Book cost means the total amount paid to purchase a security, including any transaction charges related to the purchase, adjusted for reinvested. Compliance solutions archiving the financial services world iiroc rule 29. The history and background of crm2 highview financial group. Another concern for year two is the inception date for cost reporting. Implementation of requirements under crm2 phase 2 amendments. Crm2 and the rise of feebased advising in canada bmo. We are responding to iiroc s notice relationship model. Pmac compliance officers network meeting the next three years of crm2 rebecca a. Position cost must provide either book cost or original cost of securities must include a definition. Definition of book cost effective december 31, 2015, iiroc implemented requirements to provide retail customers with cost information on a quarterly basis for all account positions held at quarter end. On july 15 th, 2016 the canadian financial advisory community will undergo a drastic change a change that will shape its revenue model forever. Iiac letter to iiroc re crm2 book cost requirements november 17, 2014 page 5 other 5. Client relationship model phase 2 is now in full effect.
Cost disclosure, performance reporting and client statements. Iiroc investigates and initiates disciplinary proceedings to determine whether there has been a breach of iiroc rules, securities legislation, or other requirements relating to trading or advising in respect of securities, commodities contracts or derivatives. Participants included senior management of iiroc and mfda dealer firms, backoffice vendors, industry associations, investment product manufacturers and members of the business media. Key to that disclosure was the use of the book cost calculation methodology, with a definition of book cost being set out in. The investment industry regulatory organization of canada published for a 120day comment period its proposed plain language rule book for iiroc dealer members on march 10, 2016. Planning for crm2 be prepared for changes to processes, systems and business model, if applicable. As for a ruling on the actual extension, amsden believes it will hear shortly thereafter, perhaps by the end of january. In that situation, says the investment industry regulatory organization of canada iiroc, its acceptable for firms to report to. Because book cost information was unavailable, the position cost for. This report deals with current issues and challenges that dealer members dealers should address to improve. Cost and performance reporting kate lioubar holzschuh, senior legal counsel ray harding, senior compliance examiner edwin leong, senior compliance examiner registrant outreach workshop october 31, 20.
Whereas certain ni 31103 provisions related to the implementation of client relationship model phase 2 will come into effect on july 15, 2015 and july 15, 2016 the 20152016 crm2. For accounts consisting of funds with embedded commissions, the average dealer compensation is between 50 to 100 basis. The selfregulatory organizations, namely iiroc in this instance, are adopting rule requirements that are. Iiroc crm rules were released in february 2008 and after several revisions and republications were approved in 2012 in june 2011, the csa published new proposals on cost disclosure and performance reporting that conflicted with conclusions reached by the mfda and iiroc in june 2012, the csa released a second proposal for. To date, most firms have relied on asc blanket order 31531 and. He also indicates that fair is pleased that the csa sided with investor advocates in leaving its definition of book cost unchanged under crm2. Crm2 refers to new rules around the reports and disclosures made by canadian investment dealers and advisors. Crm2 clarified this fact sheet has been prepared to provide you with accurate background information about crm2. In this episode, we dive into an initiative that has shaken up the investment advisory industry in canada crm2. Iiroc republication of request for comments re client relationship model phase 2, performance reporting and feecharge disclosure amendments to dealer member rule 200 and to form 1 fair canada is pleased to offer comments on the investment industry regulatory organization of canadas iiroc request for comments regarding iirocs. The plain language rule book is intended to be a clearer, more streamlined version of.
This service has been implemented in two phases click fixed income trade reporting for the. Key to that disclosure was the use of the book cost calculation. Iiroc and mfda to make amendments to their rules and guidance to materially conform to crm2. Although the canadian securities administrators csa has finalized its rules for all three phases, this is not the case for the investment industry regulatory organization of canada iiroc and the mutual fund dealers association of canada mfda. The taxadjusted basis is calculated by taking the original cost or other basis of the asset in question and adjusting it for various taxrelated allowances such as depreciation. As noted in the notice accompanying the proposed iiroc crm2 amendments, one material change was made at the request of csa staff. Iiacs sixmonth extension request on crm2 comes into.
Iiroc panel rejects firms claim of slipup, concludes crm2 breach was a. Iiroc staff argued the noncompliance was a willful business decision the investment industry regulatory organization of canada iiroc has fined td waterhouse canada inc. If, on an unsolicited basis, a client is referred to an iiroc firm to purchase or sell a security in which the mfda member is not licensed to trade, can the member rely on the. Most of the dealers ive heard from are saying book cost, and a lot of that is driven by the information they have available in their systems. January 19, 2015 iiroc announces implementation of remaining client relationship model crm2 reforms iiroc news release. Provide book cost or original cost of each security, including a. Original cost or book cost for each position terms defined. Csa continues to finesse registrant regulation proposed.
Iiroc dealer member plain language rule book published for. Iiroc enforcement staff staff and the respondent, w. These trades are aggregated and deidentified by iiroc, and the resulting daily data published two business days later. On july 7, 2016, the canadian securities administrators csa published proposed amendments to national instrument 31103 registration requirements, exemptions and ongoing registrant obligations and national instrument 33109 registration information and also to their respective companion policies. For instance, some firms have had clients for more than 30 years and dont have original cost in their systems, but the book cost they have on record isnt strictly consistent with iirocs definition. Fair canada supports the proposed cost disclosure and performance requirements contained in the crm2 proposals and the commitment that regulators have made to the provision of this crucial financial information to financial consumers. Crm2 reporting to clients ontario securities commission. Must provide either book cost or original cost of securities must include.
Securities regulators say, in certain cases where dealers dont have good data for book cost, they can use market value as a substitute. Pmac compliance officers network meeting the next three. This transformation will be a result of the implementation of the client relationship model phase ii, crm2, put into force by all provincial and federal regulators in canada. In some cases, neither original cost nor book cost may be available for a holding that you transferred from another account. The second phase of the client relationship model crm2 takes effect in three stages, on july 2014, july 2015 and july 2016. Crm2 and its impact on the canadian retail investment. Client relationship model phase performance reporting and fee charge disclosure amendments to dealer member rule 200 and to dealer member form 1 iiroc rules notice, approvalimplementation. An average can be used to determine the cost of the position the average may include both bookoriginal cost information used for some of the transactions and market value used for others disclosure is required can also report positions valued at book cost or original cost separately. The key takeaway from this exercise is that the industry does not fully understand how its client the canadian investing public will react to crm2. Market value has been used because the book cost information was not available as at the transfer in dates. Iiroc and mfda to make amendments to their rules and.
The new rules are part of the second round of reforms to the clientrelationship model. On january 19, 2015, iiroc announced that the csa had approved iiroc 2015 and 2016 crm2 rules. They need to decide whether to use book cost or original cost, notes donegan. Crm2 could create tax nightmare advisors edge advisor. Where the account is not an orderexecutiononly services account, the dealer member must ensure that the account portfolio is suitable for the client. We are pleased to present iirocs annual compliance priorities report for 20172018. Iiroc staff recognizes that this revision to its proposals will likely have a significant impact on the costs that must be borne by its dealers, in that they will be required to. Crm2 reporting to clients portfolio manager iiroc dealer. The client relationship model phase 2 crm2 amendments to ni 31103 that came into effect on july 15, 20 were phasedin over a. Rules notice exemption dealer member rules operations. What is the difference between the taxadjusted basis vs.
Book cost information for this position has been estimated by using an average of market value of positions transferred in, as at the transfer dates, and actual book cost for any additional purchases. Crm2 reporting was instrumental in bringing the internal control issue to light. Crm2 what youll see on your investment statement in 2017. Iiroc member provides this information based on proposed amendments. Crm2 proposals which was included in iiroc rules notice 14. Crm2 wont solve taxreporting headaches morningstar. A clarification in the companion policy that position cost is not tax information and that a registered firm may not depart from the defined meaning of original cost or book cost in order to align position cost with tax cost for a security position. Cost and performance reporting requirements alberta. Scope of crm2 obligations crm2 introduced new cost and performance reporting requirements, in addition to other requirements. The client relationship model phase 2 crm2 amendments to ni 31103 that came into effect on july 15, 20 were phasedin over a threeyear period. An iiroc panel found the firm deliberately decided not to comply with position cost reporting requirements. Position cost can be original cost or book cost as defined in securities regulations. Limited the respondent consent and agree to the settlement of this.
For several years, the canadian securities industry and the bodies that regulate it have been collaborating closely together to improve and standardize the way certain information is communicated to clients. First, regulators, media and people in the industry are using the term cost to mean fees or compensation, as well as something that is an adjusted cost the same as or similar to tax cost for canada revenue agency purposes. Cost and performance reporting kate lioubar holzschuh, senior legal counsel ray harding, senior compliance examiner edwin leong, senior compliance examiner registrant outreach workshop october 31, 20 disclaimer the views expressed during this presentation are staffs and do not. The proposed amendments have been published for comment with a comment deadline of. As part of a phasing in of steps by the canadian securities administrators to ensure performance reporting and full disclosure of annual costs to individual investors, you will see some changes to your 2016 4 th quarter statement from our dealers, ipc.
Book cost or original cost of each security market value of. An iiroc hearing panel handed down a record fine after finding that the firm made a. Account statements will be required for all investments client name and nomineeheld positions except in the case of iiroc members who have received exemptive relief for client name positions. Exemptions from certain crm2 provisions of national instrument 31103 registration. Home news from the regulators csa, iiroc spar over crm2. Canadian securities administrators csa approves iiroc 2015 and 2016 crm2 rules book cost outstanding. These changes will help improve and create transparency with respect to costs and performance among your investments.
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