Firms registered with the ASC are subject to ongoing requirements of registration under the Alberta Securities Act. For more information, refer to National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
A firm registered as an investment fund dealer or a mutual fund dealer must also be registered with the Canadian Investment Regulatory Organization (CIRO). Firms registered with CIRO may be exempt from certain ongoing requirements in NI 31-103 since CIRO has its own requirements. However, outside of specified exemptions, firms are required to meet all ongoing requirements for all categories in which they are registered.
A compliance system is a series of controls and oversight that allow a registered firm to manage the risks associated with its business and meet its compliance obligations under securities legislation. A registered firm must establish, maintain, and apply adequate controls and supervision to maintain an effective compliance system.
Compliance requirements
Under Alberta securities law and NI 31-103, several key compliance obligations of registered firms include, but are not limited to:
- Designating an ultimate designated person (UDP).
- Designating a chief compliance officer (CCO), or, if the level of business warrants it, a part-time CCO. Refer to CSA Staff Notice 31-358 Guidance on Registration Requirements for Chief Compliance Officers and Request for Comments for more information.
- Maintaining accurate books and records that demonstrate the extent of the firm’s compliance with applicable requirements.
- Ensuring the firm and registered individuals who represent it deal with clients fairly, honestly, and in good faith.
- Taking reasonable steps to ensure that any security purchase or sale for a client is suitable and puts the client’s interest first. This requires the firm or individual to “know your client” and “know your product” so that an informed suitability decision can be made.
- Establishing and maintaining appropriate custodial practices to safeguard client assets.
- Only distributing marketing material that is true, clear and contains adequate disclosure to clients.
- Identifying and appropriately addressing conflicts of interest that arise during the course of business in the best interest of the client.
- Providing adequate disclosures to clients about the relationship between the firm and the client.
- Providing clients with transaction reporting, and for certain registration categories, with ongoing reporting on accounts, fees and charges, and performance.
- Maintaining policies and procedures to meet compliance obligations under Alberta securities law.
Please note that this list is not exhaustive. Refer to NI 31-103 for more information.
Firms registered with the ASC are subject to regular financial reporting, working capital, and insurance requirements.
Financial reporting
Firms registered with the ASC must submit the following financial reporting:
- Audited annual financial statements no later than the 90th day after the end of the firm’s financial year.
- A completed Form 31-103F1 as at the end of the firm’s financial year and as at the end of the immediately preceding financial year.
- For certain categories of registration, unaudited interim financial information and a completed Form 31-103F1 no later than the 30th day after the end of the first, second and third interim period of the firm’s financial year.
- If applicable, for investment fund managers, a completed Form 31-103F4 no later than the 90th day after the end of the firm’s financial year or no later than the 30th day after the end of the first, second and third interim period of the firm’s financial year.
- If applicable, new subordination agreement(s) or notifications of the repayment or termination of subordination agreement(s) for non-current related party debt.
Refer to Part 12 of NI 31-103 for the financial requirements for each category of registrant. Refer to National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) for the applicable financial reporting framework for the financial statements.
Financial reporting requirements with the ASC differ for firms also registered with a self-regulatory organization (SRO).
Excess working capital
Registered firms are required to maintain an excess working capital above zero, as calculated in Form 31-103F1. A firm’s excess working capital must not be less than zero for two consecutive days. If a firm’s working capital drops below zero, the firm must immediately notify the ASC, and regulatory action may be taken as a result.
Subject to some exceptions explained in part 12 of NI 31-103, the minimum working capital is the highest of the relevant categories that apply to the firm:
- $25,000 for a registered adviser who is not also a registered dealer or a registered investment fund manager.
- $50,000 for a registered dealer that is not also a registered investment fund manager.
- $100,000 for a registered investment fund manager.
Insurance and bonding
A registered firm must maintain insurance in accordance with Sections 12.3 – 12.7 and Appendix A of NI 31-103. A registered firm must also notify the ASC in writing as soon as possible of any change in, claim made under, or cancellation of their bonding or insurance policy.
The ASC conducts compliance reviews of registered firms to monitor and test compliance with Alberta securities law. The ASC uses a risk-based approach to select firms for review.
A full compliance review is an examination of a firm’s books, records, policies, and procedures to test for compliance with Alberta securities law.
A focused compliance review is a compliance examination that studies a specific issue or area of a firm’s business. Focused compliance reviews require a smaller sample of books and records than full compliance reviews. An example of a focused compliance review would be a review of a firm’s marketing materials.
Sweeps are initiatives by the ASC in which several firms are selected for review at once, all in the same focused area. An example of a sweep would be a series of focused reviews of several firms’ conflict of interest policies and procedures.
The compliance review process generally follows this structure:
- ASC staff will notify the firm that a review is commencing.
- ASC staff will request books and records from the firm, which will be used to test compliance in different areas of the firm’s business. The exact books and records requested may vary based on a firm’s business model and categories of registration.
- ASC staff will interview senior management and may interview other registered employees.
- ASC staff will test the firm’s compliance with securities law based on the books and records, interviews, and, in some cases, after contacting the firm’s clients.
- ASC staff will produce and issue a report on areas of non-compliance.
Firms are required to respond to the ASC with a plan outlining how significant deficiencies identified in the report will be rectified. In cases of misconduct or serious non-compliance with securities law by either the firm or one of its registered individuals, the ASC may take action including:
- Imposing regulatory action such as terms and conditions on registration.
- Conducting a follow-up review.
- Referring the matter to the ASC’s Enforcement branch.
- Suspending or revoking the firm or individual’s registration.