Chapt 1

Chapter 1: General Background

Overview of the Financial Services Industry and the Securities System

• Objectives

  • Summarize the CIRO categories of registration.

  • Discuss current issues and trends in the industry.

  • Identify the roles of key internal players in a culture of compliance.

Securities Regulation: Use of the Term Investment Advisor

• Approval for Use of "Investment Advisor" (IA)

  • Granted by the Canadian Securities Administrators (CSA) after consultations among self-regulatory organizations (SROs).

  • Support from the Canadian Investment Regulatory Organization (CIRO) and other councils.

• Reasons for Standardization

  • To avoid public confusion among various titles used in the industry.

  • "Investment advisor" reflects the essence of the representative's role in providing investment advice.

• Transition to the Canadian Investment Regulatory Organization

  • Amalgamation of the former Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association as of January 1, 2023.

• Registration Categories

  • Dealing Representative: Registered to trade securities.

  • Advising Representative: Registered to advise on securities purchase/sale.

  • CIRO permits additional titles for representatives as long as they aren't misleading.

CIRO Guidance Note 14-0073

• Business Titles and Financial Designations

  • Establishes responsibilities of firms regarding the use of titles and designations.

  • Aims to enhance transparency for clients, especially vulnerable populations (e.g., seniors).

  • Firms must adapt policies to include guidance on title and designation usage.

Industry Issues and Trends

• Ontario Securities Commission (OSC) Statement of Priorities 2024-2025

  • Protecting investors from unfair or fraudulent practices.

  • Fostering fair and efficient capital markets.

  • Contributing to financial system stability and reduction of systemic risk.

• Key Regulatory Priorities Include

  • Strategic plan development.

  • Environmental, social, and governance disclosures.

  • Diversity in corporate roles.

  • Client-focused reforms implementation.

  • Strengthening frameworks for short selling.

  • Enhancing financial education for retail investors.

  • Oversight and enforcement in the crypto asset sector.

Continuing Education Requirements

• Importance of CE in the Securities Industry

  • Mandatory for ongoing licensing of trading representatives (Investments Advisors, Investment Representatives).

  • Requires completion of specified professional development courses every two years.

• Compliance Requirements

  • Supervisors must also complete relevant CE.

  • Reporting completion of CE requirements is the responsibility of the dealer members.

  • Automatic suspension occurs if CE isn't completed in time.

• Regulatory Framework

  • Partial credits can transfer between dealers with appropriate verification.

Approval Categories and Proficiency Requirements

• Understanding Approval Categories

  • Important to distinguish between different representatives and their qualifications.

  • Reference to CIRO Rule 2600 for detailed proficiency requirements.

Economic Principles Impacting Capital Markets

• Understanding Wealth

  • Wealth includes current and future income, and physical assets.

  • Determined by the timing of measurement (present vs. future value).

• Calculating Wealth Examples

  • Example: Client with $100,000 and future income of $80,000 at 10% interest.

    • Future Value Calculation for next year: $190,000.

    • Present Value Calculation for today: $172,727.

Consumption Patterns of Wealth

• Spending Choices

  • Clients can choose to spend all at once, save for future investments, or some combination.

• Generational Trade-offs

  • Basic need for consumption influences the client’s decisions about spending and saving.

  • Rates of return affect the attractiveness of current consumption versus saving.

Understanding Economic Principles II

• Economic Indicators for Investors

  • Relationship between economic performance and equity market performance.

• Major Economic Factors

  • Inflation: Sustained price increases, influenced by supply and demand for money.

    • Effects of excessive money supply and demand-pull inflation.

    • Expectations and supply shocks also impact inflation.

  • Business Cycles: Expansion and contraction phases significantly affect investment.

    • Influenced by consumption stability, business investment variability, and foreign demand.

  • Interest Rates: Movement through the business cycle influences investment attractiveness.