Consultation Paper (Phase II) – Competency Profiles for Directors, Executives, Ultimate Designated Persons, Chief Compliance Officers, and Chief Financial Officers

21-0153
Type: Administrative Notice> Request for Comments
Distribute internally to:
Institutional
Legal and Compliance
Retail
Training

Contact:

Sherry Tabesh-Ndreka
Director, Registration
Telephone:
Email:

Executive Summary

Introduction

The Investment Industry Regulatory Organization of Canada (IIROC) is in the process of developing and publishing competency profiles for all IIROC approval categories1. Last year we published for comment the first phase of this project, which involved the development of competency profiles for our Registered Representative (RR) and Investment Representative (IR) categories.2

The second phase of this project is the publication of competency profiles for Directors3, Executives4, Ultimate Designated Persons (UDPs), Chief Compliance Officers (CCOs), and Chief Financial Officers (CFOs).

We are publishing this Consultation Paper to solicit feedback on our proposed competency profiles for Directors, Executives, UDPs, CCOs, and CFOs.

How to submit comments

We invite interested parties to make written submissions on the Consultation Paper. Please submit your comments in writing via email (only) by December 29, 2021 to:

Sherry Tabesh-Ndreka, Director, Registration
Investment Industry Regulatory Organization of Canada
Suite 2000, 121 King Street West, Toronto, Ontario M5H-3T9
Email: [email protected]

Commentators should be aware that a copy of their comment letter will be made publicly available on the IIROC website at www.iiroc.ca.

  • 1. The list of IIROC Approved Person categories is in IIROC Dealer Member Rule 1.
  • 2. IIROC Notice 20-0174 Consultation Paper- Competency Profiles for Registered Representatives and Investment Representatives, Retail and Institutional
  • 3. As defined in IIROC Dealer Member Rule 1
  • 4. As defined in IIROC Dealer Member Rule 1
Table of contents
  1. Introduction

IIROC has committed to setting and publishing competency standards in order to strengthen and enhance confidence in its proficiency regime. The background relating to the decision to develop and publish competency profiles for all IIROC Approved Persons, and the structure of the various phases, was fully discussed in IIROC Notice 20-0174 (the 2020 Notice).

A competency profile is generally a set of knowledge, behaviours and skills that an individual must have to perform effectively in their role.

Similar to the approach outlined in the 2020 Notice, this phase of the initiative also involved extensive participation across multiple IIROC departments and external industry committees and groups. We similarly continued to engage the services of an external consultant who specializes in adult learning. IIROC recognizes the importance of engaging in a broad consultation in order to obtain meaningful input from individuals and groups with both relevant and varied experience. This Consultation Paper will further our efforts to ensure our stakeholders have the opportunity to provide their input and feedback.

  1. Purpose of published competency profiles

As stated in the 2020 Notice, the publication of competency profiles will:

  • represent a proficiency benchmark allowing IIROC to evaluate course providers,
  • provide education service providers with guidance on course content development, and
  • allow Dealer Members and Approved Persons to better understand the proficiency expectations and potentially play a more active role in meeting those standards and maintaining the competence of Approved Persons.
  1. Development of competency profiles

  1. Structure & Timing

Given the volume and complexity of the categories involved, the competency profiles will be developed in three phases over the course of a few years:

  • Phase I: RRs and IRs (published for comment on August 18, 2020)
  • Phase II: Executives, Directors, UDPs, CCO, and CFOs
  • Phase III: Supervisors, Traders, Associate Portfolio Managers and Portfolio Managers5

This Consultation Paper discusses the results of our Phase II competency profiles. As we receive and review public comments for this phase, we will commence Phase III. We estimate that the final publication of all profiles will take place by early 2024.

  1. Participants & Consultation

IIROC recognizes the need to engage a diverse group of subject-matter experts to assist in the development of competency profiles. The participants vary depending upon the category under consideration. We retained the services of Metrix Group, an independent consultant who specializes in learning solutions and has expertise in developing competency profiles.

For Phase II, we used internal and external working group sessions to help obtain information regarding the requisite knowledge, behaviours and skills for a Director, Executive, UDP, CCO, and CFO to perform effectively in their role. External groups consulted included the IIROC Proficiency Committee, a working group of the Financial Operations Advisory Committee (FOAS), as well as some of our advisory committees.

  1. Comparative Research

As part of the Phase II analysis conducted internally, we reviewed relevant competency profile models, guidance on role-specific expectations and other similar documents published by various securities regulators. Among our sources, some specific examples include materials from the US Financial Industry Regulatory Authority (FINRA), the UK Financial Conduct Authority (FCA) and the Australian Securities and Investment Commission (ASIC). In many cases, we noted that it is common for securities regulators to publish competency standards or role-specific expectations for directors and select senior management positions in form of guidance. In others, competencies are formally codified in a manner that carries the force of law. We recognize that there is no uniform approach and that every regulator adopts its own unique form of published framework to meet its particular regulatory needs.

FINRA publishes documents in the form of principal-level exam outlines, which include competencies for conducting oversight over compliance and financial operations functions. Of direct relevance are outlines for General Securities Principals (Series 24), Compliance Officers (Series 14), Financial and Operations Principals (Series 27) and Introducing Broker-Dealer Financial Operations Principals (Series 28). In contrast, the UK FCA publishes its ‘Senior Management Arrangements, Systems and Controls’ sourcebook, which lists training and competency requirements for specific director and senior management activities. ASIC, by comparison, publishes a regulatory guidance relating to organizational competence for Australian Financial Services (AFS) licensees and licensing applicants.6

We also reviewed third-party research materials published by other organizations. For instance, we noted extensive consultation by the International Organization of Securities Commissions (IOSCO) on the compliance function at market intermediaries. The consultation established that the role of senior management is to develop a compliance function, compliance policies and applicable procedures designed to achieve compliance with securities regulatory requirements.

  1. General considerations

In developing competency profiles, we considered the existing regulatory requirements applicable to each Approved Person category. This included a consideration of the current proficiency requirements, including requisite courses. This also included a consideration of applicable securities laws and IIROC rules that IIROC Approved Persons should know and understand, as well as other regulations or information of which they should be aware. This information assisted us during Phase II in determining the appropriate scope of knowledge applicable for Directors, Executives, UDPs, CCOs, and CFOs.

We also closely examined what we would expect in terms of the application of knowledge in order to determine the necessary behaviours and skills.

As noted above, the purpose of competency profiles is to provide guidance to Dealer Members and potential course providers, and also be used by IIROC for benchmarking purposes. As such, in determining the scope of knowledge and related behaviours and skills, we had to keep in mind that our competency profiles need to be presented in a measurable manner. While keeping in mind the importance of measurability and providing specifics, we were careful to not inadvertently create new requirements. Our intention is to reflect the current regulatory framework, requirements and guidance.

  1. Phase II: Specific considerations

The regulatory responsibilities of Directors, Executives, UDPs, CCOs, and CFOs, are an integral part of their leadership roles at the Dealer Member. As such, we considered the general knowledge, as well as the specific regulatory knowledge, they each should have in order to support their leadership positions and the matters for which they are responsible and accountable, both of which are defined by and informed by their authority.

In considering their scope of knowledge, we considered the knowledge that all Directors and Executives should have, and the additional specific knowledge that UDPs, CCOs, and CFOs should have in carrying out their specific regulatory responsibilities.

We considered that UDPs, CCOs and CFOs are also Executives and as such, compared the roles and responsibilities of each of these Phase II Approved Person categories in terms of knowledge, as well as the difference in their behaviour and skills when applying the knowledge.

  1. Proposed competency profiles (Directors, Executives, UDPs, CCOs, CFOs)

  1. Directors

Our proposed competency profile (Appendix 1) for Directors consists of:

  • 4 categories of high-level competencies associated with their oversight responsibilities, accountability and authority. The high-level competencies focus on the following areas:
    • General regulatory framework
    • Corporate governance and ethics
    • Duties, liabilities and defences
    • Risk management and oversight
  • a number of sub-competencies for each category which total 10 sub-competencies across the 4 high-level competency categories.

The proposed competency profile shows the relationship between the four categories and clarifies that matters under their responsibility, for which they may be accountable, informs their authority, and are related and continuous in support of their leadership position within the Dealer Member. It also demonstrates that Directors need to continue to understand and apply the knowledge within each of the categories.

We outlined the knowledge (what they need to understand), along with the behaviours and skills (how they should apply the knowledge) associated with each sub-competency in a separate reference document (Appendix 6).

  1. Executives

Our proposed competency profile (Appendix 2) for Executives consists of:

  • 4 categories of high-level competencies associated with their oversight responsibilities, accountability and authority. The high-level competencies focus on the following areas:
    • General regulatory framework
    • Corporate governance and ethics
    • Duties, liabilities and defences
    • Risk management and oversight
  • a number of sub-competencies for each category which total 10 sub-competencies across the 4 high-level competency categories

The proposed competency profile shows the relationship between the four categories and clarifies that matters under their responsibility, for which they may be accountable, informs their authority, and are related and continuous in support their leadership position within the Dealer Member. It also demonstrates that Executives need to continue to understand and apply the knowledge within each of the categories.

We outlined the knowledge (what they need to understand), along with behaviours and skills (how they should apply the knowledge) associated with each sub-competency in a separate reference document (Appendix 6).

Although the high-level competencies for Directors and Executives are the same, the knowledge as well as the behaviour and skills associated with each of sub-competencies is not always the same. For ease of reference and comparison purposes, we have outlined the knowledge, behaviour and skills associated with each sub-competency for both Directors and Executives in the same reference document (Appendix 6).

  1. UDPs

Our proposed competency profile (Appendix 3) for UDPs consists of:

  • 4 categories of high-level competencies associated with their oversight responsibilities, accountability and authority. Similar to other Executives, the high-level competencies for UDPs focus on:
    • General regulatory framework
    • Corporate governance and ethics
    • Duties, liabilities and defences
    • Risk management and oversight
  • a number of sub-competencies for each category which total 11 sub-competencies across the 4 high-level competency categories.

We considered that UDPs are also Executives and typically the Chief Executive Officer of the Dealer Member, or in a similar position.7 In developing the sub-competencies, we therefore focused on their additional regulatory responsibilities in their role as UDP.

The proposed competency profile shows the relationship between the four categories and clarifies that matters under their responsibility, for which they may be accountable, informs their authority, and are related and continuous in support the UDP’s leadership position within the Dealer Member. It also demonstrates that UDPs need to continue to understand and apply the knowledge within each of the categories.

We outlined the knowledge, along with behaviours and skills associated with each sub-competency in a separate reference document (Appendix 6) which also includes, for ease of reference and comparison purposes, the sub-competencies applicable to Directors as well as all other Executives.

  1. CCOs

Our proposed competency profile (Appendix 4) for CCOs consists of:

  • 5 categories of high-level competencies associated with their oversight responsibilities, accountability and authority with a focus on:
    • Compliance Functions and Operations
    • Risk Management
    • Regulatory Reporting, Examinations, Investigations and Actions
    • Compliance Responsibilities
    • CCO duties and obligations
  • a number of sub-competencies for each category which total 13 sub-competencies across the 5 high-level competency categories.

We considered that CCOs are also Executives and subject to the competencies that are applicable to all Executives. The competencies applicable to CCOs are in addition to the sub-competencies applicable to all Executives.

The proposed competency profile (Appendix 4) for CCOs shows the relationship between the five categories and clarifies that matters under their responsibility, for which they may be accountable, informs their authority, and are related and continuous in support of the CCO’s leadership position within the Dealer Member. It also demonstrates that CCOs need to continue to understand and apply the knowledge within each of the categories.

We outlined the knowledge (what they need to understand), along with the behaviours and skills (how they should apply the knowledge) associated with each sub-competency in a separate reference document (Appendix 7).

  1. CFOs

Our proposed competency profile (Appendix 5) for CFOs consists of:

  • 7 categories of high-level competencies associated with their oversight responsibilities, accountability and authority with a focus on:
    • General Financial requirements
    • Capital adequacy, books and records, and reporting
    • Credit risk management and customer accounts
    • Inventory, pricing of securities, and underwriting
    • Operations and settlement
    • Protection of firm and client assets
    • Other capital provisions.
  • a number of sub-competencies for each category which total 31 sub-competencies across the 7 high-level competency categories.

We considered that CFOs are also Executives and subject to the competencies that are applicable to all Executives. The competencies applicable to CFOs are in addition to the sub-competencies applicable to all Executives.

The proposed competency profile (Appendix 5) for CFOs shows the relationship between the seven categories and clarifies that matters under their responsibility, for which they may be accountable, informs their authority, and are related and continuous in support of the CFO’s leadership position within the Dealer Member. It also demonstrates that CFOs need to continue to understand and apply the knowledge within each of the categories.

We outlined the knowledge (what they need to understand), along with the behaviours and skills (how they should apply the knowledge) associated with each sub-competency in a separate reference document (Appendix 8).

  1. Next steps

Following the closing of the comment period on December 29, 2021, we will review the comments and update the competency profiles as appropriate.

Subsequently, Staff will publish consultation papers on the other IIROC approval categories. The next phase will be competency profiles for Supervisors, Traders, Portfolio Managers, and Associate Portfolio Managers.8

Once all comment periods are closed and necessary updates made, Staff will publish the final competency profiles for all approval categories well in advance of the expiry of the next contract with the Canadian Securities Institute (CSI), IIROC’s current course provider.9

Prior to the publication of the final competency profiles, Staff will consider the impact of other initiatives (example, Client Focused Reforms) on the competency profiles and update them accordingly. Staff will also review the IIROC proficiency rules for any amendments required.

  1. Consultation

Please submit your comments on the Consultation Paper in writing via email (only) by December 29, 2021 to:

Sherry Tabesh-Ndreka
Director, Registration
Investment Industry Regulatory Organization of Canada
Suite 2000, 121 King Street West, Toronto, Ontario M5H-3T9
Email: [email protected]

Commentators should be aware that a copy of their comment letter will be made publicly available on the IIROC website at www.iiroc.ca.

  1. Applicable Rules

IIROC Dealer Member Rule 1- Definitions of Approved Person, Directors, Executives

IIROC Dealer Member Rule 38- Compliance and Supervision

IIROC Dealer Member Rule 2900- Proficiency and Education


Supporting documents

Appendix 1 - Competency Profile- Directors

Appendix 2 - Competency Profile- Executives

Appendix 3 - Competency Profile- Ultimate Designated Persons (UDP)

Appendix 4 - Competency Profile- Chief Compliance Officers (CCO)

Appendix 5 - Competency Profile- Chief Financial Officers (CFO)

Appendix 6 - Reference document for “Competency Profile- Directors”, “Competency Profile- Executives”, “Competency Profile- UDP”

Appendix 7 - Reference document for “Competency Profile- CCOs”

Appendix 8 - Reference document for “Competency Profile- CFOs”

  • 5. Portfolio Manager and Associate Portfolio Manager will be introduced as separate IIROC approval categories with the implementation of the IIROC Plain Language Rules.
  • 6. https://asic.gov.au/media/5540648/rg105-published-1-april-2020-2.pdf
  • 7. Pursuant to IIROC Dealer Member Rule 38.5(b), the UDP is required to be (i) the Chief Executive Officer or sole proprietor of the Dealer Member, (ii) an Officer in charge of a Division of the Dealer Member, if the activity that requires the firm to register under provincial or territorial securities laws occurs only within the division, or (iii) an individual acting in the capacity similar to that of an Officer described above.
  • 8. Portfolio Manager and Associate Portfolio Manager will be introduced as separate IIROC approval categories with the implementation of the IIROC Plain Language Rules.
  • 9. IIROC Notice 20-0174 discusses the contract renewal period with the Canadian Securities Institute.

Other Notices associated with this Consultation: