Audit process is now more inclusive

Many COs and executives surveyed for the Report Card stated that the high level of co-operation they have experienced with their regulators is necessary for the audit process to run smoothly.

“We are very much involved,” says a chief compliance officer (CCO) with an MFDA-licensed dealer on the East Coast. “We were always ready to answer each other’s questions [during the audit].”

Adds a CCO with an Alberta-based exempt-market dealer about the Alberta Securities Commission: “They have done a solid job at saying, ‘This is what we are looking for, and this is how we are going to do it’.”

The BCSC garnered the largest improvement in this category this year, with its rating bouncing back to 7.0. This rating is in line with the 6.8 rating the regulator received in 2012, before the rating declined to 5.0 in 2013.

“It is extremely important to have a collaborative relationship with registrants during this process,” says Sandy Jakab, director of capital markets regulation with the BCSC. “And it is certainly one that works best when we are all on the same page; when we all understand what the regulatory concerns are and why we have them.”

The BCSC’s approach to having ongoing communication between the firms being reviewed and the BCSC’s compliance analysts conducting an audit has resonated with registrants – although they see room for improvement.

“I didn’t feel like we were being railroaded [by the BCSC],” says a CCO with a British Columbia-based exempt-market dealer. “[But] it would be helpful if [the auditors] were more open about the auditing process so that dealers could be more diligent on matters of importance.”

The MFDA also garnered a major improvement in its rating this year to 7.7 from 6.6 last year. Survey participants stated that although they still felt the MFDA’s auditing process was lengthy, they’re now seeing compliance auditors and dealer staff becoming more in tune with each other.

Senior management with both the MFDA and the OSC, the latter of which saw its rating in this category rise to 6.4 from 5.5 year-over-year, say that one reason why satisfaction may be on the rise is that the regulators are making a concerted effort to have more experienced staff in their auditing departments.

“We’re certainly more focused in terms of getting people with the necessary industry knowledge, and have been for a few years,” says Maureen Jensen, executive director and chief administrative officer with the OSC in Toronto. “It is certainly a focus for us in terms of hiring new staff.”

Mark Gordon, president and CEO with the MFDA, says his internal compliance staff is becoming more seasoned in providing assistance to and being seen as a resource for the MFDA’s members: “Our staff are more experienced. Now that we are in the fourth round of audits, they certainly know the members’ business better than before. And, as time goes by, that collaboration will continue to get stronger.”

Much like the OSC and the MFDA, the Investment Industry Regulatory Organization of Canada (IIROC) also has put more emphasis on having more senior staff on site who focus on engaging with registrants during an audit, says Paul Riccardi, IIROC’s senior vice president, enforcement, member policy and regulation: “We want to encourage a meaningful dialogue on potential compliance deficiency findings and to resolve issues as early as possible.”

Says a CO with an Ontario-based investment dealer: “[IIROC] has officials coming into our offices to see how things are going even when they aren’t conducting an audit. This is useful because, sometimes, you shy away from raising issues as you are afraid of drawing attention to yourself.”

IIROC, whose rating of 6.7 in this category is down slightly from 6.9 last year, is dedicated to ensuring the audit process not only is collaborative, but that member dealers are fully aware of what they need to be doing.

“We are transparent about saying, ‘The areas we are going to look at next year are as follows…’,” says Susan Wolburgh Jenah, IIROC’s president and CEO. “We are trying to give firms a heads-up about where we see the risks, so this is more of a collaborative exercise in avoiding issues and working together.”

Being informed about existing and emerging compliance issues is one of the biggest benefits of having an open-door policy with regulators’ audit staff, survey participants say. In fact, many praised the regulators for giving their firms the knowledge they need to be compliant, as well as the opportunity to correct a compliance issue prior to the final audit report being filed.

“I like the direction the MFDA is going in,” says a CCO with an Ontario-based mutual fund dealer. “We can pick up the phone and use [MFDA staff] as a resource. They give you the opportunity to solve issues before they go in the final audit report.”

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