Mutual Funds And Scholarship Plans
Regulation respecting the rules of ethics in the securities sector
| IMPORTANT: REVOKED ON SEPTEMBER 28, 2009 Pursuant to section 135 of An act to amend the Securities Act and other legislative provisions, sections 2 to 20 of the Regulation respecting the rules of ethics in the securities sector, approved by Order in Council 161-2001 dated February 28, 2001 (2001, G.O. 2, 1334), as they read on September 27, 2009, apply to mutual fund dealer representatives and scholarship plan dealer representatives registered in accordance with Title V of the Securities Act, until rules equivalent to those prescribed in the sections mentioned above are determined in their respect in a regulation made under section 331.1 of the Securities Act. |
Introduction
In addition to the numerous legislative and regulatory requirements that professionals who are members of the CSF must satisfy, every representative seeking to develop a solid career must, in particular, know his client well and ensure he gives his client all the information the client needs in order to understand the products and services being offered to him.
While expertise can be gained through appropriate training and work experience, trust can only be earned through a professional practice marked by integrity, transparency and loyalty that demonstrates that the representative has the client’s interests at heart. Moreover, given that trust is paramount in your client relationships, you must be able to show your clients that they can deal with you in full confidence. This is why there are rules governing your practice. These duties and obligations derive from the Securities Act and its regulations, more specifically, the Regulation respecting the rules of ethics in the securities sector.
In order to illustrate the application of the various provisions of the Regulation respecting the rules of ethics in the securities sector, certain case studies drawn from decisions rendered by the CSF’s Disciplinary Committee will be presented. These will provide you with a better understanding of your obligations
1. Revoked
2. A representative shall show loyalty towards his client whose interests shall be of the utmost priority when he makes a trade on his behalf.
Annotations
The “interests of the client” is a fundamental notion. A representative must always keep this in mind and never forget that all steps taken as a representative must be taken in the interests of the client. Several sections of the Regulation respecting the rules of ethics in the securities sector deal with this notion.
For more information on this subject, also see Info-déonto: Gestion des conflits d’intérêts .
3. A representative shall make a diligent and professional effort to get to know a client’s financial and personal situation as well as his investment goals. The information he obtains from the client shall describe this situation as well as any developments with respect thereto.
Annotations
In addition to requiring representatives to inquire about their clients’ financial and personal situation as well as their investment objectives, this section requires representatives to appropriately monitor and periodically review their clients’ needs. The know-your-client and suitability rules are not static requirements. They must be adjusted in light of changes in a client’s situation or objectives.
For more information on this subject, also see Info-déonto: Connaissance du client.
4. A representative’s recommendations shall be based on an in-depth analysis of information obtained from the client and information concerning the trade.
Annotations
For more information on this subject, also see Info-déonto: Connaissance du client et Connaissance du produit.
5. A representative shall caution a client who gives him an unsolicited order which does not appear to be in keeping with his situation.
Annotations
For example, a representative must warn his client if the client asks him to carry out transactions that are contrary to the client’s interests and he must place his client’s interests first and foremost when making trades on his behalf.
For more information on this subject, also see Info-déonto: Recommandations.
6. A client’s capital shall remain his exclusive property and a representative shall only use it for trades authorized by the client.4
Annotations
For example, misappropriation of funds is a breach of the rules of ethics.
Case study – CV38 (only available in French)
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7. A representative shall take reasonable steps to ensure the accuracy and sufficiency of information given to a client concerning his investments.
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Annotations
The duty to inform the client is one of the rules of ethics set out in the Regulation respecting the rules of ethics in the securities sector. Throughout his mandate, a representative must give his client all the information necessary for the client to understand the products and services the representative is offering him.
For more information on this subject, also see InfoDéonto: Recommandations.
8. Information about a client’s trades and account shall be confidential and a representative shall not disclose them without the client’s permission, unless a provision of law or an order from a court having jurisdiction exempts him from this requirement.
Annotations
The rules require that information you hold about a client remain confidential, unless certain legal provisions or a court order require you to disclose that information. You are also prohibited from using such information for your own benefit or for the benefit of someone else.
For more information on this subject, also see Info-déonto: Protection des renseignements personnels
9. Information about a client’s order shall remain confidential and a representative shall not use it to trade in his personal account or that of another client.
Annotations
For more information on this subject, also see Info-déonto: Protection des renseignements personnels.
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10. representative’s methods of soliciting and conducting business shall inspire respect and confidence from the public.
Annotations
For more information on this subject, also see Info-déonto: Développement des affaires.
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11. Orders shall only be executed when a client authorizes a representative to do so.
Annotations
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It is important to remember that only a client can authorize you to make trades on his behalf. This means you cannot make trades without the client’s consent.
This section of the Regulation respecting the rules of ethics in the securities sector does not deal with the improper performance of a mandate, but rather with the performance of certain acts in the absence of such a mandate.
When the client is an individual and is the only account holder, it is clear that the client is the only person who can authorize the representative to make trades. In other situations, however, this is not always clear. Indeed, certain types of accounts require particular care, including joint accounts, accounts belonging to a legal person such as a company, trust accounts and estate accounts.
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12. Trades a client asks a representative to make shall only be carried out by a person authorized by law to do so.
Annotations
For more information on this subject, also see InfoDéonto: Référencement
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13. In conducting his activities, a representative shall take into consideration the financial integrity and liabilities of the firm on behalf of which he is acting.
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14. A representative’s professional activities shall be conducted responsibly, with respect, integrity and skill.
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Annotations - By acting with integrity and honesty, you inspire trust!
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To ensure you provide high quality services and inspire trust in the public, you must keep your professional knowledge up to date. The obligations you must respect in this regard are set out primarily in the Regulation of the Chambre de la sécurité financière respecting compulsory professional development.
Furthermore, it is essential that the representative and his client agree on the services to be provided and that the representative respect the terms of his mandate. When necessary, he should have his client sign a document confirming the agreement.
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15. A representative shall maintain a high level of professional knowledge.
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16. A representative shall ensure that his conduct complies with the law and meets the requirements of the body governing the firm on behalf of which he is acting.
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17. A representative who receives privileged or confidential information from a client, an issuer or a third party shall not pass it on, nor shall he trade using such information.
Annotations
For more information on this subject, also see Info-déonto: Gestion des conflits d’intérêts.
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18. A representative shall refrain from making false declarations as to his level of skill or as to the effectiveness of his services or those of the firm on behalf of which he is acting.
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Annotations
For example, according to this section, you cannot guarantee that the units of a fund will reach a certain price or provide a certain return.
For more information on this subject, also see InfoDéonto: Marketing and Recommandations.
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19. A representative shall provide, in an objective and complete manner, the information requested by a client as well as all information concerning the status of his investments and that which is needed to understand and assess a trade.
Annotations
The duty to inform the client is one of the rules of ethics set out in the Regulation respecting the rules of ethics in the securities sector. Throughout his mandate, a representative must give his client all the information necessary for the client to understand the products and services the representative is offering him.
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For more information on this subject, also see Info-déonto: Recommandations
Case study – CV34 (only available in French) -
20. A representative shall forthwith collaborate with and respond to a person responsible for enforcing the Act respecting the distribution of financial products and services (chapter D-9.2) and its regulations.
Annotations
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It is in the interests of the representative to cooperate with the syndic or the syndic’s staff. For example, by cooperating, a representative who is being investigated can ensure that his file contains all relevant information. In fact, this is an obligation set out in the Regulation respecting the rules of ethics in the securities sector.
Failing to cooperate with the syndic’s staff during an inquiry is a serious breach liable to result in severe consequences affecting a representative’s right to practise.
For more information on this subject, also see