The Canadian Investment Regulatory Organization (CIRO) is updating its exam timeline for mutual fund dealers and sharing what its areas of focus will be during upcoming exams for all dealers.
Beginning this year, CIRO will align its mutual fund dealer compliance exams with its fiscal year, which runs from April 1 to March 31, the regulator stated in its compliance priorities report released Wednesday. Previously, exams were conducted on a calendar-year basis.
The report “helps members focus their supervision and risk-management efforts to comply with our regulatory requirements in a way that is appropriate for their unique business models,” said Andrew J. Kriegler, president and CEO, in a release.
This year’s exams of both mutual fund and investment dealers will include, in part, a focus on the second phase of the client-focused reforms (CFRs).
CIRO is conducting another compliance sweep, this time focused on know-your-client, know-your-product and suitability obligations. Some testing has already occurred, and the regulator said its exams this year will focus on areas such as:
- ensuring registrants identify a reasonable range of alternatives when making recommendations and documenting why the final option was selected
- assessing clients’ risk capacity and tolerance
- assessing the firm’s and the rep’s processes for conducting adequate product due diligence
CIRO’s previous sweep, which focused on the CFRs’ conflict-of-interest provisions, showed that most firms were not meeting their obligations.
During exams, CIRO will continue evaluating compliance with regard to misleading communications, including those related to advisor ranking contests that are based partly or entirely on sales activity, revenue generation or assets under management.
“Dealers should have policies and procedures addressing compliance with this aspect of CIRO rules on misleading communications,” the report said. “The best practices we have seen include not allowing participation in such contests or requiring pre-approval before allowing participation in any contest.”
CIRO also warned that advisors shouldn’t wait until the last minute to complete their continuing education (CE) credits.
Nov. 30 of last year marked the end of the first CE cycle for mutual fund dealers, and CIRO praised both fund and investment reps for “a very high compliance rate.”
However, many advisors submitted their credits toward the end of the cycle, which “caused significant strain and burden on CIRO staff to follow up with members and to respond to last-minute inquiries and requests,” the report said. “We would like to remind all individuals to plan to meet their CE requirements over the course of the two-year cycle to ensure that they are not increasing the risk of being non-compliant and adding undue burden.”
Cybersecurity remains a top concern for CIRO as well.
Similar to last year, the regulator found lack of adequate documentation of policies and procedures, and insufficiently detailed policies and procedures.
This year, CIRO highlighted that firms were not defining “substantial harm” and “material impact” in their policies, which made it difficult to easily assess whether a cybersecurity incident should be reported to CIRO.
CIRO also found that firms continue to struggle with applying client identifiers (such as account numbers) when trading for a single client, and applying multiple-clients and bundled order markers when trading for multiple clients or client types.
“While corrections after the fact are important to submit, accuracy at the time of entry is essential to enable proper supervision,” the regulator stated.
CIRO noted that interest in dual registration remains high. CIRO has approved six firms as dual-registered dealers: AimStar Capital Group Inc., Assante Capital Management Ltd., Designed Securities Ltd., iA Private Wealth Inc., Manulife Wealth Inc. and Nour Private Wealth Inc.