A report published Tuesday by the Canadian Securities Administrators (CSA) suggests the Investment Industry Regulatory Organization of Canada (IIROC) has been slow to bolster certain compliance review procedures, including the introduction of a process to assess dealers’ compliance with the mutual fund sales practices rule.
The CSA’s latest oversight review report on IIROC highlights a couple of areas where the self-regulatory organization (SRO) failed to adequately resolve issues that were flagged in its previous review in 2015. In particular, the report indicates that IIROC failed to make promised changes to its examination procedures for assessing suitability in managed accounts.
“Staff note that the revised procedures were implemented in October 2016, eight months after IIROC initially stated the changes had been made,” the CSA states in its report.
Additionally, the CSA says that new examination procedures for assessing compliance with certain aspects of the mutual fund sales-practices rules were not implemented by June 30, 2016, as the regulators originally agreed. “Staff were subsequently informed that the revised procedures were implemented in February 2017, more than seven months later,” the CSA states.
The CSA report flags this lack of follow-through as the only “high” priority issue for IIROC in this latest review. It notes that failing to take corrective action and to monitor the resolution of issues that arise during oversight reviews could result in IIROC failing to meet one of the terms of its recognition orders.
The report indicates that a change in management within the SRO’s compliance division was the primary reason for the slow progress, and that IIROC will adopt a new process that will make tracking the resolution of issues raised in CSA oversight reviews the responsibility of its general counsel’s office to. The CSA says that it expects the new process to be in place by Sept. 30, and for IIROC to report on the effectiveness of the new process by March 31, 2018.
Some of the other, less urgent issues identified in the report include a lack of guidance for IIROC compliance staff on identifying repeat or significant deficiencies, and the absence of a process for taking a holistic view of dealers and their compliance records.
On those issues, the report notes that IIROC is currently drafting guidance to help its staff in determining whether a compliance issue should be referred to enforcement. IIROC also states that it will take steps to better document efforts at dealing with firms with multiple compliance issues, and that firms’ regulatory history will be “appropriately considered as part of the new compliance referral process.”
The CSA report acknowledges that IIROC has made sufficient progress in resolving the other findings set out in the 2015 oversight report, and that the provincial regulators expect IIROC to resolve the latest findings.
“We have worked diligently to address the annual findings and we are committed to ensuring we continue to comply with the terms and conditions of the recognition orders,” IIROC says in a statement on the review. “We intend to fully address any outstanding findings in order to enhance our regulatory effectiveness and strengthen our capabilities in the changing regulatory environment.”
The coordinated review was conducted jointly by seven of the provincial securities regulators including: the Alberta Securities Commission, Autorité des marchés financiers, the British Columbia Securities Commission, the Financial and Consumer Affairs Authority of Saskatchewan, the Manitoba Securities Commission, the Nova Scotia Securities Commission, and the Ontario Securities Commission (OSC). The risk-based review focuses on higher-risk aspects of IIROC’s operations, such as enforcement, business conduct compliance and information technology.
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