The Investment Dealers Association has issued a notice that aims to provide guidance to its members about the sorts of outside business activities they may engage in.

The IDA notice says that partly due to the evolution of the securities industry and its impact on dealers, it has been asked to provide updated guidance on the issue of business activities engaged in by reps that are not on behalf of the firm, sometimes referred to as “outside business activities”.

It stresses that dealers, by virtue of their membership in the IDA, are bound to conduct all securities-related activity on their books – except where expressly permitted by the association to do otherwise. This includes facilitating securities-related financing.

However, insurance products are not considered “securities.” Insurance activities when provided through an individual’s financial planning or other personal entity however must be reported via NRD as a separate business activity, it says.

Outside employment must be compatible with IDA by-laws, “it must adhere to high standards of ethical conduct, not be unbecoming or detrimental to the public interest, and be of a character and business repute consistent with the foregoing,” it says.

Dealers must be aware of all other business activities engaged in by their reps, it notes. “Therefore, firms must have in place policies and procedures requiring that all other business activities are disclosed to and approved by them,” it says.

The IDA says that members’ pre-approval processes must be robust and impartial enough to identify the risk of client confusion and/or conflicts of interest reasonably in advance and to ensure approval is granted only in such cases where effective controls and qualified supervision are first in place. “Members must be in a position to provide compelling evidence of their due diligence in these regards,” it says.

The notice recommends that other business activities: should not materially impair a dealer’s “duties of care” to its clients; should not involve the use of client information; must be clearly seen to be outside the member; the approval and control processes for other business activities should be robust and impartial; and, other business activities should be in keeping with the letter and spirit of IDA by-laws.