Canada: IIROC Offers Limited Discretionary Exemption Relief From IIROC Rules To Address COVID-19 Situation

The IIROC Board of Directors approved the offering of time-limited exemptive relief in a number of areas to Dealer Members who are experiencing difficulties in complying with certain IIROC Dealer Member Rules (DMRs) as a result of the COVID-19 pandemic.

IIROC has elected to follow a case by case application-based approach where the applicant will have to make a showing that the relief is driven by the COVID-19 situation and that the spirit of the rule from which exemption is sought is being respected. This process will be slower and more uncertain in its outcome than relying on recent CSA relief and may be complicated by the need to coordinate with CSA jurisdictions. Terms and conditions can be imposed in the granting of the IIROC relief and, once granted in one application will apply to others which may further complicate the process.

Dealer Members wishing to receive exemptive relief in one or more of the areas summarized below must submit a written exemption application detailing:

• the relief their firm wishes to receive
• why the relief is necessary with respect to the effects of COVID-19
• the alternative approach the firm would like to use to meet the spirit of the rule.

Coordination with the Canadian Securities Administrators (CSA) will be required for certain types of relief where equivalent CSA requirements exist. As discussed in our recent blog, the CSA also published temporary blanket relief for market participants granting a 45-day extension for certain periodic regulatory filings as a result of COVID-19.

Available Exemptions

IIROC is prepared to grant exemptive relief in the following areas:

• Client signatures - relief would allow a firm to use an alternative to obtaining a client signature where a client does not want to be physically present to provide a wet signature for safety reasons and does not have the capability to provide an electronic signature. For example, a record of the client's instructions/authorization may be kept in lieu of a signature.
• Reporting deadlines – relief from filing:
  • Approved Person information update filings within 10 days. Extensions would require coordination with relevant CSA jurisdictions (DMRs 40.5 and 3100)
  • notice of termination filings within the normal filing period. Extensions would require coordination with relevant CSA jurisdictions (DMR 40.7)
• Form 1 audit procedures – relief from the requirement that individual Panel Auditors must be present at the physical security counts at the Dealer Members premises, provided that sufficient alternate audit procedures are performed to support an unqualified audit opinion (DMR 300.2 (a) (ii))
• Pre-approval of advertising and sales literature and trading pre-clearance – where a firm's ability to perform these reviews is affected, relief may be available to allow alternative approaches to performing:
  • pre-trade approvals for individuals requiring trade pre-clearance (including research and corporate finance staff and individuals under strict supervision)
  • pre-approvals of advertising and sales literature (DMR 29.7 through 29.7(5))
• Supervision requirements related to trading desk reviews and branch office reviews – relief may be available to allow additional time to complete:
  • daily and monthly trade reviews (DMR 2500, Part IV)
  • branch office reviews (DMR 2500)
• Suspension of late filing fees
• Registration and proficiency - relief from:
  • the completion of or the timing of completion of Approved Person pre- and post-approval proficiency requirements (various DMR 2900 provisions)
  • requirements prohibiting use of the same staff to respond to both order execution only and advisory account inquires within the same dealer or affiliated dealers (DMR 3200, Part A, Item A.1.(c))
• Identity verification threshold conformance to federal anti-money laundering legislation (AML) requirements - relief from:
  • the requirement to ascertain the identity of any individual who directly or indirectly controls or has direction over more that 10% of a corporation or similar entity (DMR subsection 1300.1(b)), provided that such verification continues to be done for those individuals whose control or direction exceeds the threshold set out in federal AML requirements.
• Margin-related matters:
  • relief allowing additional time to provide for swap contract market value deficiencies in order to conform to the standard capital treatment for other credit risk exposures (DMR 100.2(k))
  • relief from the requirement to obtain margin from a client where the firm has adequate capital to provide for this margin and it is a clear client hardship situation (DMR 17.11)

Process for requesting exemptive relief

To expedite the exemption review process, the IIROC Board approved the delegation for an initial period of three months of limited discretion to certain IIROC senior staff (Decision Makers) to assess and decide upon each firm exemption application. Each application received will be assigned to an individual Decision Maker who will work with the applicant firm to analyze the exemption request and then issue an exemption decision. Decision Makers will apply the following guidelines when exercising this limited discretion:

• each exemption request item must directly/primarily relate to an issue the Member has as a result of preparing or responding to the effects of COVID-19 on its operations, such as having staff at different locations, work-from-home arrangements, or reduced staff due to illness.
• the exemption must not be prejudicial to the interests of the Dealer Member, their clients, or the public
• the Decision Maker may impose such terms and conditions on the exemption as the Decision Maker considers reasonable in the circumstances.

Any relief granted by a Decision Maker:

• will be for an initial period of up to six months
• may be renewed for a one-time additional period of up to three months
• will expire at the end of the initial term or, if applicable, the end of the additional term
• will be subject to the same term length and same conditions as for all other Dealer Members requesting the same exemption for the same matter.

You are urged to consult with legal counsel should you have any questions as to the scope of the IIROC exemptions offered or their implications to your business.

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