outside activity attestations and NRD accuracy;
- CE progress for the current cycle; and
- closer supervision of anyone with a history of questionable conduct, as Rule 200 requires.
Increasing an Approved Person's supervision for disciplinary reasons is itself reportable to CIRO through METS (Rule 600).
During the first 90 days of a newly registered salesperson's concurrent supervision under CIRO Mutual Fund Dealer Rule 100, how must the branch manager handle new accounts and trades?
Approve new accounts within 30 days and review a 10% sample of the salesperson's trades at the end of each month
Review only the salesperson's trades over $10,000 and approve all of the new accounts together at month-end
Leave supervision of the new salesperson to head office until their first continuing education cycle begins
Pre-approve each new account before any trade, review every trade within one business day, and pre-review recommended leverage
A dealing representative is charged with a criminal offence on a Monday. Under CIRO Mutual Fund Dealer Rule 600, by when must the representative report this to the dealer?
At the next annual compliance interview
Within 2 business days of the charge
Within 15 days, on Form 33-109F5 only
Within 30 days of the charge being laid
Under CIRO Mutual Fund Dealer Rule 1000, who must have completed additional proficiency (such as an approved alternative mutual fund bridge course) before alternative mutual funds are sold at a branch?
Only the dealer's chief compliance officer at head office, who signs off on each alternative fund order
Both the Approved Person trading or advising in alternative funds and the person designated to supervise those trades
Only the client, who must first pass an investor knowledge test on alternative strategies and hedge fund risks
No one, because liquid alternative funds are sold under a prospectus and need no added proficiency
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