The Canadian Securities Administrators (CSA) today released the Oversight Review Report that focuses on certain functional areas and key processes of the Investment Industry Regulatory Organization of Canada (IIROC).
This coordinated review was conducted jointly by eight of the provincial securities regulators that recognize IIROC: the Alberta Securities Commission, the Autorité des marchés financiers, the British Columbia Securities Commission, the Financial and Consumer Affairs Authority of Saskatchewan, the Financial and Consumer Services Commission of New Brunswick, the Manitoba Securities Commission, the Nova Scotia Securities Commission, and the Ontario Securities Commission. IIROC is also recognized by the Office of the Superintendent of Securities, Newfoundland and Labrador and the Office of the Superintendent of Securities Office P.E.I (Recognizing Regulators).
The Recognizing Regulators adopted a risk-based methodology for this review, assessing the overall risk of each functional area and/or key processes of IIROC. The objectives of the review were to:
· assess whether IIROC was in compliance with the relevant terms and conditions of its recognition orders;
· evaluate whether the identified regulatory processes were operating effectively; and
· determine whether IIROC’s key regulatory processes were efficient, consistent and fairly applied.
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Overall, the Recognizing Regulators were satisfied that IIROC met the relevant terms and conditions of the recognition orders in the areas covered during the review period. Nevertheless, a number of regulatory process-related issues were noted in the review that IIROC must address, particularly in the Enforcement and Business Conduct Compliance departments. The CSA will continue to monitor IIROC’s progress in resolving these findings as part of its ongoing oversight activities.
The Oversight Review Report details the objectives, methodology, frame of reference, report format, scope, findings prioritization, overall assessment, and findings of the review, which covered the period from October 1, 2009 to December 31, 2013. The report also includes IIROC’s responses to the findings and the Recognizing Regulators’ evaluation of, and intended follow-up to, those responses.
The Oversight Review Report is available here.
IIROC has issued the following statement in response to the CSA report:
The Canadian Securities Administrators (CSA) plays an important oversight role and we appreciate receiving this valuable feedback and analysis of our operations. We are pleased with the finding that IIROC, overall, is in compliance with the terms and conditions of the Recognition Orders, and we intend to fully address any outstanding findings in order to enhance our regulatory effectiveness.
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This review spans 3.5 years and during that period the capital markets have evolved significantly. IIROC has worked diligently, together with our regulatory partners, to enhance our regulatory effectiveness while adapting to this quickly changing environment.
We are committed to ensuring our regulatory processes remain efficient, consistent and fair and continue to strengthen our internal capabilities to protect investors and promote a culture of compliance within the industry.
IIROC Enforcement actively pursues those engaging in unfair, misleading and abusive practices
Enforcement is a key part of our mandate and we continue to focus on market and member cases which have a serious impact on market integrity and result in significant harm to investors and the capital markets. Our investigative procedures are robust and comprehensive, and we continue to make improvements to strengthen the process.
In closing files, we do not work toward any expected or standardized closure rate. Instead our decisions are governed by a rigorous case selection process (adopted in 2011) and the quality of the evidence obtained.
IIROC works closely with the industry to ensure that firms have robust compliance and risk control programs in place.
We continue to enhance our compliance program to reflect changes in market structure, business risks, investment products, demographics and corporate priorities. We use a risk-based methodology in our regulatory operations and in assessing the financial condition, business conduct and trading conduct of those we regulate.
This risk-based regulatory approach enables IIROC to allocate regulatory resources to firms and issues that have a higher potential to cause risk to the public, and helps firms identify areas where they should be devoting more of their supervision, compliance and risk management efforts.
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We also recognize that there may be different ways to implement an effective supervision, compliance and risk management framework to monitor and comply with IIROC rules and applicable securities laws, and adopt industry best practices.
IIROC uses a top/down approach that involves staff assessment of firm policies and procedures, and related controls. This makes on-site exams more focused and streamlined, i.e. there’s more work upfront to determine the nature and extent of testing required.
We’ve also found that the field work by senior examination staff encourages meaningful dialogue on potential compliance deficiency findings and helps to resolve issues as early as possible.