The Investment Industry Regulatory Organization of Canada (IIROC) is readying rule changes and beefing up its compliance exams in anticipation of the client-focused reforms (CFRs) being phased in in over the next two years.
IIROC issued a report on Friday detailing its compliance priorities for the coming year, including the implementation of the Canadian Securities Administrators’ (CSA) CFRs. According to the report, IIROC is developing amendments to conform its rules with the CFRs. The amendments will be sent to the self-regulatory organization’s (SRO) board in early 2020.
IIROC said that it is also revising its exam process to test for compliance with the CFRs.
In particular, IIROC’s reforms will require that reps prioritize clients’ interests when determining suitability; increase expectations on dealers and reps to detail the terms the client-advisor relationship; and expand product due diligence requirements.
IIROC noted that it’s also continuing to beef up its testing of firms’ compensation-related conflicts.
“The implementation of the CFRs will play a key role in clarifying dealer requirements, not only in terms of policies and procedures aimed directly at addressing compensation-related conflicts, but also in related areas such as relationship disclosure, suitability and product due diligence,” the report said.
In addition to implementing CFRs, the report also highlighted a number of other areas where the SRO will be focusing compliance attention in 2020, including firms using clauses in retail account agreements designed to limit liability (IIROC issued guidance on this earlier this year); deficient registration filings; best execution obligations; and cybersecurity.
The report also highlighted IIROC’s ongoing efforts to support industry innovation. IIROC has assembled a “transformation team” of senior IIROC staff that will focus on emerging innovation issues within the industry.
“We will focus on responding to industry changes with appropriate regulation that does not compromise investor protection, choice or market integrity, and to better serve Canadians and support healthy Canadian capital markets,” the report said.
Among other things, the report said that IIROC will also be publishing guidance on the use of automation by dealers and dealers’ obligation to report the introduction of new business lines and processes, along with changes to business models, in the coming year.
“This report helps the firms we regulate focus their supervision and risk management efforts so that they can comply with IIROC’s regulatory requirements in a way that is most appropriate for their unique business models,” said Irene Winel, senior vice-president, member regulation and strategy, at IIROC.
Other areas of focus for the year ahead include the ongoing development of a regulatory framework for crypto assets; imposing terms and conditions on dealers that fail to address compliance deficiencies; and holding another cybersecurity table-top exercise for small and medium-sized firms in 2020.