CanadaNational Instrument 31-103, compliance system and general records
National Instrument 31-103, ss. 11.1, 11.5
In force since .
An AI sector rules rule binding private bodies.
- Instrument type
- a regulation made under an act
- Obligation class
- Governance
- Audit expectation
- periodic
- Who audits it
- Self
As of .
What it requires
- It reaches you if you are a registered firm, meaning a registered dealer, a registered adviser or a registered investment fund manager: establish, maintain and apply policies and procedures that establish a system of controls and supervision sufficient to provide reasonable assurance that the firm and each individual acting on its behalf complies with securities legislation and to manage the risks associated with its business in accordance with prudent business practices (section 11.1(1)).
- Provide training to your registered individuals on compliance with securities legislation, including the obligations under sections 13.2, 13.2.1, 13.3, 13.4 and 13.4.1 (section 11.1(2)).
- Maintain records that accurately record your business activities, financial affairs and client transactions and that demonstrate the extent of your compliance with applicable requirements of securities legislation (section 11.5(1)).
- Keep records that demonstrate compliance with your internal control procedures and with your policies and procedures, and records that document the compliance, training and supervision actions you take (section 11.5(2)(d), (e) and (o)).
- Keep records that demonstrate compliance with sections 13.2, 13.2.01, 13.2.1 and 13.3, including records that document correspondence with clients (section 11.5(2)(l) and (n)).
- Keep records that provide an audit trail for client instructions and orders and for each trade transmitted or executed for a client or by you on your own behalf (section 11.5(2)(h)).
If you get it wrong
Criminal exposureYes
Criminal exposure note
Contravening Ontario securities law is an offence under clause 122(1)(c) of the Securities Act (Ontario), punishable on conviction by a fine of not more than $10 million or imprisonment for a term of not more than five years less a day, or both.
Penalty structure
Administrative penalty of not more than $5 million for each failure to comply with Ontario securities law, under the Securities Act (Ontario).
- Rule
- Per violation only
- As of
- Currency
- CAD
- Per violation unit
- Violation
- Per violation amount
- 5,000,000
Who enforces it
Enforcement body
The securities regulatory authority of each province and territory, listed in Appendix C of National Instrument 14-101 (in Ontario, the Ontario Securities Commission)
What this law does
Section 11.1 of National Instrument 31-103 requires a registered firm to establish, maintain and apply policies and procedures that establish a system of controls and supervision sufficient to provide reasonable assurance that the firm and each individual acting on its behalf complies with securities legislation and to manage the risks associated with its business in accordance with prudent business practices.
A registered firm must also provide training to its registered individuals on compliance with securities legislation, including the obligations under sections 13.2, 13.2.1, 13.3, 13.4 and 13.4.1. Section 11.5 requires a registered firm to maintain records to accurately record its business activities, financial affairs and client transactions and to demonstrate the extent of the firm's compliance with applicable requirements of securities legislation.
The records must include records that demonstrate compliance with sections 13.2, 13.2.01, 13.2.1 and 13.3 and records that document the compliance, training and supervision actions taken by the firm. The records must also provide an audit trail for client instructions and orders and for each trade transmitted or executed for a client or by the registered firm on its own behalf. A registered firm is a registered dealer, a registered adviser or a registered investment fund manager.
A registered individual is an individual registered in a category that authorizes the individual to act as a dealer or an adviser on behalf of a registered firm, as ultimate designated person, or as chief compliance officer. Under section 5.2, the chief compliance officer of a registered firm must monitor and assess compliance by the firm, and individuals acting on its behalf, with securities legislation.
The chief compliance officer must also submit an annual report to the firm's board of directors, or individuals acting in a similar capacity for the firm, for the purpose of assessing compliance by the firm, and individuals acting on its behalf, with securities legislation. Outside Ontario the instrument came into force on .
In Ontario it came into force on the later of that day and the day on which sections 4 and 5 and subsections 20(1) to (11) of Schedule 26 of the Budget Measures Act, 2009 were proclaimed in force.
The Canadian Securities Administrators stated in 2019 that amendments to National Instrument 31-103 would be implemented as a rule in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Yukon. In Québec the amendments were to be adopted as a regulation made under section 331.1 of the Securities Act (Québec). In Saskatchewan they were to be implemented as a commission regulation.
Section 143 of the Securities Act (Ontario) lets the Commission make rules prescribing requirements for registrants, including standards of practice and business conduct in dealing with clients and requirements for the prevention or regulation of conflicts of interest. The Act defines regulations as the regulations made under the Act and, unless the context otherwise indicates, the rules.
The Act defines Ontario securities law as the Act, the regulations and, in respect of a person or company, a decision of the Commission, the Tribunal or a Director to which the person or company is subject. A person or company that contravenes Ontario securities law is guilty of an offence and on conviction is liable to a fine of not more than $10 million or to imprisonment for a term of not more than five years less a day, or to both.
The Act provides for an order requiring a person or company that has not complied with Ontario securities law to pay an administrative penalty of not more than $5 million for each failure to comply. The offence and penalty amounts above are those of the Securities Act (Ontario), and National Instrument 14-101 lists a separate securities act for each other province and territory.
When LexLint raises it
When your app profile says your app provides financial services.