The Investment Industry Regulatory Organization of Canada has published a report setting out the results of its first round of compliance examinations, highlighting the range of compliance weaknesses it has found so far, and the areas it will be examining in the year ahead.

The report reiterates a couple of industry issues that it says firms must deal with: ensuring they have strong and effective compliance and risk control systems, despite the impetus to cut costs in the face of the recession; and ensuring that they proactively review new products, particularly as firms expand into non-traditional securities.

The IIROC reports that the majority of member firms “have worked hard to be compliant” with the rules, and that firms “were generally quite responsive to any deficiencies indicated by IIROC examination staff and in most cases corrected these issues during the examination year”.

However, it did uncover some activities that require further attention to ensure compliance. Common compliance deficiencies include: inadequate supervision, inadequate internal control procedures and testing documentation, and inaccurate or incomplete books and records.

Some of the specific deficiencies it uncovered include: inadequate margin provisions, inaccurate daily and weekly capital position reporting, missing or inaccurate anti-money laundering documentation, unsupervised advertising/sales literature, unsupervised research, inadequate management of grey and restricted lists, inaccurate audit trail and order markers, missing trade confirmation disclosures, trade through issues, and instances of attempted high closing.

Many of these issues will also be a focus of the current regulatory examination program, it notes. “All of these areas require member firms to both review and test these activities to ensure compliance with IIROC rules,” it says. “Firms are reminded that in preparing for the current year’s examinations by IIROC, they should pay attention to the deficiencies discussed in this notice.”

Additionally, IIROC has also planned regulatory sweeps in the coming year to test for compliance in specific areas, including product due diligence and best execution.

IE