Report from pan-Canadian regulator underscores ongoing issues and upcoming policy initiatives
The Investment Industry Regulatory Organization of Canada (IIROC) has published its latest compliance priorities report, which outlined its ongoing response to the pandemic as well as policy initiatives it will be focusing on for the year ahead.
“This year has been unlike any other in Canada – and throughout the world – with the COVID-19 pandemic yielding new challenges that required swift, decisive guidance and actions from the investment industry to better protect investors in Canada,” the self-regulatory organization said.
Cybersecurity was a key focus, with the regulator noting an increase in incidents reported since March last year. IIROC emphasized its efforts to review incidents and guide firms on how to respond, particularly through informative web pages and webcasts on its website, educational resources for dealers, and the IIROC Cyber Governance Guide issued in January, which updated its 2015 Cybersecurity Best Practices Guide.
Recognizing the pandemic-driven acceleration in technology adoption, particularly at small and medium-sized firms, IIROC said it expects to publish guidance on how to manage key technology risks and controls, as well as the importance of good governance, before March 31.
The report also touched on the Canadian Securities Administrators’ (CSA) consultation on Canada’s SRO framework. Highlighting it as one of the biggest potential areas for regulatory transformation in Canada, IIROC reiterated its support for a merger with the Mutual Fund Dealers Association of Canada (MFDA), maintaining that it “could ultimately provide significant benefits to investors while also saving the investment industry potentially hundreds of millions of dollars over the next 10 years.”
Amid interest from current and prospective firms about potential regulation of crypto assets, IIROC said it expects to come out with a joint notice with the CSA in the next few months in response to stakeholder comments on a proposed framework for crypto-asset trading platforms that the two organizations released together in 2019. And after hearing from members of its Crypto-Asset Working Group (CWG) on topics such as custody, insurance, and proficiency, to IIROC is also currently looking for a second batch of participants to join for a period of one year.
In preparation for the implementation of client-focused reforms (CFRs) this year, IIROC said it has published for comment new guidance focused on product due diligence and Know-Your-Product requirements, with plans for additional guidance relating to Know-Your-Client and Suitability to be published early this year. To minimize the regulatory burden of transitioning to new compliance regimes, IIROC said it has scheduled December 31 as the implementation date of its Plain Language Rules, in time with the implementation date of amendments related to the CFRs.
And while the ban on trailer commissions for order-execution-only (OEO) firms won’t be effective until June 1, 2022, IIROC is already reminding OEO firms to ensure their systems and processes are compliant with the new rules, including modifying compensation and fee arrangements to align with the new requirements.
“We are in the process of developing and publishing competency profiles for all IIROC Approved Person categories,” IIROC added, noting that it has already come out with proposed competency profiles for registered representatives and investment representatives in IIROC Notice 20-0174. “We continue to work on the competency profiles for the other IIROC Approved Person categories with the next phase being for Executives, Directors, UDPs, CCOs and CFOs.”
