Investment industry proficiency requirements – sometimes lost in other regulatory discussions, such as conduct standards and embedded commissions – are set to emerge as another key battleground.
The Canadian Securities Administrators (CSA) is promising to pursue reforms to industry proficiency requirements in a new, stand-alone project rather than as part of a set of “targeted reforms” to the rules governing client/advisor relationships. The Ontario Securities Commission‘s most recent statement of priorities for the coming year states the regulator plans to study the impact of advisors’ titles and proficiency standards on investor protection. Industry self-regulatory organizations (SROs) also are considering changes to advisors’ continuing education (CE) requirements.
The Mutual Fund Dealers Association of Canada‘s proposed new CE requirements, issued earlier this year, have sparked some concern within the industry already. Now, the Investment Industry Regulatory Organization of Canada‘s (IIROC) consultation on possible changes to its CE program also faces criticism.
IIROC proposed several changes to its CE program, due to be implemented at the beginning of next year, along with a broader review of the CE system. The proposals would: shift IIROC’s three-year CE cycle to a two-year cycle; bring the process of reviewing and assessing CE courses in-house; and expand courses that qualify as CE.
A submission to IIROC from Toronto-based industry education provider Smarten Up Institute Inc. (SUI) expresses serious reservations about the direction that industry education is taking: “Dumbing training down, and making things easy, seems to be the trend. The loser is the investor, who may no longer be able to count on having the best educated professional representing [him or her].”
Although SUI acknowledges that it has a stake in the outcome of IIROC’s consultation, the company maintains that its feedback is driven by a belief in the need for better training. SUI objects to the idea of IIROC accepting CE credits from other industries in the financial services sector. For example, SUI’s submission suggests that IIROC might recognize substandard training delivered in the insurance industry.
SUI’s submission also criticizes the prevalence of lax compliance and ethics training, maintaining that the process of reviewing and accrediting courses should be done by an independent entity.
The submission also argues against grandfathering provisions that exempt some advisors from meeting CE requirements: “IIROC should not allow any grandfathering relief, and in SUI’s view, that never should have been available. [Advisors] in the industry [who] are qualified and care about their work never should have had and never should have an issue with writing new exams.”
SUI’s submission also states that regulators should step up their oversight and enforcement of the quality of CE: “Regulators must start enforcing the rules – not just collect fees.”
Although the investment industry in general supports IIROC’s proposals, there are concerns. For example, the industry favours the idea of accepting a broader range of courses and events as qualifying for CE and also supports continued grandfathering. However, there are worries about: the shift to a two-year CE cycle, particularly for newer advisors; plans for IIROC to take over the job of assessing CE courses; and the process for enforcing compliance with the CE requirements.
The comment from the Investment Industry Association of Canada (IIAC) states that the IIAC worries that the move to a two-year cycle will hurt newly licensed advisors. In particular, the IIAC is concerned about the proposal’s cumulative effect on advisors’ obligation to meet the CE requirements unless they enter the industry with less than six months left until the current cycle expires.
“This [proposal] is very onerous – in particular, for new advisors engaged in business development [and] attempting to build their book,” the IIAC’s submission states. Thus, the IIAC recommends that advisors who join the business in the second year of the two-year cycle should have their CE requirements kick in at the beginning of the next cycle.
The IIAC’s submission also questions IIROC’s plans to take over the business of reviewing CE courses from Moody’s Analytics Global Education (Canada) Inc. (formerly CSI Global Education Inc.): “Although moving the review would alleviate conflict-of- interest concerns … this potential conflict [may not have] created actual problems that must be addressed.”
The IIAC is concerned that IIROC doesn’t have the expertise to take over the reviewing role and that building that capability will prove costly for dealers.
In general, though, the idea of IIROC taking on the job of reviewing CE courses is endorsed in the consultation feedback. The submission from the Canadian Advocacy Council for Canadian CFA Institute Societies (CAC) states: “If IIROC conducts the CE course review and accreditation in-house, [that] may foster more competition among outside organizations offering courses.”
The CAC ‘s comment also suggests that recognizing CE requirements from other industries within the financial services sector could “yield great benefits” to investment advisors. However, the CAC’s comment stresses that each program must be “evaluated on a case-by-case basis, focusing on the standard of proficiency and relevancy for a person dealing and advising in securities.”
With the SROs moving to revamp their approaches to CE, the CSA still may not follow suit. The CSA’s original consultation paper (on proposed targeted reforms and a “best interest” standard) flags several concerns with existing industry proficiency requirements, including the lack of explicit CE requirements in the CSA rules and that the current regime may need to be toughened to ensure advisors are trained to meet heightened obligations under the targeted reforms.
Although regulators have pledged to reform several areas – including changes to “know your client” and “know your product” suitability and business titles – the CSA states that toughening proficiency requirements may be a bigger job: “The proficiency reforms may require a longer-term project.”
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