Consultation Paper (Phase III) — Competency Profiles for Supervisors, Traders, Associate Portfolio Managers and Portfolio Managers

22-0132
Type: Administrative Notice> Request for Comments
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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 categories.1 Last year, we published competency profiles for our Director, Executive, Ultimate Designated Person (UDP), Chief Compliance Officer (CCO) and Chief Financial Officer (CFO) categories.2 In 2020, 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.3

The third phase of this project is the publication of competency profiles for Supervisors, Traders, Associate Portfolio Managers (APMs), Portfolio Managers (PMs).4

We are publishing this Consultation Paper to solicit feedback on our proposed competency profiles for Supervisors, Traders, APMs, and PMs.

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 28, 2022 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.

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 Notice1 , and the Notice published last year2 , 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 previous notices, 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 (published for comment on August 31, 2021)
  • Phase III: Supervisors, Traders, Associate Portfolio Managers and Portfolio Managers

This Consultation Paper discusses the results of our Phase III competency profiles. 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 varied 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 III, we used internal and external working group sessions to help obtain information regarding the requisite knowledge, behaviours and skills for a Supervisor, Trader, APM and PM, to perform effectively in their role. External groups consulted included the IIROC Proficiency Committee, a working group of the Conduct, Compliance and Legal Committee (CCLS), as well as some of our advisory committees.

  1. Comparative Research

As part of the Phase III analysis conducted internally, we reviewed relevant competency profile models, guidance on role-specific expectations and other similar documents published by various securities regulators. Specific sources include materials from the US Financial Industry Regulatory Authority (FINRA), the UK Financial Conduct Authority (FCA), the Australian Securities and Investment Commission (ASIC), and various Canadian equity and non-equity exchanges. In general, we recognize that there is no uniform approach to setting competency standards and that every regulator adopts its own unique form of published framework to meet its particular regulatory needs.

FINRA publishes representative and principal-level exam outlines, which include respective competencies for conducting investment research analysis, trading and supervision functions. Of direct relevance are outlines for the Research Analyst Exam (Series 86/87), the Uniform Investment Adviser Law Examination (Series 65, in collaboration with the North American Securities Administrators Association), the Securities Trader Representative Exam (Series 57), the General Securities Sales Supervisor Exam (Series 9/10) and the General Securities Principal Exam (Series 24). In contrast, the UK FCA publishes its Training and Competence (TC) sourcebook that lists prescribed training requirements for portfolio management, traders and supervisors. ASIC, by comparison, publishes regulatory guidance relating to organizational competence for Australian Financial Services (AFS) licensees and licensing applicants.

We considered the applicable requisite training for those trading on Canadian marketplaces.

We made note of materials developed by educational course providers and professional bodies, such as the Canadian Securities Institute and the CFA Institute.

  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 III in determining the appropriate scope of knowledge applicable for Supervisors, Traders, APMs and PMs.

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. Specific considerations for the proposed competency profiles

  1. Supervisors

The regulatory responsibilities of Supervisors are an integral part of their supervisory role 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 supervisory responsibilities 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 Supervisors should have, and the specific knowledge that is applicable for specific types of designated Supervisors in carrying out their specific regulatory responsibilities.

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

  • 3 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
    • Supervisory structure: firm responsibilities
    • Supervisory structure: specific supervision responsibilities
  • a number of sub-competencies for each category which total 17 sub-competencies across the 3 high-level competency categories.

The proposed competency profile shows the relationship between the three 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 supervisory position within the dealer. It also demonstrates that Supervisors 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 4).

  1. Traders

We considered the role of Traders within the capital markets keeping in mind that within the IIROC Rules, a Trader is defined as an individual approved by IIROC as a trader, whose activity is restricted to trading through a Marketplace Member’s trading system, and who may not advise the public.

In reviewing the competency profile for Traders, we considered that currently Traders are required to complete the Trader Training Course, and Traders with the Montreal Exchange (MX) are subject to the MX proficiency requirements. We also kept in mind other regulatory initiatives, including Crypto Trading Platform related discussions and the Derivatives Rules Modernization Amendments and will update the Trader competency profile once there are new relevant requirements in place. Similarly, we will also consider any future amendments or regulatory changes relating to fixed income trading that would impact the roles and responsibilities of Traders to determine what if any updates should be made to the competency profiles for Traders.

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

  • 3 categories of high-level competencies associated with their technical and regulatory skills. The high-level competencies focus on the following areas:
    • Marketplace structure and regulation
    • Trading in capital markets
    • Trading rules, orders and activities
  • a number of sub-competencies for each category which total 14 sub-competencies across the 3 high-level competency categories.

The proposed competency profile shows the relationship between the three categories with respect to a Trader’s regulatory and technical skills. It also demonstrates that Traders 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 5).

  1. APMs and PMs

We considered the role of APMs and PMs in terms of their regulatory responsibilities, and the activities that they are each permitted to conduct keeping in mind the differences in the role of APMs and PMs and also in comparison to the role of Registered Representatives and our proposed competency profiles for RRs.3

Our proposed competency profile (Appendix 3) for APMs and PMs consists of:

  • 6 categories of high-level competencies associated with their relationship skills, regulatory skills and technical skills. The high-level competencies focus on:
    • Regulatory environment and ethics
    • Investment policy
    • Research and analysis
    • Portfolio construction and strategies
    • Portfolio monitoring, evaluation and client reporting
    • Servicing institutions
  • a number of sub-competencies for each category which total of 30 sub-competencies across the 6 high-level competency categories.

We considered that APMs and PMs are permitted to carry activities carried out by RRs and therefore clarified that those competencies are also applicable.

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. Next steps

Following the closing of the comment period on December 28, 2022, we will review the comments and update the competency profiles as appropriate.

Once all comment periods are closed and necessary updates made to the competency profiles published in all three phases, 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 education service provider.4

As noted in previous notices, 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.

We also intend to commence the procurement process with the publication of a Request for Expressions of Interest (REOI) in early fall 2022. The aim of the REOI is to establish a shortlist of potential education service providers for the subsequent Request for Proposal that will eventually lead to the selection of an education service provider following the expiry of the CSI contract on December 31, 2025.

  1. Consultation

Please submit your comments on the Consultation Paper in writing via email (only) by December 28, 2022 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 Rule 1200 - Definitions of Approved Person, Supervisors, Designated Supervisors, Traders, Associate Portfolio Managers, Portfolio Managers

IIROC Rule 2553- Approval of Registered Representatives, Investment Representatives, Portfolio Managers, Associate Portfolio Managers and their obligations

IIROC Rule 2600- Proficiency requirements and exemptions from proficiency requirements

IIROC Rule 3900- Supervision

  1. Supporting documents

Appendix 1 - Competency Profile- Supervisors

Appendix 2 - Competency Profile- Traders

Appendix 3 - Competency Profile- Associate Portfolio Managers and Portfolio Managers

Appendix 4 - Reference document for “Competency Profile- Supervisors”

Appendix 5 - Reference document for “Competency Profile- Traders”

Appendix 6 - Reference document for “Competency Profile- Associate Portfolio Managers and Portfolio Managers”

Other Notices associated with this Consultation: