CIBC Investor Services Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) -- Large investment dealer and derivatives dealer with separate operating lines of business exempted from the requirement in section 11.2 of NI 31-103 to designate an individual as the ultimate designated person (UDP), and instead permitted to designate two UDPs, one for each distinct line of business.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 11.2 and 15.1.
February 8, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CIBC INVESTOR SERVICES INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief, pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), from the requirement contained in section 11.2 of NI 31-103 to designate an individual to be the ultimate designated person (UDP) and instead permit the Filer to designate and register two individuals as UDP in respect of two distinct lines of securities business of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the jurisdictions in Canada outside of Ontario (together with the Jurisdiction, the Filing Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Canada with its head office located in Toronto, Ontario.
2. The Filer is registered under the securities legislation of each Filing Jurisdiction in the category of investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC). The Filer is also registered in the category of derivatives dealer in Québec.
3. The Filer is not in default of any requirements of securities legislation in any jurisdiction of Canada.
Operational structure
4. The Filer operates two distinct lines of securities business based on the nature of the services provided:
a. one business line is referred to as Direct Investing & Advice (Direct Investing) and includes CIBC Investor's Edge, which offers order execution only (OEO) brokerage services, investment tools and research to self-directed investors, but does not provide recommendations or advice to clients; and
b. the other business line is referred to as CIBC Imperial Investor Service (IIS, and together with Direct Investing, the Divisions), which offers advisory accounts, discretionary managed accounts, and trading services to retail clients, where recommendations are limited to proprietary mutual funds, fixed income, structured notes, and deposit products.
5. The Filer has applied for and received approval from IIROC pursuant to Rule 1300.1(w) not to comply with suitability determination requirements when accepting orders from a client where no recommendation is provided, in respect of the CIBC Investor's Edge OEO business. The IIS division provides recommendations to clients and has suitability determination responsibilities.
6. Each Division has separate and distinct senior management and operating structures.
The UDPs
7. Currently, the Divisions share the same UDP and Chief Compliance Officer. The Filer does not have a CEO, but instead the head of the Direct Investing division of the Filer is currently the UDP for the Filer, and the head of the IIS division of the Filer is Executive Vice President, Banking Centres.
8. If the Exemption Sought is granted, the Filer intends to have two UDPs. The most senior officer of each Division will be the UDP of their respective Division (together, the Division Heads).
9. The Division Heads, regardless of their titles from time to time, will each have the role that is the equivalent of chief executive officer in respect of the Division for which they are responsible and will be the most senior and final decision maker for their Division. Each Division Head fulfills the following roles for their respective Division:
a. provides clear leadership and sets the tone at the top for the business lines;
b. is responsible for the business lines' organizational structure and succession planning;
c. is the person that the executive management within the business line reports to;
d. prepares the objectives, strategy and plans, and implements these, for the business lines;
e. promotes compliance toward industry rules and applicable securities laws;
f. supervises the activities of the Filer, which are directed toward ensuring compliance with industry rules and applicable securities law requirements;
g. has accountability for reporting to the Filer's Board of Directors with respect to the Division;
h. is responsible to the applicable self-regulatory organization for the overall conduct of and the supervision of its employees; and
i. ensures that supervisory policies and procedures are developed and implemented and adequately reflect the regulatory requirements.
10. There is no line of reporting between the Division Heads. Each Division Head will have direct access and will report independently to the Board of Directors of the Filer in respect of the Division for which they are responsible.
11. No other executive officer of the Filer will have authority to overrule a decision of the applicable Division Head or control either of the Division Heads' access to the Board of Directors of the Filer.
Reasons for the Exemption Sought
12. Under section 11.2 of NI 31-103, a registered firm is required to designate an individual to be the UDP and the UDP must be: (i) the CEO or, if the firm does not have a CEO, an individual acting in a capacity similar to a CEO; (ii) the sole proprietor of the registered firm; or (iii) the officer in charge of a division of the registered firm, if the activity that requires the firm to register occurs only in the division and the firm has significant other business activities (the UDP Requirement).
13. Granting the Exemption Sought would be consistent with the policy objectives that the UDP Requirement is intended to achieve because:
a. The Divisions are independent operations that are distinct from each other and conducted on a very large scale; and
b. The Division Heads are effectively the most senior executive members of their respective Division.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
a. Each Division shall have its own UDP, who shall be the equivalent of the chief executive officer in respect of the Division for which they are the UDP;
b. Only one individual shall be the UDP of each Division;
c. Each UDP has direct access to the Board of Directors of the Filer; and
d. Each UDP shall fulfill the responsibilities set out in section 5.1 of NI 31-103, and any successor provision thereto, in respect of the division for which they are designated UDP.
"Felicia Tedesco"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission
OSC File #: 2021/0660