While the Canadian Investment Regulatory Organization might be a new name for some, investors and dealers need to be familiar with this regulator. In this article, we will shed light on this organization, what it does, and how it affects Canada’s private equity markets and their stakeholders.
What is the Canadian Investment Regulatory Organization (CIRO)?
The Canadian Investment Regulatory Organization (CIRO) is the new self-regulatory organization (SRO) that oversees dealers and advisors (individuals and firms), including trading activities, in the country. Its main goal is to protect investors against illegal trade practices and maintain trust in Canada’s debt and equity marketplaces.
The CIRO is the result of the merger between the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) in 2023. It had its temporary name of “New SRO” before being officially renamed CIRO in the same year.
Purposes of the CIRO
CIRO’s purposes can be summarized in the following:
- regulation of firms and dealers: all investment and mutual fund firms, including their representatives, must comply with the rules set by CIRO
- investigation and enforcement: CIRO can investigate possible violations of its rules, and impose disciplinary actions when misconduct is found
- Trading surveillance: to monitor equity markets, CIRO deploys surveillance teams across the country and takes action based on their findings
- enactment of rules: to ensure that investors are protected against unfair or fraudulent practices and maintain the integrity of equity markets
To learn more about the Canadian Investment Regulatory Organization’s mandate, watch this video:
If you need help understanding CIRO regulations, reach out to the best private equity lawyers in Canada as ranked by Lexpert.
Difference between CIRO and IIROC
IIROC, along with the MFDA, were the main regulators of equity markets in Canada before 2023. These two organizations then formed the New SRO, which was later renamed CIRO.
The main difference between IIROC and CIRO is that IIROC only regulated investment dealers and trading, while CIRO covers both investment dealers and mutual fund dealers. The Canadian Investment Regulatory Organization’s reach is broader, and it sets standards for a wider range of firms. This change makes it easier for investors and firms to follow just one set of rules.
As such, investors and dealers must now only need to follow CIRO’s rules for all matters related to the regulation of securities and private equity.
How do CIRO regulations govern transactions in private equity?
The Canadian Investment Regulatory Organization oversees not just the conduct and registration of mutual fund and investment dealers, but also various aspects of equity trading in Canada. Related to these two major roles of CIRO, it also issues rules that firms and dealers must follow.
We’ll discuss the roles of CIRO below; in the meantime, this video shows the life cycle of equity trading and where CIRO fits the process:
Learn more about how CIRO regulates investments by consulting with the Lexpert-ranked best Canadian law firms for private equity.
Enforcement of member rules
There are three rules that the Canadian Investment Regulatory Organization enforces among its members:
- Investment Dealer and Partially Consolidated Rules
- Mutual Fund Dealer Rules
- Universal Market Integrity Rules (UMIR)
- CIRO By-Law No. 1
Upon approval of the Canadian Securities Administrators (CSA) and other processes, other policies may be developed and implemented by the CIRO in the future.
Regulation of dealers
One way to regulate investment dealers and mutual fund dealers, whether they’re an individual or a firm, is through their registration. By ensuring that these dealers are CIRO members, investors and their investments are protected from illicit trading activities.
Although registration was previously done with the CSA, it is now delegated to the CIRO. There are no changes to the process and documentary requirements; individuals and firms can expect the same application process as that with the CSA in the past.
Identification of dealers
Investors can check with the CIRO if they’re dealing with a registered individual or firm:
- investors can use the directory maintained by the CIRO that also shows CIRO members imposed with certain membership terms and conditions
- investors can use a different search tool if they’re looking for a dealer or adviser who has already faced or is currently facing an enforcement proceeding with the CIRO
These tools help investors verify whether the person or firm they are dealing with is properly registered or reputable, when it comes to the handling of their investments.
Filing a complaint
Investors who dealt with dealers and firms who are CIRO members can file a complaint with the CIRO. There are two ways to do this:
- complaint with the firm: CIRO members are required to follow certain rules in accepting and processing the complaints they receive; if the investor is not satisfied with the firm’s response, or if there was no response at all, they can then go to the Ombudsman for Banking Services and Investments (OBSI) as their next step
- complaint with the CIRO: investors can directly file a complaint with the CIRO, either at the same time or after filing a complaint with their own firm; complaints can be submitted online, by mail, or by fax, with the online method being the preferred option
However, an investor who transacted with a dealer or non-CIRO member firm will have limited options if they want to file a complaint. This includes those who are outside the regulatory jurisdiction of the CIRO. In such a case, the investor can:
- check with their own provincial or territorial securities commission for their options
- consult with a private equity lawyer for their legal remedies (e.g., filing a case)
Regulation of equity markets
All equity markets in Canada are regulated by the CIRO. These include stock exchanges and alternative trading systems (ATSs), which must all comply with CIRO’s regulations.
The regulation of these equity marketplaces is through the following:
- requiring marketplaces to be a CIRO member
- adherence to the UMIR
- power to impose trading halts or delays when necessary
Surveillance of equity marketplaces
The Canadian Investment Regulatory Organization also conducts surveillance to identify if there are manipulative or unfair trading practices or other regulatory breaches within these marketplaces. These markets include:
- cross-asset trading
- cryptocurrency trading
- debt and repo trading
If violations are found during surveillance, or when complaints are filed to the CIRO, additional analysis, preliminary investigations, and post-trade reviews will be conducted. Once evidence of violation is found, the CIRO will elevate the matter to the provincial or territorial securities regulator for further investigation and possible disciplinary action.
Trading halts and resumptions
When violations are found through surveillance, the CIRO can issue a trading halt. This happens when CIRO determines that there is material information that has a significant impact on the price of a security or even at the request of the listed company involved.
The purpose of the halt is to allow sufficient time for:
- the market to absorb this information
- the investors to review the information
This halt usually lasts for less than two hours. After this, a trade resumption will be issued. Note that trading halts are different from:
- cease trade orders (CTOs): which are issued by the provincial or territorial securities commissions for compliance violations
- business halt: which is implemented by a listing exchange when a company undergoes a reverse takeover (RTO) or due to system issues
What are the roles of lawyers in relation to CIRO and private equity?
Private equity lawyers assist both investors and dealers involved in trading activities.
For the dealers, private equity lawyers can help them:
- understand and follow the rules set by the CIRO or the Canadian securities law, which they must comply with
- meet the requirements for business conduct, risk management, and reporting, which are all part of the CIRO’s rules for investment and mutual fund dealers
- respond and protect their interests when a dealer faces a review or possible disciplinary action from the CIRO
On the other hand, investors can also be assisted by private equity lawyers before and after they have invested their money.
Ultimately, lawyers can explain how the Canadian Investment Regulatory Organization’s standards affect each step of a deal, whether their client is a dealer, equity marketplace, or investor.
The CIRO: its role in private equity and its impact on investors
The Canadian Investment Regulatory Organization plays key role in keeping Canada’s investment markets safe and fair. As the markets continue to grow, both investors and dealers can expect more rules for better protection and regulation. To stay informed about CIRO’s work, it’s important to have a private equity lawyer who can assist with legal matters.
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