From the Regulators

A concise guide to recent regulatory initiatives and deadlines

By IE Staff |


Reminder: March is Fraud Prevention Month

"From January 2014 to December 2016, it is estimated that Canadians lost over $290 million
to fraudsters"
– Fraud Facts, the Competition Bureau of Canada



Cybersecurity grabs regulators' attention
Regulators at all levels are making cybersecurity a top priority. Recent initiatives, with notable follow-up actions (in italics), include:

> Mutual Fund Dealers Association (MFDA): The self-regulatory organization (SRO) announced that a mandatory cybersecurity questionnaire will be distributed to members in March. An external consultant is administering the questionnaire. Results will be distributed to individual member firms to provide "guidance in areas where risk has been identified," the bulletin says.

> Investment Industry Regulatory Organization of Canada (IIROC): After issuing confidential report cards to dealers on their cybersecurity readiness last autumn, IIROC said it would be following up in 2017 with firms in cases in which it found a "cybersecurity maturity level below the expected target for their industry peer group."

> Canadian Securities Administrators (CSA): The CSA held a heavily attended roundtable on cybersecurity in Toronto on Feb. 27. The discussion was limited to participants, with a summary report expected from the CSA.

The roundtable followed cybersecurity reviews of 240 S&P/TSX composite index issuers conducted in the latter part of 2016, with a report on the results of those reviews issued in January.

For a summary of that report from the law firm Blake Cassels & Graydon LLP, see: CSA report on cybersecurity disclosure review

For more stories and guidance from Investment Executive on the rising cyber threat and what firms can do to protect their operations, see:

> Fortress data: cybersecurity update

> Firms struggle with cybersecurity

> Create a cybersecurity plan


Social media and investor harm
The CSA released the results of a review of social media disclosure practices by 111 issuers. It found that 77% didn't have specific social media governance policies in place.

Said Louis Morisset, CSA chairman and president and CEO of the Autorité des marchés financiers, in a statement: "Our review revealed concerns about how issuers are using social media websites, including specific instances where deficient social media disclosure may have resulted in material stock price movements and investor harm." See: Canadian securities regulators highlight need for improved social media disclosure practices by reporting issuers


Decoding CRM2, online help with statements
Some online tools were recently posted to help dealers, advisors and clients adapt to the new investing performance and cost reports that many clients started receiving early this year, with a final deadline for the reports in July. These include:

> OSC: OSC introduces CRM2 related website for clients

> MFDA: CRM2 Investors Guide

> IFIC: IFIC campaign encourages investors to open their statements


Working from home
IIROC issued new guidance last month on compliance issues when working from home. The guidance notes that a "business location" where registerable activities take place, or where records relating to such activity are stored, may include a residence. See: IIROC issues guidance for supervising work from home arrangements     


Falsifying client signatures
The MFDA made it clear that taking shortcuts when signing documents remains a serious concern. Specifically, the SRO emphasized that client consent or convenience makes no difference. The caution was issued at the same time as notices of settlement with four reps related to signature falsification. Practices ranging from pre-filled forms, to photocopying, to forging client signatures will continue to be closely monitored. See: Signature falsification a major issue among MFDA-licensed firms


Suitability, KYC, CRM2 will be key in 2017
A must-read bulletin from the MFDA released on Feb. 22 covers several areas of concern for the SRO and provides a roadmap to 2017. Among key activities, the MFDA will be reporting this spring on its massive "Client Research Project," which gathered data on nine million households, 16 million accounts and 61,000 different financial products last year.

Suitability and know-your-client testing continues as a "primary" area, with a very high degree of focus on "transactions that pose a higher risk of being unsuitable," the MFDA's bulletin says.

The MFDA had also released a paper on suitability in January that looks at recent regulatory decisions on the issue.

With respect to the implementation of the second phase of the client relationship model, the bulletin notes that 2017 examinations "will include specific testing focused on [CRM2's] new requirements."



New Margin Requirements:
As of March 1, federally regulated financial services institutions must comply with new margin requirements for non-centrally cleared derivatives. To create harmony with the global derivatives market, the deadline was extended to Sept. 1 for some of these transactions. See: OSFI extends key deadline

New approach for trading supervison:
IIROC has proposed a principles-based approach for trading supervision. Comments on the proposals close March 22, which would give individual firms more flexibility in tailoring oversight of trading to fit their particular compliance risks. See: IIROC proposes shift to principles based approach to trading supervision

Using market data to track misconduct:
The CSA has proposed a new system for identifying long-term patterns in market data used to root out misconduct, such as insider trading. Challenges for regulators include an increasingly fragmented trading system, dark pools and innovations such as "speed bumps." Comments on the proposals close March 30.  See: CSA looking to develop new system for analyzing market data



Here are some recent appointments of note among Canadian securities regulators:

Montreal Exchange (MX): The MX appointed Julie Rochette as vice president and chief regulatory officer. Rochette was previously head of enforcement and legal counsel at the exchange. She will now lead the regulatory division, with responsibility for compliance, market surveillance, investigations and developing regulatory policy, among other duties.

Ontario Securities Commission (OSC): Robert Hutchison and Mark Sandler were each appointed for two-year terms as commissioners at the OSC. Hutchison practised business law with Borden Ladner Gervais LLP for more than 40 years while Sandler, a litigator specializing in criminal and regulatory law, is senior partner at Cooper, Sandler, Shime & Bergman LLP.


For more details on particular entries, visit IE's Compliance Calendar.