Although the auditing process is a source of significant frustration for most compliance officers (COs) and company executives surveyed for Investment Executive’s annual Regulators’ Report Card, there were survey participants who praised their regulators for the ability and competence of the auditors who get sent their way.

At the core of a positive auditing experience is openness – regardless of whether a firm is regulated by the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA).

From a CO’s or company executive’s perspective, this means both providing the access auditors require and explaining any distinctive aspects of the firm being audited.

“If you’re open with [auditors], they’re collaborative with you. They’re helpful and understand changes,” says a chief CO (CCO) with an investment dealer in Atlantic Canada. “They really made an effort to see what was unique about our firm.”

“They’re very open to the dialogue and understanding to what the situation is,” adds a director of policy with a mutual fund dealer in Ontario.

From the regulators’ perspective, firms need to be up front with the auditors right from the get-go. “Our goal with our audit or exam process is to involve dealers at every stage of the exam, beginning with the upfront planning,” says Wendy Rudd, senior vice president, member regulation and strategic initiatives, with IIROC.

Providing auditors with this level of openness ensures that they can go beyond their call of duty and be as flexible as they can be on certain mandates – an attitude that doesn’t go unnoticed among the survey participants.

“[Auditors] have certain parameters they can’t change. But within what they can do, they try to build in my unique characteristics as a tiny dealership,” says a CCO with a mutual fund dealer on the Prairies.

“They’re mindful that what they’re testing is relevant to the dealer. It’s not a cookie-cutter approach,” adds a CO with a dual-platform firm in Ontario about IIROC.

Having more receptive and understanding auditors typically doesn’t just happen. For COs and executives, these are relationships that have been developed over time. And taking the time and effort to foster these relationships with auditors and regulators means that for many investment firms that take this course, audits are problem-free.

“We have a good relationship with [auditors] and are able to work together,” says a CCO with a securities dealer in Quebec. “They’re happy with us and we’re prompt with them.”

“We deal with a really good sales compliance manager who is flexible with us and works with us to get stuff done,” adds a director of compliance with a mutual fund dealer in Ontario.

If problems arise during an audit, the survey participants who were pleased with their auditors found that these individuals don’t immediately begin handing out penalties. Rather, they’re open to a firm’s interpretation and willing to give the firm a chance to fix any mistakes it may have made.

“[Auditors from the regulator] always have allowed us to fix things [they have cited verbally],” says a CCO with a securities dealer in Ontario. “Anything with any consequence, we’ve always been able to rebut. They give us opportunity to prove ourselves.”

Although many survey participants at both IIROC- and MFDA-licensed dealers had positive things to say about their regulators’ auditors and the auditing experience, the positive experience was more prevalent among IIROC-regulated dealers.

IIROC received a higher rating than the MFDA in “the regulator’s flexibility when performing audits and examinations of registrants” category (7.2 vs 6.6). In addition, more than 60% of the comments provided by individuals with MFDA-regulated firms were negative; conversely, more than half of the comments provided by IIROC-member survey participants were positive.

There’s consensus among MFDA-regulated dealers that auditors refuse to budge from their mandates. Specifically, they’re not willing to hear a CO’s, company executive’s or financial advisor’s side of the story, which leads to a disconnection between firm and regulator. At the most extreme, there’s a belief that auditors work only to humiliate and make an example of firms.

“[Audits] are rigged, in that auditors have a mandate when they come in for an audit. They’re not all that open to starting a discussion on issues,” says a CCO with a mutual fund dealer in Ontario.

“[Auditors will find] what they want and what they decide. They already make up their minds. Asking for your explanations is just a formality,” adds a CO with a mutual fund dealer in the same province.

The MFDA acknowledges that an audit can be taxing. Karen McGuinness, senior vice president, member regulation, compliance, with the MFDA, recommends that approaching the regulator ahead of time is the best thing a firm can do to enhance its auditing experience when the firm has a material issue or is making a significant change to its operation.

“I would encourage firms to be proactive and come to us with any question, concern or issue,” she says. “[And] when we end an examination, don’t wait for the next one before you decide to implement [something] we talked about – because sometimes we’ll see a repeat deficiency or we’ll see the deficiency was addressed only the month before we got there.”

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