Issuer-Sponsored Dealing Representatives: How Does It Work?

This article is current as of the time of publication, is for informational purposes and does not constitute professional advice. Independent legal advice should be sought prior to relying on any information herein.

Investment funds often have principals, investor relations professionals or other personnel who understand the fund’s investment strategy and maintain relationships with prospective investors.

Where those individuals engage in activities requiring dealer registration, one possible structure is for eligible personnel to become registered as dealing representatives of an independent exempt market dealer (EMD) while continuing their relationship with the fund.

The Ontario Securities Commission (OSC) refers to this as the “issuer-sponsored dealing representative” model. The structure allows issuer personnel to conduct registrable activities through an independent EMD while preserving their existing relationship with the fund.

Because the dealing representative has relationships with both the issuer and the EMD, the model requires a clear allocation of responsibilities and appropriate controls addressing supervision, conflicts of interest, product due diligence and suitability.

What Is an Issuer-Sponsored Dealing Representative?

An issuer-sponsored dealing representative is generally an individual who works for an issuer or an affiliate while also being registered as a dealing representative of an independent EMD to market the issuer’s securities.

For an investment fund, the individual might be a principal, employee, consultant or investor relations professional who already works with the fund and its investors.

The individual maintains that relationship with the fund while becoming registered with the EMD for purposes of conducting registrable securities activities. When acting as a dealing representative, the individual conducts those activities through the EMD and is subject to the dealer’s compliance and supervisory framework.

This creates a three-party relationship among the fund, the dealing representative and the independent EMD.

Whether an individual’s activities require dealer registration in the first place is a separate question. See our articles on When Does an Ontario Investment Fund Need an Exempt Market Dealer? and Can an Investment Fund Sell Its Own Securities Without an Exempt Market Dealer?

When Does the Structure Make Sense?

The model may be relevant where an established investment fund already has personnel responsible for investor relationships and capital raising.

Those individuals may have detailed knowledge of the fund’s investment strategy, portfolio and operations and may have developed relationships with investors over a number of years. Moving all investor-facing activity to third-party dealing representatives can disrupt those relationships.

An issuer-sponsored structure can allow eligible personnel to continue working with investors while conducting registrable activities within an independent EMD’s regulatory framework.

It may therefore be an alternative for investment managers that require registered distribution infrastructure but want to retain an existing investor relations function without establishing and operating their own affiliated EMD.

One Representative, Two Roles

The distinguishing feature of an issuer-sponsored dealing representative is the individual’s dual role.

In the issuer role, the individual may participate in investor relations, fund communications, operations or other activities on behalf of the investment manager or fund.

In the registered role, the individual is a dealing representative of the EMD and must comply with securities law and the EMD’s policies and procedures when conducting registrable activities.

Those roles need to be clearly understood.

The issuer may remain responsible for the individual’s employment or consulting relationship and ordinary business activities. The EMD, however, is responsible for supervising the securities-related activities conducted by the individual through the dealer.

The arrangement therefore requires coordination between two organizations with different responsibilities.

Who Supervises the Dealing Representative?

The independent EMD is responsible for supervising the dealing representative’s registrable activities.

The fact that the representative works for the issuer does not make the EMD a passive registration sponsor. The dealer must have sufficient information, authority and practical ability to supervise activities conducted through it.

Depending on the circumstances, this may include oversight of communications with prospective investors, offering and marketing materials, investor onboarding, know-your-client information, suitability determinations and required books and records.

The EMD must also be able to require compliance with its policies, obtain information necessary to perform its regulatory responsibilities and restrict securities-related activities where appropriate.

This can require clear procedures between the issuer and EMD concerning communications, information sharing, recordkeeping and escalation of compliance matters.

The practical question is therefore not simply which organization employs the representative. It is whether the EMD can exercise effective supervision over the representative’s registrable activities.

Managing the Conflict of Interest

An issuer-sponsored dealing representative has an inherent conflict of interest arising from the representative’s relationship with the issuer.

The representative may receive a salary or other compensation from the issuer. The individual may also have professional responsibilities to the issuer and an economic interest in the issuer successfully raising capital.

At the same time, the individual is acting as a registered representative of the EMD when dealing with investors.

National Instrument 31-103 requires registered firms to identify existing and reasonably foreseeable material conflicts of interest between clients and the firm or individuals acting on its behalf and to address material conflicts in the best interest of the client.

The EMD must therefore consider the substance of the representative’s relationship with the issuer, including compensation arrangements and other incentives, and establish appropriate controls.

Disclosure of the issuer relationship is important, but disclosure alone does not necessarily address a material conflict. The EMD’s supervisory and compliance framework must also address the risks created by the relationship.

Limited Product Shelf and Suitability

An issuer-sponsored dealing representative may primarily or exclusively distribute securities of the issuer with which the representative is associated.

This creates a different product environment from that of a dealing representative who regularly offers multiple unrelated securities.

The EMD nevertheless remains responsible for satisfying its know-your-product obligations in respect of securities distributed through it. The dealer must independently understand and assess the investment and cannot rely solely on the representative’s existing familiarity with the issuer.

Applicable suitability requirements also continue to apply.

The representative’s relationship with the issuer and the limited range of products offered are relevant to the EMD’s conflicts analysis and to the information provided to investors about the nature of their relationship with the dealer and dealing representative.

A representative’s detailed knowledge of a fund can be valuable when communicating with investors. It does not replace the independent regulatory responsibilities of the EMD.

What Can the Fund’s Investor Relations Team Continue to Do?

Registration with an EMD does not necessarily mean that an individual stops performing ordinary responsibilities for the fund.

An issuer-sponsored dealing representative may continue to have responsibilities relating to investor relations, fund communications or other aspects of the issuer’s business. The important issue is distinguishing those activities from registrable activities conducted as a dealing representative of the EMD.

The appropriate division will depend on the individual’s responsibilities and the particular distribution model.

The issuer and EMD should clearly establish which securities-related activities must be conducted through the dealer, how investor communications are supervised, where required records are maintained and when matters must be referred to the EMD’s compliance function.

Clear delineation also helps investors understand when an individual is acting on behalf of the issuer and when the individual is acting as their registered dealing representative.

For a discussion of when fundraising activities may trigger dealer registration requirements, see Can an Investment Fund Sell Its Own Securities Without an Exempt Market Dealer?

OSC Staff Guidance on Issuer-Sponsored Dealing Representatives

OSC Staff has specifically addressed the issuer-sponsored dealing representative business model in its published registration and compliance guidance.

OSC Staff Notice 33-756 describes the model as one in which a dealing representative works for an issuer or an affiliate and is also registered with an independent EMD to market the issuer’s securities.

Staff has identified several concerns arising from these arrangements, including the inherent material conflict created by the representative’s financial relationship with the issuer, the possibility that clients will be offered a limited range of products, challenges associated with the EMD supervising representatives who work for another organization, and potential confusion regarding the capacity in which the representative is acting.

OSC Staff has also identified measures intended to address these risks, including enhanced supervision, controls over compensation and marketing activities, requirements relating to information provided by issuers, and disclosure concerning the representative’s relationship with the issuer and the products available through the representative.

Subsequent OSC Staff guidance has continued to emphasize the importance of identifying and addressing the conflicts associated with the model.

These considerations reinforce the need for an issuer-sponsored arrangement to operate within the EMD’s substantive compliance and supervisory framework.

What Does a Properly Structured Arrangement Look Like?

There is no single structure appropriate for every issuer-sponsored dealing representative arrangement. The required controls will depend on the fund, its securities, the representative and the nature of the distribution program. However, certain principles are generally important.

The EMD should conduct its own product due diligence and maintain responsibility for applicable KYC and suitability processes. Material conflicts arising from the representative’s relationship with the issuer should be identified and appropriately addressed. Investors should receive appropriate information regarding the representative’s issuer relationship and any relevant limitations on the products offered by that representative.

The EMD should supervise securities-related communications and activities, maintain required records and have access to information necessary to perform its regulatory responsibilities.

The issuer and EMD should also clearly establish their respective responsibilities so that the representative understands which activities are subject to dealer supervision and how compliance matters are handled.

Most importantly, the EMD must retain the ability to exercise independent judgment in carrying out its obligations as a registered dealer.

Conclusion

An issuer-sponsored dealing representative structure can allow eligible fund personnel to maintain existing investor relationships while conducting registrable securities activities through an independent EMD.

The dual relationship among the fund, dealing representative and EMD creates particular conflicts and supervisory considerations. Clear allocation of responsibilities, effective EMD supervision, independent product due diligence, appropriate suitability processes and conflict management are therefore central to the structure.

Primary Sources

* National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations

* Companion Policy 31-103CP, Registration Requirements, Exemptions and Ongoing Registrant Obligations

* OSC Staff Notice 33-756, Registration, Inspections and Examinations Division Summary Report for Dealers, Advisers and Investment Fund Managers

* OSC Staff Notice 33-759, 2025 Annual Report from the Registration, Inspections and Examinations Division

Contact Us

Startly Inc. provides outsourced exempt market dealer services to investment funds and other issuers raising capital under prospectus exemptions. If you are launching a new fund, expanding an existing exempt offering, or evaluating your distribution model under National Instrument 31-103, contact us to discuss how our EMD platform can support your capital raising activities.