Canada: IIROC Publishes Its Annual Compliance Priorities Report For 2018/2019

On January 15, 2019, the Investment Industry Regulatory Organization of Canada ("IIROC") published its annual Compliance Priorities Report for 2018/2019. The Report is intended to help IIROC Dealers Members ("Dealers") focus their supervision and risk-management efforts to comply with regulatory requirements in a way that is appropriate for their business model.

IIROC uses risk models to assess each Dealer's risk and to drive the frequency and content of its compliance examinations.

The Report summarizes IIROC's compliance findings from 2018 and priorities for 2019.

Financial and Operations Compliance

  1. Cybersecurity Findings

IIROC organized tabletop exercises in 2018 for small and mid-sized Dealers which highlighted the following:

  • An effective incident response plan must be detailed and specific and identify and define each team member's role and responsibilities.
  • Employee training and awareness are identified by IIROC as high-impact ways to mitigate the risk of insider threats.
  • Cyber insurance is recommended for small and mid-sized Dealers.
  1. Documenting Portfolio Manager Service Arrangements

Dealers that provide recordkeeping and custody services on behalf of clients of registered PMs will be an examination priority for IIROC in 2019.1

Such Dealers are subject to the following minimum requirements:

  • Written Agreements: Dealers must execute agreements with each PM explaining the arrangement and clearly defining the roles and responsibilities of each party.
  • Account Opening and Operation: Each account must be opened in the client's name and the PM must have trading authority over the account.
  • Disclosure: Dealers must provide clients with information as required under IIROC Dealer Member Rule 3500.
  • Client Confirmations and Statements: Dealers are responsible for the custody of client investments and must send a monthly or quarterly statement.

Trading Conduct Compliance

  1. Trading Supervision Obligations under UMIR 7.1

Dealers should assess and document the risks associated with their trading-related activities to determine where their compliance and supervisory efforts should be focused.

A written agreement must be in place for each risk-management or supervisory control before authorizing a third party to perform the control. The terms of this agreement must be confirmed at least annually.

  1. Best Execution Requirements

IIROC will focus its reviews on changes in the best execution requirements introduced on January 2, 2018. Areas of focus include:

  • policies and procedures that consider what factors and elements result in best execution
  • content and disclosure of best execution policies
  • governance around best execution decisions
  • training conducted by the Dealer, including that training is provided to all employees who are involved in the best execution process.

IIROC expects non-executing Dealers to have an informed understanding of how their executing Dealer achieves best execution and how the approach taken will reasonably achieve best execution for their clients.

  1. Electronic Trading

IIROC continues to identify the following issues with Dealers' electronic trading controls:

  • credit/capital limits that do not consider the unique needs of their clients and traders
  • limits set well in excess of what would be appropriate or effective.

IIROC will continue to focus on Dealer risk controls and whether limits are set appropriately for their firm and clients.

  1. Wash Trading

IIROC considers any trade printed on a marketplace that does not result in a change in beneficial or economic ownership to be a "wash trade"

IIROC expects all Dealers to:

  • monitor both client and proprietary wash trading activity;
  • take reasonable steps to minimize this activity; and
  • use available tools that reduce or prevent the occurrence of wash trading where appropriate.

Each Dealer must report any trade not cancelled by the marketplace through a gatekeeper report. IIROC recommends filing a gatekeeper report on a monthly basis.

Business Conduct Compliance ("BCC")

  1. Compensation-related Conflicts of Interest

BCC continues to focus on compensation-related conflicts of interest. Following a review in 2017,2 and the implementation of a conflict-of-interest module in 2018, IIROC reiterates that many firms have not implemented an effective process for identifying and managing compensation-related conflicts.

In 2019, BCC will collect data related to conflict-of-interest findings and assess it for:

  • potential systemic issues
  • areas to increase focus
  • identification of best practices.

BCC examiners will also focus on more complex conflicts including:

  • non-monetary incentives
  • sales targets
  • mutual-fund sales incentives.
  1. Automated/Online Advice

BCC will continue to enhance its testing module for automated/online-advice services offered directly to clients by Dealers to address a growing number of business models involving strategic alliances, referral arrangements and automated advice tools used by advisors.

  1. Order-Execution-Only ("OEO") Platforms

In April 2018, IIROC published guidance that sets out its expectations and the regulatory requirements applicable to all OEO firms.3 IIROC has enhanced BCC test processes to consider the different factors outlined in the guidance.

Registration Deficiencies

IIROC continues to see filing deficiencies as highlighted in past Compliance Priorities Reports, including:

  • deficiencies with Notices of Terminations and filings relating to outside business activities
  • late and incomplete disclosures about regulatory, civil, criminal and financial disclosure items.

IIROC plans on delivering training in early 2019 to Dealers with repeat deficiencies. The Authorized Firm Representatives and Chief Compliance Officers of these Dealers will be required to attend a training session with IIROC's Registration team to ensure they understand their obligations. Basic registration functions and Dealer-specific issues will be reviewed to ensure that IIROC's expectations are clear.

Once IIROC has met with a Dealer, a strict approach to compliance will be taken and any of the following steps may be taken:

  • reject deficient filings in their entirety
  • impose terms and conditions on the Dealer
  • refer matters to Enforcement for potential disciplinary action.

IIROC will also provide training to other Dealers upon request and to new Dealers.

  1. Disclosure of Outside Business Activities

IIROC recommends that Dealers require their Approved Persons to provide periodic attestations regarding Outside Business Activities ("OBAs") and to notify them of any material change to their OBAs. Dealers must provide sufficient detail when describing an OBA and address the potential for conflicts of interest or client confusion that may arise in the specific case. If there are no conflicts of interest or client confusion, the Dealer must outline their reasons for this conclusion.4

  1. False and Misleading Disclosure

IIROC views false or misleading applications as a serious regulatory issue5 and emphasizes the need for Dealers to ensure their applicants and Approved Persons understand the questions in Form 4 IIROC when submitting filings. Individuals must also ensure they have an opportunity to discuss the questions in IIROC Form 4 with the Dealer to answer questions correctly.

  1. Discretionary Exemptions for Portfolio Management

IIROC continues to observe deficient exemption applications for Portfolio Management. Dealers are advised to review the email sent to all Chief Compliance Officers on December 4, 2017 before submitting an application. IIROC emphasizes that this approval category has the most onerous proficiency requirements because of the discretion the position affords. Applicants are expected to demonstrate a high level of experience that is clearly relevant to the discretionary portfolio management activities.

Applicants must either (a) meet IIROC's current requirements under Dealer Member Rule 2900, Part I. A. 6, or (b) seek exemptive relief from Dealer Member Rule 2900, Part I. A. 6, on the basis that they have both:

  • a CIM (either the Canadian Investment Manager or Chartered Investment Manager) designation in good standing, and
  • 48 months of Relevant Investment Management Experience, with 12 months gained in the 36-month period before applying for registration.
  1. Post-licensing Requirements

IIROC believes that RRs and Supervisors have adequate time to complete their post-licensing requirements and that Dealers have ample time to ensure that they do so. Applications for extensions will not be granted unless there are "extreme extenuating circumstances". IIROC will not grant extensions simply because a Dealer does not have a Supervisor to assume the functions.

IIROC automatically suspends Approved Persons and Dealers who do not complete the applicable post-licensing requirements within the relevant time period. RRs must complete the Canadian Securities Course, Conduct and Practices Handbook Course and 90-Day Training Program to be eligible for approval. Once approved, RRs have 30 months to complete the Wealth Management Essentials course, or otherwise face automatic suspension. Similarly, Supervisors have 18 months to attend the Effective Management Seminar.


1 See IIROC Notice 18-0242 - Service arrangements between Dealer Members and Portfolio Managers (December 20, 2018) and CSA Staff Notice 31-347 - Guidance for Portfolio Managers with Service Arrangements with Dealer Members.

2 See IIROC Notice 17-0093 - Managing Conflicts in the Best Interest of the Client - Compensation-related Conflicts Review (April 27, 2017).

3 See IIROC Notice 18-0076 - Guidance on Order Execution Only Services and Activities (April 9, 2018).

4 See OSC Staff Notice 33-749 - Annual Summary Report for Dealers, Advisers and Investment Fund Managers. In addition, guidance about what is a reportable OBA is available in the Companion Policy to NI 31-103, in IIROC Notice 13-0163 - Disclosure and Approval of Outside Business Activities (June 13, 2013), and CSA Staff Notice 31-326 - Outside Business Activities.

5 See CSA Staff Notice 33-320 - The Requirement for True and Complete Applications for Registration.

To view the original article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions