compliance puzzle

Citing compliance challenges for investment firms, the Investment Industry Association of Canada (IIAC) is calling on securities regulators to reform the process for enforcing cease trade orders (CTO) in Canada.

In a letter to the Canadian Securities Administrators (CSA), the IIAC set out a series of recommendations that it said would improve the CTO regime. In particular, it’s concerned about the ability of discount brokers to manage the CTO process.

“In our view, the implementation of a coordinated approach to cease trade orders amongst the members of the CSA would greatly improve the ability of [discount brokerage] firms to ensure that investors are adequately protected and treated fairly in circumstances where a securities regulator deems it necessary to issue such an order,” it said.

Among other things, the IIAC recommended that the regulators adopt one national CTO list, which includes standard identifiers and incorporates name changes, and that the CSA website should be aligned with websites of the various provincial regulators.

“Harmonization between all Canadian jurisdictions would greatly simplify the administration of this process for our members, would increase transparency, and in turn, would benefit Canadian investors,” it said.

The IIAC also said that regulators should provide more identifying detail about individuals who are subject to CTOs. Currently, they only provide names, which can make it difficult to properly identify the affected individual.

“Our members have to reach out to anyone who has the same name as an individual with a cease trade order against them. For common names, it creates a large amount of manual work, false matches, and negative customer experiences,” the IIAC said.

Additionally, it said that regulators should clarify certain situations, such as how corporate reorganizations involving firms under CTOs should be handled, and whether securities under a CTO can be transferred from a client’s account to a firm’s error account.

Along with these operational changes, the IIAC also called for the regulators to make a couple of changes to the rules around CTOs.