IIROC's annual compliance report identifies dealers' common deficiencies

December 11, 2013

Earlier this week, the Investment Industry Regulatory Organization of Canada released its Annual Consolidated Compliance Report for 2013/2014. The report, which sets out the results of recent targeted reviews and describes IIROC's key priorities for the next fiscal year, is intended to assist dealers in satisfying compliance obligations.

Specifically, the report identifies IIROC's three key areas of compliance focus over the next year, namely (i) financial and operational compliance, including with respect to balance sheet leverage and repo book financing risk management practices, outsourcing of regulatory functions (with IIROC stating that guidance on the subject would be issued by year end), and maintenance of books and records on accounting systems physically located on servers outside a dealer's control;  (ii) surveillance and trading conduct compliance, including in respect of unreasonable or clearly erroneous trades, electronic trading rule requirements, best execution practices and cyber-crime; and (iii) business conduct compliance , including in respect of the implementation of client relationship model provisions, personal financial dealings with clients and outside business activities, and policies and procedures for communicating through social media.

Meanwhile, the report highlights the results of IIROC's targeted compliance reviews. With respect to non-arm's length investment products, IIROC found that a majority of dealers reviewed had appropriate controls in respect of suitability obligations and accredited investor determination in the sale of non-arm's length products. However, issues were identified with respect to conflict of interest disclosure and product due diligence. The report also identifies areas of concern with respect to dealers' best execution practices, books and records, margin requirements for dealers engaged in underwriting, internal controls, safekeeping and custody of customer and firm assets, policies and procedures for supervision of business and trading conduct, manipulative and deceptive trading practices, client compliant handling and various registration related deficiencies.

For more information, see IIROC Notice 13-0296.

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