The Investment Dealers Association of Canada is proposing changes to its by-laws that would require chief compliance officers to pass a new qualifying exam.

According to a notice published in the OSC Bulletin, existing CCOs would have 18 months to pass the new CCO Exam. New CCO applicants would have to pass the exam before they are approved.

The CCO Exam is based on self-study material relating to compliance rules and practices, it notes. “The effect of the proposed rule change will be to require those previously approved as CCO registrants to review the self-study material and syllabus and write the CCO Exam. It is intended that the self-study material will be of significant value to industry participants as it will be the only published reference source dealing in depth with the breadth of compliance knowledge, skills, processes and practices with which a CCO should be familiar,” it says.

“As the securities industry and the regulations under which members operate have become increasing complex, and as principles-based regulation have required firms to develop their own policies and procedures tailored to their business, the advisory and monitoring roles of CCOs have required a broader knowledge of regulations, interpretations and best practices, as well as a broader range of skills in assessing compliance risk and helping develop and operate systems and controls to control it,” the notice says. “However, at present there is no objective standard to evaluate applicants for registration as CCOs.”

The IDA says that the current Partner Director Officer qualifying exam, “is currently insufficient in terms of testing knowledge of compliance requirements to the competency level expected of a CCO.” Yet, expanding the material covered by the PDO exam is not appropriate, it says, “because the PDO addresses more general corporate governance issues and most prospective PDOs do not require the specialist knowledge needed by CCOs”.

The Chief Compliance Officers Course has been developed by the Canadian Securities Institute under the guidance of a sub-committee of the IDA’s Compliance and Legal Section to cover the knowledge and skills necessary for a CCO.

“The Association has continued to see significant compliance and supervision failures leading to an increasing number of disciplinary actions against members and their senior management. In some cases such failures have resulted in the financial failure of the members involved,” it notes. “This is a systemic problem that has affected the risk profile of a range of member firms. The implementation of the CCO Exam is in part, designed to address it.”

The proposed by-law will provide exemptions for firms that do not carry on a traditional customer-based business, such as those engaging only in proprietary trading and those operating alternative trading systems.