RSE Suitability Checklist Cheat Sheet

An Approved Person must inform their Dealer Member of any outside activity and get its prior approval before engaging in it (IDPC Rule 2554). The dealer reviews the activity and either approves, prohibits, or imposes conditions on it, then reports it to CIRO under NI 33-109.

What must be disclosed: Any business activity outside the scope of the registrant's duties for the registered dealer, including directorships, officer roles, other employment, consulting engagements, and any activity that could create a conflict of interest or involve securities.

Three-party disclosure structure:

1. Registered individual discloses the OBA to their employer (the registered dealer)
2. The registered dealer must be satisfied the OBA does not create a conflict of interest that cannot be managed
3. Where required, the OBA is disclosed to the client if it creates a material conflict of interest

Exam gotcha: The registrant discloses to the employer first, not to the regulator. The regulator is not the first point of disclosure. Failing to disclose an OBA to the employer is itself a compliance violation.

Rule 3115 prohibits employees and Approved Persons of a Dealer Member from engaging, directly or indirectly, in personal financial dealings with clients.

Step-by-step account approval process under the IDPC Rules:

1. Collect KYC information - all NI 31-103 §13.2 data points gathered before any recommendations made
2. Determine account type - cash account, margin account, options account, short-selling account. Each type requires progressively higher approval thresholds
3. Assess client suitability for the account type - options trading requires demonstrated investment knowledge and risk tolerance; margin requires sufficient net worth
4. Designated Supervisor review and approval - required for every new account, cash accounts included, no later than one business day after the initial trade (Rule 3214); derivatives accounts need the designated Supervisor's approval recorded in writing before the first derivatives trade (Rule 3251)
5. Specific risk disclosure documents delivered - margin account agreement delivered and signed before the margin account is opened (Rule 3247); derivatives risk disclosure statement delivered and acknowledged before the first derivatives order (Rule 3254)
6. Client acknowledges receipt of disclosures - signed acknowledgement filed in the account record
7. Account activated - trading permitted only within the approved account type and suitability profile

Rule 3402 requires that suitability be assessed at the account level (account-as-a-whole), not just at the individual trade level. A single trade may be appropriate in isolation but inappropriate in the context of the client's total holdings.

Triggers for a Rule 3402 account-as-a-whole review:

1. At account opening
2. Before any trade recommendation
3. When a KYC trigger event occurs
4. When the registrant becomes the account's registered representative (through transfer or internal reassignment)
5. When securities are transferred or deposited into the account, or a change in a held security could make the account unsuitable
6. When KYC information is reviewed under Rule 3209(4) (at least every 36 months, or 12 for managed and discretionary accounts)

What a Rule 3402 analysis considers: Concentration by asset class, sector, geography, and single issuer; alignment of holdings with stated investment objectives; overall risk level vs the client's risk profile; liquidity of the portfolio relative to the client's time horizon; cost of the portfolio relative to the client's situation.

Illustrative concentration thresholds (firm policy; CIRO rules set no percentage):

• Single-issuer concentration above 10% of portfolio warrants documentation and client discussion
• Single-issuer concentration above 20% of portfolio is considered acute concentration requiring explicit justification in the account file and heightened supervisory review
• Sector concentration above 30-40% warrants review under most dealer policies (check current dealer manual - thresholds are firm-specific)

IDPC Rule 3217 requires a leverage risk disclosure statement, with the client's positive acknowledgement, when a retail account is opened, before recommending the use of borrowed money, or when the dealer first learns the client intends to borrow to invest. Points to cover with the client:

1. Borrowing to invest is risky: the client can lose more than the amount invested if the securities decline in value
2. The interest cost on borrowed funds is incurred regardless of portfolio performance
3. The dealer can sell securities in the account to cover a margin deficiency, as set out in the margin account agreement
4. Using borrowed funds magnifies both gains and losses in proportion to the debt-to-equity ratio
5. The client signs the margin account agreement before the margin account is opened (Rule 3247)

Minimum margin requirements (CIRO): 50% margin on most listed Canadian equities priced at $2.00 or more. Higher margin (60% to 100%) for shares priced below $2.00 (IDPC Rule 5310). Concentrated single-issuer positions may face higher house margin requirements. Note: "margin" here refers to the client's equity in the account as a percentage of the total market value of marginable securities.