The Business Conduct Risk Assessment Model is a risk management tool to help identify, define, assess and “weigh” risks in respect to IIROC Dealer Members to determine priority focus in the Business Conduct examination cycle of Dealer Members.  The model gives an indication of the comparable risk assessed for each Dealer Member relative to all other firms and relative to other firms in a Peer Group.

The objective of the BC Risk Assessment Model is to identify Dealer Member having a higher than average or lower than average probability of failing to protect customers of the Dealer Member with respect to business conduct matters.  With this information, IIROC further ensures that its regulatory focus is placed on higher risk firms.

The model identifies three risk types, six risk categories and seventeen specific risks.  Each specific risk is assessed and weighted to determine an individual firm business risk score.

The model then calculates the risk control score by identifying two risk control categories and seven specific risk controls. Each specific risk control is assessed and weighted. Risk control is the method the firm uses to mitigate or reduce its business risk. The higher the risk control score, the higher the quality of overall risk control.

The resulting risk control score is discounted and 40% of the score is subtracted from the business risk score to achieve a residual risk score for each firm. The discount factor is applied consistently to all Dealer Member risk control scores to better differentiate residual risk scores.

In summary, the formula for the BC Risk Assessment model is as follows:

Residual Risk Score = Business Risk Score - [40% of Risk Control Score]

Business Risk Weightings

Each risk type is assigned a fixed weighting to differentiate the level of its importance in the model.

Schematic
Residual Risk Rating
Components