Setting up a new robo-advisor, jumping into retail investing or launching a new account type are the kinds of innovations to which firms must alert regulators beforehand, according to new guidance from the Investment Industry Regulatory Organization of Canada (IIROC).
The self-regulatory organization (SRO) issued guidance on the requirement for dealers to notify it of planned “material” changes to their businesses, which aims to clarify the sorts of shifts that must be reported in advance.
The guidance said whether a change is considered material depends on the specific facts of each firm’s business.
“Dealers should use their professional judgment when determining materiality, considering the dealer itself and its clients, and whether the change could result in increased risk to them or the capital markets,” it said.
In general, material changes would include adopting a new business model, introducing a new line of business, targeting a new client base, and adding a new product or service.
For instance, steps such as launching an online advice service, getting into proprietary trading, or starting to offer riskier, more complex products (such as cryptoassets or derivatives) would all be considered material changes, the guidance said.
Additionally, the introduction of automated compliance solutions or major operational changes to processes — such as trade execution, clearing and settlement — would also constitute material changes.
Firms are expected to notify the SRO about these changes so it can ensure that firms are meeting their regulatory requirements and that its rules are being applied consistently, and to inform its future compliance reviews.