The British Columbia Securities Commission is continuing to find an elevated number of compliance deficiencies in the firms that they supervise directly, which includes portfolio managers, investment fund managers and exempt market dealers (EMDs).
The BCSC’s 2018 Annual Compliance Report Card reveals that the BCSC conducted 23 compliance reviews and found 151 deficiencies in fiscal 2018, averaging 6.6 deficiencies per review. That compares with 6.6 per review in 2017, 4.3 in 2016 and 4.6 in 2015.
Inadequate policies and procedures — including questionable risk management, outdated manuals, and weak cybersecurity policies and procedures — was the single most common category of deficiencies, the commission says in a news release. “Other common problems included inadequate disclosure, especially about the registrant-client relationship, and patchy efforts to ensure the suitability of investments for each client,” the BCSC says.
These reviews are increasingly leading to enforcement action, the BCSC says, with four cases being referred from compliance to enforcement in the last year. Additionally, the commission imposed restrictions on two firms as a result of its compliance findings. One of those firms decided to give up its registration, and two others dropped their registrations during their compliance exams, it notes.
“When we find lapses that are systemic or particularly harmful to investors, we won’t hesitate to use our powers of enforcement,” says Peter Brady, executive director at the BCSC, in a statement. “When warranted, we want to make such lapses a matter of public record, to deter such behaviour by other firms. Ultimately, we think that our compliance reviews and enforcement actions will drive the small portion of registrants that have not focused on compliance to bring their efforts in line with the vast majority of registrants that work hard to comply with all their obligations.”
Looking ahead, the commission’s next round of compliance reviews will continue to focus on persistent issues, such as deficiencies in policies and procedures, know-your-client and suitability concerns, and compliance with the client relationship model requirements. Cybersecurity and firms’ treatment of senior investors are new areas for the coming year, the BCSC says, noting that it “will continue to select firms for review based on significant changes of business, revenue, or size.”