What is an exempt market dealer, and what does it owe you?

What registration means

National Instrument 31-103 requires a firm in the business of trading securities to register with the securities commission in each province where it operates. An exempt market dealer is the category for firms distributing securities under prospectus exemptions. Registration is not a licence to sell anything; it brings capital requirements, insurance requirements, a compliance system, a Chief Compliance Officer, an Ultimate Designated Person, record-keeping obligations and the possibility of being examined.

Know your client

Before a registrant may accept your order it must collect and understand your financial circumstances, your investment needs and objectives, your risk profile and your investment knowledge. This is why a private investment asks for your income, your net worth and your financial assets when a bank account does not. It is not idle curiosity — it is a regulatory obligation held by the dealer, and it also determines the annual limits that apply to you under the exemption.

Know your product

The registrant must understand what it is distributing well enough to assess it: the structure, the risks, the fees, the liquidity and the conflicts. A firm that could not explain the product to you has not met this obligation.

Suitability, and the word that changed

The client focused reforms did not replace suitability; they added to it. Since the end of 2021 a registrant must determine both that an action is suitable for you — measured against what it knows about you, what it knows about the product, the effect on your account's concentration and liquidity, the costs, and a reasonable range of alternatives — and that the action puts your interest first. Separately, since the middle of that year, it must address material conflicts of interest in your best interest. Neither is a fiduciary duty, and neither obliges the firm to find you the best product available anywhere. It remains a stronger standard than most people assume applies in private markets.

What it means when the dealer says no

It means the system worked. A refusal is not a bureaucratic obstacle between you and an opportunity; it is a registered firm, carrying liability, concluding that this does not suit your circumstances. People who argue their way past that conclusion are removing the only professional check in the transaction.

What the manager may not do

A fund manager that is not registered may not advise you, may not assess suitability, and may not approve a subscription. If the people who built and market a fund are also the people telling you it suits you, and none of them is registered, something is wrong with the arrangement rather than with your understanding of it.

What an EMD does not do

It does not stand behind the investment. It does not audit the issuer. It does not promise a return, and it cannot make an illiquid investment liquid. There is also no compensation fund: the protection that covers client assets at an investment dealer does not extend to exempt-market investments or to an issuer becoming insolvent. Registration is a floor, not a warranty — investors have lost money in offerings distributed by properly registered dealers, and will again.

Three things to check in five minutes

Search the firm on the CSA's National Registration Search and confirm it is registered in your province and in the right category. Ask for your dealing representative's name and confirm they appear too. Check the CSA Disciplined List while you are there, because registration and a clean history are different questions. And ask who the firm's Chief Compliance Officer is — a firm that hesitates over that question has told you something.

One more, and it is the most material conflict in this business: ask whether the dealer is affiliated with the issuer or the manager. The answer may be perfectly fine. You are entitled to know it.