The B.C. Securities Commission’s (BCSC) latest compliance report card, published on Wednesday, uncovered differences between dealers and fund managers in terms of top deficiencies, which is in stark difference with previous years.
Shortcomings in client statements and reporting were the top compliance issue for dealers, followed by know-your-client (KYC)/suitability, conflicts of interest/personal trading and advertising deficiencies, the BCSC reports. In contrast, the biggest issue for fund managers involved registration, followed by KYC/suitability and policies and procedures issues.
The BCSC carried out 26 compliance reviews during the year, revealing a total of 171 compliance deficiencies, the report card says, noting that the top five deficiencies represent approximately 59% of all of the compliance problems it found.
In terms of the top dealer deficiency, the BCSC says that it found instances of failures to deliver compliant trade confirmations and account statements. It also tested compliance with the new client relationship model (CRM2) requirements, which found issues with fund managers disclosing position cost information.
The registration issues in the fund manager sector included failures to disclose outside business activities and the use of unregistered personal corporations for registrable activities.
“We understand that this is tax efficient, but it is not allowed,” the BCSC notes in the report. The reviews also “identified a large number of disclosure-related deficiencies,” particularly in terms of the accuracy and upfront delivery of relationship disclosure information provided by dealers.
The BCSC also reports that it took more action than it has in the past as a result of compliance reviews, including imposing conditions on the registration of seven firms.
“In the past year, we identified a number of firms that had significantly higher than average deficiencies. As a result, we took compliance actions against these firms and imposed registration conditions on firms more frequently than we have in previous years. In some cases, we are working on enforcement actions,” the BCSC’s report notes.
In the year ahead, the BCSC says that it will continue to focus its compliance reviews on the most common deficiencies it sees, including adherence to KYC, suitability, and CRM2 requirements.
“We recommend that CCOs review this report card, as well as ongoing guidance from [Canadian Securities Administrators] staff notices to ensure their compliance programs meet regulatory requirements and to reduce the likelihood of adverse findings in a BCSC compliance review,” says Mark Wang, director of capital markets regulation at the BCSC, in a statement.
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