This article appears in the Mid-October issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The Canadian Investment Regulatory Organization (CIRO) has a bold plan to remake how reps are trained and approved to work in the investment business.
The new self-regulatory organization (SRO) completed a public consultation on a proposed overhaul of its proficiency model. The SRO is seeking to replace the long-standing approach it uses to qualify people to work in the industry, which is focused on courses from a single provider, the Canadian Securities Institute (CSI).
The proposed model — based on exams that test for knowledge while permitting aspiring registered representatives to choose the courses used to prepare for those exams — is similar to the approach used by the U.S. Financial Industry Regulatory Authority (FINRA).
CIRO’s review concluded that “assessments based on competencies and not based on courses are a best practice.” It also found that having exams and courses offered by the same provider can create a conflict of interest.
As a result, CIRO is proposing an exam-based model that would require aspiring reps to first pass a general qualifying exam before taking additional tests tied to nine specific registration categories, including retail rep, institutional rep, trader and portfolio manager.
The proposed approach is intended to make the licensing regime cheaper and more flexible while also enabling regulators to raise proficiency standards. The proposal has widespread support.
“We support a competency-based approach to proficiency because it focuses on the knowledge and skills an investor would reasonably expect from a registered individual. It may also align Canada with best practices in other jurisdictions,” stated FAIR Canada’s submission.
A revamped proficiency model gives CIRO “an ideal opportunity to increase the competency and proficiency standards,” the Canadian Advocacy Council of CFA Societies Canada’s (CAC) submission stated. The SRO can do this, the CAC said, “by ensuring that exams are meaningful tests of knowledge and competency prior to registration.”
The submission from Advocis said the current model has prevented competition in the provision of advisor education, with aspiring advisors “required to enrol in costly and outdated courses from a specific provider.”
Similarly, the Financial Planning Association of Canada said the change would allow CIRO to “control the level of proficiency tested, which we feel can be better managed for the public interest than the current for-profit provider,” it stated.
The CSI has served as that central provider for more than 50 years. It was created in 1970 as a unit of the industry’s original SRO, the Investment Dealers Association of Canada (IDA), to educate and test industry personnel. The IDA converted the CSI to a for-profit corporation in 2002, and sold it to a private equity fund in 2005.
The proceeds of that sale were used, in part, to launch the Investment Industry Association of Canada (IIAC) when the IDA separated its regulatory and trade association functions and ultimately created CIRO’s predecessor, the Investment Industry Regulatory Organization of Canada.
Support for CIRO’s education proposal was not unanimous. Perhaps unsurprisingly, the industry education sector is pushing back.
CSI’s submission argued in favour of the current approach, stating that a study CSI commissioned found that FINRA’s exam-based system results in a “wide range in quality and consistency” among exam-prep providers.
“An examination cannot test everything. Rather it is the combination of an examination and learning that would promote proficiency and contribute to increased investor confidence and protection,” CSI’s submission stated.
Toronto-based Learnedly Canada Inc. also called for maintaining the status quo, arguing that the Canadian industry isn’t big enough to sustain a “high-quality and competitive market of education providers through an open proficiency model.”
Instead, Learnedly suggested the SRO allow competition for the course provider function and select a provider for another five years, giving the SRO more time to evaluate an open model.
CIRO would adopt the new proficiency model when its contract with CSI expires at the end of 2025.
Other commenters suggested CIRO go ahead with a test-based proficiency model but accredit the education providers.
Accreditation “will impact the training quality, variety and the number of trained individuals available for hiring,” Toronto-based Oliver Solutions said in its submission. Outsourcing accreditation to a third party would be more efficient, it added.
FP Canada also warned about the consequences of a dearth of standards. “A lack of consistent quality across education providers can also create risk for CIRO, and undermine the efforts taken to raise the competency levels,” its submission stated.
CIRO should adopt measures to help ensure high standards, suggested Hunstville, Ont.-based SeeWhy Financial Learning Inc. Its submission recommended developing a syllabus for education providers to follow, and compiling a long list of potential test questions that would mitigate teaching to the test.
The consultation raised other questions. The SRO proposed mandatory training on ethics and conduct, and plans to introduce a baseline education or work experience requirement before a new rep can be licensed. And CIRO would require a firm to sponsor aspiring reps who have passed the general industry exam before they can take the licensing tests.
Some of these proposals sparked concerns.
The IIAC said both the proposed experience requirement and the firm sponsorship requirements should be dropped, arguing such prerequisites would create barriers to entry and obstacles to reps expanding their proficiency.
Several industry firms also pushed back on the proposed firm sponsorship requirement. For example, IG Wealth Management warned that independent dealers that can’t support aspiring reps between exams would be particularly disadvantaged.
“As proposed, the sponsorship requirement will result in significant cost, resource, and time impact for both dealers and potential candidates and will disproportionately impact independent dealers,” IG’s submission said.
However, the CAC said the proposed firm sponsorship provision would benefit aspiring reps.
“This requirement will help ensure that there is a tangible nexus between the completion of industry exams and the attainment of registerable employment, and encourage that the burden of licensing costs be borne by CIRO member employers rather than job-seeking individuals,” it said.
This requirement also would help guard against exam prep providers making false promises to potential students about their job prospects to boost enrolment, the CAC suggested.