Independent Book of Record (IBOR): Is your PMS compliant?

This article was produced in partnership with Croesus

Maintaining an Independent Book of Record (IBOR) is a critical requirement for Canadian portfolio managers, regardless of the size of your firm. Meeting compliance standards can be challenging, especially for smaller firms with limited resources. However, a few leading Canadian WealthTech providers offer solutions tailored to the specific needs of the country's financial professionals.

"As a Canadian WealthTech, Croesus has a long history of ensuring its solutions align with Canadian regulatory requirements, and IBOR is no exception," says Raghid Nami, product leader for Croesus. “Our portfolio management system (PMS) is designed to streamline record-keeping and reconciliation, mitigate operational risks, and empower wealth managers to make informed decisions, ultimately enhancing their ability to serve their clients effectively."

In this article, we explore how a compliant PMS can transform IBOR compliance from a potential burden into a source of improved efficiency and growth. This article is for informational purposes only and is based on our interpretation of applicable laws and regulations and should not be construed as legal advice of any kind.

What is an Independent Book of Record (IBOR)?

An IBOR is a comprehensive set of policies, procedures, tools, and systems that allow a wealth management firm to maintain a record of its business activities, financial affairs, and client transactions. The objective is to maintain a repository of all records pertaining to the investment firm's affairs as well as their clients' investment data. This ensures proper reconciliation and consistency of data across front, middle, and back-office functions.

Importantly, the IBOR is distinct from records maintained by third parties like custodians or broker-dealers. This serves as the firm's official record, providing an independent and auditable view of operations and client activities. To ensure transparency and accountability, the IBOR must be readily accessible to auditors and regulators, and a clear mechanism must be in place to address any potential discrepancies with third-party data.

"Over time, many registered portfolio managers working with CIRO dealer members have started relying on the brokerage's records instead of keeping their own book of records. But regulators are worried about this, so they've made it clear that investment managers need to keep their own independent records of all their clients' investments and trades. In fact, regulators have been issuing guidance notices since 2016, trying to clarify this requirement after multiple firms have failed audits," says Nami.

This legislation is consolidated in National Instrument 31-103 and its Companion Policy 31-103 CP. The Canadian Securities Administrators (CSA) have since issued two clarifications in CSA Staff Notice 31-347 and 31-350. And the Ontario Securities Commission has issued another clarification in addition to the CSA's notices in OSC Staff Notice 33-755 to further clarify expectations.

The requirement for Canadian firms to maintain an IBOR stems from a broader regulatory framework aimed at ensuring investor protection and market integrity.

Why is IBOR important for wealth managers?

Maintaining an IBOR goes beyond mere compliance; it's a strategic imperative for wealth management firms. Beyond ensuring accurate and comprehensive data, the IBOR serves as the cornerstone of robust risk management and client trust.

Regulators demand meticulous reconciliation of the IBOR against third-party custodian records. They require comparative analysis to detect discrepancies, not just superficial data import. To enhance efficiency, it’s crucial for Canadian professionals to be equipped with a PMS that facilitates these reconciliations. This rigorous process guarantees data integrity, establishing a verifiable audit trail that aligns with the highest standards of integrity.

The implementation and maintenance of an IBOR aim to mitigate several risks faced by wealth management firms. 

Firstly, it allows them to avoid the pitfalls of inaccurate or incomplete information resulting from undue reliance on third-party records.

Nami adds that “reconciling the IBOR against custodian records significantly reduces operational risks. Discrepancies can lead to errors in investment decisions, settlements, and reporting, such as incorrect book values, missing cash flows, or performance miscalculations.”

Furthermore, by adhering to IBOR regulations, firms enhance their compliance with broader regulatory reporting requirements. 

“Regulators rely on consistent data to monitor market activities, detect anomalies, and enforce rules. Maintaining a reconciled IBOR ensures that reported positions accurately reflect actual holdings, thereby facilitating compliance with regulatory standards,” says Nami.

Ultimately, maintaining a reconciled IBOR ensures that portfolio managers have a comprehensive and independent view of their clients' investments. Then, they can act in their best interest, demonstrating that the advisor is fulfilling their fiduciary duty. This fosters trust and confidence, leading to stronger client relationships and improved business outcomes.

The Consequences of Non-Compliance

Non-compliance with IBOR can have a ripple effect, impacting wealth managers on multiple fronts. 

"From regulatory penalties and reputational damage to operational vulnerabilities and business disruptions, the consequences can be significant. Prioritizing IBOR compliance is not just about meeting requirements, it's about safeguarding your firm's future," says Nami.

How does technology help wealth managers achieve IBOR compliance?

Only a few leading Canadian WealthTech providers like Croesus offer a PMS with a suite of features designed to assist wealth managers in establishing and maintaining a compliant IBOR.

Centralized data management

An IBOR compliant PMS should help centralize and manage the reconciliation and maintenance of all the relevant information, including client information, transactions, holdings, and performance metrics. This eliminates the need to rely solely on records from external parties, like custodians and investment dealers, ensuring data independence and control.

Automated reconciliation

The right PMS should offer automated reconciliation tools that allow firms to compare their PMS’s IBOR with records from custodians and other third parties. This helps identify and resolve discrepancies efficiently, reducing the risk of errors and ensuring data accuracy. 

Secure and controlled access

A robust PMS provides secure and controlled access to data, ensuring that only authorized personnel can view and modify information. This helps maintain data integrity and confidentiality, meeting the requirements of privacy laws and industry best practices. 

Rapid retrieval and regulatory access

An advanced PMS allows for rapid retrieval of data in various formats, facilitating regulatory audits and reporting. This ensures that firms can respond promptly to regulatory requests and demonstrate compliance with ease.

Built-in compliance and oversight tools

A sophisticated PMS incorporates built-in compliance and oversight tools that help firms monitor their activities and identify potential risks. This includes features for tracking KYC/KYP information, managing conflicts of interest, and generating compliance reports.

Business continuity and disaster recovery

A reliable PMS offers robust business continuity and disaster recovery capabilities, ensuring that data is protected and accessible in the event of an unforeseen disruption. This aligns with regulatory expectations for business continuity planning and helps firms maintain operational resilience.

Implementing Croesus for IBOR compliance

Maintaining an IBOR is a critical aspect of compliance for wealth managers in Canada. As a Canadian company that adheres to the country’s regulations, Croesus understands the importance of IBOR compliance for Canadian wealth managers. 

Nami states that "Croesus has been offering a reliable solution for investment dealers and custodians to perform independent reconciliations of their own books of records. Portfolio managers can also leverage the power of Croesus solutions to do the same.”

Not only does Croesus’s PMS streamline record-keeping and reconciliation processes, it also empowers wealth managers with the tools and insights to make better informed decisions, mitigate risk, and ultimately enhance client service. 

With Croesus, IBOR compliance transforms from a potential burden into a source of improved efficiency and growth.