1. OUTSIDE BUSINESS ACTIVITIES Presented by Robert Brush April 25, 2016

2. Overview
Why Focus on Outside Business Activities (“OBAs”)
What are OBAs
When OBAs Can Be Approved
Asking the Right Questions Before Approving OBAs
Protective Policies and Procedures
Catching Undisclosed OBAs
Maintaining Records Documenting Supervision

3. Why are we talking about OBAs? Litigation risk Regulatory risk
Overview
Why are we talking about OBAs?
Litigation risk
Regulatory risk
Late and incomplete filings on disclosures regarding OBAs has been made a compliance priority
Source: IIROC Notice – IIROC Compliance Priorities

4. What are OBAs - MFDA
OUTSIDE ACTIVITY
MFDA Rule Definition
For the purpose of the By-laws, Rules and Policies, “outside activity” means any activity conducted by an Approved Person outside of the Member:
(a) for which direct or indirect payment, compensation, consideration or other benefit is received or expected;
(b) involving any officer or director position and any other equivalent positions; or
(c) involving any position of influence

5. What are OBAs - MFDA
OUTSIDE ACTIVITY
Approved Person may or may not expect to receive or receive payment, compensation, or consideration
In addition, an outside activity can include a single transaction or event and does not necessarily have to occur with repetition, regularity or continuity
Source: MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

6. What are OBAs - IIROC “Other/Outside business activities” includes:
any business or employment activity with an entity other than the individual’s
sponsoring firm – this would include any business or employment activity with an
affiliated firm;
acting as an officer, director or in an equivalent position for a company, other than the
individual’s sponsoring firm, regardless of whether the individual is in a position or
power of influence and despite whether payment, compensation, consideration or
other benefit is received or expected;
being an officer, director or a significant owner of a holding company or personal
corporation; and
having a paid or unpaid position of influence within a charitable, social or religious
organization. Any position of influence, regardless of whether the position is business
related and despite whether payment, compensation, consideration or other benefit is
received or expected, is required to be reported.
Source: IIROC Notice # – IIROC Compliance Priorities

7. When OBAs Can Be Approved - MFDA
MFDA Rule 1.3.2
Requirements for Outside Activity
An Approved Person may have, and continue in, an outside activity provided that:
(a) Not prohibited - The Corporation and the securities regulatory authority in the jurisdiction in which the Approved Person carries on, or proposes to carry on, the outside activity do not prohibit the Approved Person from engaging in such outside activity;
(b) Notification - The Approved Person discloses the outside activity to the Member;
(c) Approval - The Approved Person obtains written Member approval of the outside activity prior to engaging in such outside activity;
(d) Conduct unbecoming - The outside activity of the Approved Person must not be such as to bring the Corporation, its Members or the mutual fund industry into disrepute; and
(e) Disclosure - To the extent that the outside activity could be confused with Member business, clear written disclosure is provided to clients that any activities related to the outside activity are not the business of the Member and are not the responsibility of the Member 7

8. When OBAs Can Be Approved - IIROC
IIROC Dealer Member Rule 18.14
(1) A Registered Representative or Investment Representative may have, and continue in, any business activity outside of the Dealer Member, including another gainful occupation if:
(a) The securities commission in the jurisdiction in which the Registered Representative or Investment Representative acts or proposes to act as a Registered Representative or Investment Representative, or the securities legislation or policies administered by such securities commission, does not prohibit him or her from devoting less than his or her full time to the securities business of the Dealer Member employing him or her;
(b) The Dealer Member establishes and maintains procedures acceptable to the Corporation to ensure continuous service to clients and to address potential conflicts of interest;
(c) The Registered Representative or Investment Representative informs the Dealer Member of the outside business activity and obtains the Dealer Member’s approval to engage such outside business activity prior to engaging in such outside business activity 8

9. When OBAs Can Be Approved - IIROC
IIROC Dealer Member Rule Continued
(d) The Dealer Member notifies the Corporation of the outside business activity within the time period and manner required by the applicable National Instrument or Regulation; and
(e) The outside business activity is not:
(i) One which would bring the securities industry into disrepute; or
(ii) With another dealer that is a member of a recognized self regulatory organization unless:
(1) Such dealer is a related company of the Dealer Member employing the Registered Representative or Investment Representative and the Dealer Member and related company provide cross-guarantees pursuant to Rule 6.6, and
(2) Such outside business activity is not contrary to the provisions of the applicable securities legislation or any policy made pursuant thereto 9

10. Asking the Right Questions Before Approving OBAs
Generally:
Identify the risk of client confusion and/or conflicts of interest in advance
Ensure that approval is only granted in cases where effective controls and qualified supervisory personnel are first in place
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013

11. Asking the Right Questions Before Approving OBAs
Consider the following:
Compensation to be paid under the arrangement
Nature of the relationship between Approved Person and outside entity
Consider any terms and conditions for Approved Person’s registration
Other potential conflicts
whether the outside business activity provides the individual with access to privileged, confidential or insider information relevant to their registerable activities;
whether activity is contrary to securities legislation, MFDA or IIROC requirements
If a conflict cannot be managed, the activity must not be approved
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016; CSA STAFF NOTICE “OUTSIDE BUSINESS ACTIVITIES” July 15, 2011

12. Asking the Right Questions Before Approving OBAs
Ensure that Approved Persons are not involved in approval of own outside activities
Obtain basic information:
business name
location where the activity will take place
nature of the activity
title/position of Approved Person
number of hours devoted
description of any potential for confusion or conflicts of interest
Approval is fact and circumstance specific
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

13. Asking the Right Questions Before Approving OBAs
Thorough Investigation
Standards of Conduct – MFDA Rule Consider the background, history and experience of the others involved with the outside activity.
Nature of the Activity – Be thorough in the review process regarding the investment of client funds or financial services provided outside of the Member. This includes consideration of educational, experience and other competency thresholds.
Risk Management Issues – Consider client confusion between Approved Person’s inside and outside activities. Consider threat of litigation against Member.
Ability to Supervise – Consider the Member’s ability to supervise the outside activity.
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

14. Asking the Right Questions Before Approving OBAs
Positions of Influence
Examples include: religious leaders, health care providers and military officers
Assess the nature of the position and the degree of influence the Approved Person holds through the position
Consider whether the client can separate the influence, and if not, the activity should not be approved
Consider whether terms and conditions on the client relationship or outside activity can solve the potential conflict
Vulnerability is key
Source: MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016 ; SIIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013

15. Protective Policies and Procedures
MFDA Rule 2.1.4(d) requires Members to implement Policies and Procedures to supervise and monitor outside business activities
Form F4 requires all registrants to disclose their current employment, other business activities, officer positions held and directorships
The Canadian Securities Administrators has issued guidance in this regard in Companion Policy CP Registration Requirements, Exemptions and Ongoing Registrant Obligations

16. Protective Policies and Procedures
Policies and Procedures Must Address
The requirement for Approved Persons to disclose all outside activities, obtain pre-approval of outside activities and the process by which Approved Persons may seek such pre-approval;
The Member’s criteria for the approval of outside activities;
The requirement to communicate to the Branch Manager or supervisor the details of the Member’s approval of, and any refusal to approve, the Approved Person’s outside activities;
The requirement for the Approved Person to notify the Member in the event of any material changes to significant aspects or termination of an outside activity; and
The requirement for records to include complete supporting evidence regarding the Member’s handling of all outside activity approval requests, including any special conditions, policies, procedures and controls that have been imposed and how compliance will be monitored
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

17. Protective Policies and Procedures
Consider the Following:
Outside Business Activities should not materially impair a Dealer Member’s ability to discharge its “duty of care” to its clients
Members should take reasonable measures to ensure that there is no change in the outside activity that was approved
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013; MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

18. Drawing the Line Between What Is and What Is Not Dealer Business
Ensure that the distinction between Member business and outside activity is clearly disclosed to clients
Members should clearly inform clients that outside activity is not the responsibility of the Member
Outside Business Activities should not involve the use of client information – training and controls should prevent this
The distinction between Dealer Member Business and Outside Business Activity should be clear to clients
Do not permit the use of the Dealer Member’s premises, records, logos, trade names, stationary, support staff or contact facilities for OBAs
Members must monitor for complaints arising from outside activity
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016; IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013;

19. Catching Undisclosed OBAs
Advertising, website and other social media reviews - MFDA Rule (Review Requirements)
Approval of trade names - MFDA Rule (Business Names, Styles, Etc.)
Branch reviews - MFDA Policy No. 5 Branch Review Requirements
Trend analysis and trade reviews - MFDA Policy 2 Minimum Standards for Account Supervision
Due diligence in recruitment
Complaint handling
Annual Approved Person questionnaires
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

20. Catching Undisclosed OBAs
Consider ability to supervise outside activities
Members must ensure they have access to any files necessary to complete investigation of undisclosed and unauthorized outside activity
Consider potential client privacy issues as outside activity may contain 3rd party confidential information
Review MFDA Staff Notice – Regulatory Notice on Federal and Provincial Privacy Legislation – December 2003
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

21. Maintaining Records Documenting Supervision
Maintain evidence of the review and due diligence undertaken by the Member, as well as the approval process
Be specific on the activity approved and that the Approved Person must notify the Member of a material change and seek approval if there is a material change
A material change could include the expansion of the approved activity or new services or products
MFDA Staff Notice “Outside Activity” May 20, 2005, Updated March 17, 2016

22. Maintaining Records Documenting Supervision
Records should include complete supporting evidence regarding handling of all outside business activity approval requests, including any special conditions, policies, procedures and controls that have ben imposed and how compliance will be monitored
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013

23. Maintaining Records Documenting Supervision
NRD Item 10 of Form F4
All Approved Persons are required to disclose their outside business activities on NRD Item 10 of Form F4 is intended to capture all current employment information, as well as outside business activities
Individuals must treat each employment relationship or outside business activity as a separate item and therefore make separate entries addressing all elements
Changes to employment relationships and outside business activities must be reported within ten (10) days of the change pursuant to section 4.1 of NI – remind Approved Persons frequently
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013; IIROC Notice IIROC Compliance Priorities

24. Maintaining Records Documenting Supervision
Form F4 requires the following:
Start date
Firm information
Description of duties
Number of hours per week
Conflict of interest
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013

25. Other Helpful Sources
IIROC Dealer Member Rule 42 - General conflicts of interest identification and disclosure requirements; see also NI and the associated companion policy
NI Requires Approved Persons to disclosure business activities outside of sponsoring firm
CSA Staff Notice “Outside Business Activities”
Source: IIROC Notice # Disclosure and Approval of Outside Business Activities– June 13, 2013 25

26. Concluding Remarks
Questions?