OSC corporate finance report aims to aid compliance

With the client-focused reforms (CFRs) taking effect this year alongside a new plain-language rulebook, the Investment Industry Regulatory Organization of Canada (IIROC) is planning added guidance to help firms cope.

The industry self-regulatory organization published a report Monday outlining industry compliance priorities and challenges for the year ahead.

One of the self-regulatory organization’s (SRO) major focuses is the implementation of the CFRs, which will take place in two stages: certain requirements come into force on June 30 and the rest will be adopted by Dec. 31.

To aid compliance with the new requirements, IIROC said it will publish additional guidance relating to know-your-client (KYC) and suitability obligations.

It also said it’s enhancing its business conduct compliance exam efforts to incorporate the new CFR rules.

In particular the report noted the new requirements related to conflicts of interest that take effect June 30. Reviewing firms’ approach to managing conflicts — specifically compensation-related conflicts — has already been a focus of IIROC’s compliance work for the past several years, it said, but the CFR amendments will raise the bar.

“The reliance on disclosure alone as a means of addressing conflicts will generally not be sufficient, and furthermore the nature of the disclosure must include a description of the manner in which the firm is addressing the identified conflict in the best interests of clients,” the report said.

IIROC will also implement its new plain-language rulebook at the end of 2021, along with the full CFR requirements.

“The simultaneous implementation of these two major initiatives will entail a significant amount of preparation on the part of member firms as well as IIROC,” it said.

Firms must devote adequate resources to these tasks and should raise any implementation questions with IIROC “on a timely basis,” it said.

Alongside these projects, the SRO is also focusing on technology risk, given the shift to remote working and the increase in cyberattacks during the Covid-19 pandemic.

“The pandemic has accelerated the pace of change and adoption of technology at many firms, particularly those that are small- and medium-sized,” IIROC said. “As part of our commitment to support industry transformation, we will publish guidance to firms on technology risk to ensure that the critical risks of such adoption and change are being properly managed.”

The new guidance, which IIROC expects to publish by March 31, “will cover key risks and controls, and the importance of good governance.”

Additionally IIROC said it’s working with the Canadian Securities Administrators (CSA) on a regulatory framework for the fledgling cryptoasset trading business. Investors can expect a joint notice from the two organizations in the coming months, it noted.