Skip Navigation
Securities Law

NIN 95/07 - Duties of Registrants in the Supervision of Accounts Operating under Powers of Attorney or Trading Authorities [NIN - Rescinded]

Published Date: 1995-01-13
Effective Date: 1995-01-12

This Notice sets out the position of the Superintendent of Brokers on the duties of registrants when supervising and executing orders for client accounts operated under powers of attorney or trading authorities granted by the client.

Execution of unlawful advice through a registered dealer

When someone provides services in the province as a portfolio manager or investment counsel, they must, except under certain limited exemptions, register as an adviser under the Securities Act, S.B.C. 1985, c. 83. These registration requirements are intended to ensure that public investors are able to base investment decisions on the advice of people who are qualified and properly licensed.

In the past, enforcement staff have become aware of several situations in which individuals were acting as portfolio managers or investment counsel without registration and were directing trades based on this unlawful activity through a power of attorney ("PA") or trading authority ("TA") over the accounts of clients at registered dealers. Registered dealers are expected to be mindful of this problem and aware of the risks posed to their clients and the investing public by unqualified and unlicensed advisers. If dealers are vigilant, they can be of great assistance to the Commission in reducing these abuses by refusing to execute orders placed by unregistered advisers acting under PAs or TAs.

It would be unreasonable to expect dealers to monitor, in an absolute way, the use of PAs and TAs to determine if these instruments are being used to circumvent the requirements of the Act. However, dealers and individual registrants are expected to exercise considerable care and diligence in supervising and accepting orders for accounts operated under PAs and TAs.

A registrant presented with a PA or TA should first determine whether the person with authority over the account - the attorney - is a registered portfolio manager or investment counsel. If the attorney is not registered in that capacity, the dealer should inquire further about the relationship between the attorney and the client and should determine, for example, whether the attorney receives compensation for any investment advice given.

If the attorney is not registered but appears to be in the business of advising in securities, the registrant should alert the client and the attorney to the registration requirements of the Act and seek further comfort that the registration requirements are not being violated (e.g., whether an exemption from the adviser registration requirements is available). If the registrant knows or, after making inquiries, has reasonable concerns that the attorney is unlawfully acting as an adviser, the registrant should not take instructions from the attorney unless the dealer is of the opinion that its own legal position would be in jeopardy by failure to execute a particular order. In any case, the registrant should bring the matter to the attention of senior management who, in turn, should consider whether a referral to the Commission's Compliance and Enforcement Division is warranted.

The Abusive Operation of Nominee Accounts

Diligent monitoring of PAs and TAs will also enable dealers and individual registrants to better identify client accounts that are being used inappropriately, as nominee accounts, to hide or disguise abusive trading. Registrants should be particularly wary in situations in which a non-registrant has trading authority over several accounts or when trading authority is held by a corporate insider or control person who may be using the account(s) to avoid reporting requirements or resale restrictions. In such cases, registrants should make appropriate inquiries of the client to confirm the nature, purpose and true ownership of the account and should decline to execute trades through the account if the registrant knows or believes that the account is being utilized to execute illegal trades or evade other legal obligations.

Duties of Registrants

The Superintendent considers each registrant to have a duty to assist in maintaining the integrity of the capital markets by not participating in conduct which the registrant knows, or ought reasonably to know, violates the securities legislation. In addition, every registrant has a duty to deal fairly, honestly and in good faith with clients.

Registrants who knowingly participate or acquiesce in the activities of people providing unlawful advice or in the use of nominee accounts to conduct illegal or abusive trading do a serious disservice both to the market and to their clients. In addition to possible enforcement action against an unregistered adviser or the operator of the nominee account, Commission staff will seriously consider enforcement proceedings against the registrants involved, particularly in cases where the interests of clients or the integrity of the market have been jeopardized.

DATED at Vancouver, British Columbia, on January 12, 1995.

Dean E. Holley
Superintendent of Brokers