This Notice summarizes the significant activities and initiatives that we will focus on in our 2022 fiscal year: April 2021 – March 2022 (FY22).
In addition to delivering on our core mandate of investor protection and market integrity, we have prioritized our focus on the following:
- advancing our various initiatives and commitments related to investor protection
- supporting industry transformation to more effectively and efficiently serve Canadians
- leveraging our learnings to manage the continued implications related to the pandemic
- supporting the CSA in their review of the self-regulatory framework and preparing for potential next steps.
Advancing our various initiatives and commitments related to investor protection
IIROC is a public interest regulator committed to protecting investors and facilitating access to appropriate investment advice for Canadians. There are many key initiatives underway in support of our investor protection mandate.
Expert Investor Issues Panel
We are moving forward with our plan to establish an Expert Investor Issues Panel (EIIP). Earlier this fiscal year, IIROC published a Request for Comments on panel composition, selection process, term limits and governance. The EIIP will be a critical, additional layer to efforts already conducted by IIROC to gauge the public's views on regulatory initiatives and/or other public interest matters. It will enable individuals with a wide variety of experience and expertise related to investors to formally provide valuable input into IIROC's mandate to protect investors and support healthy capital markets.
IIROC is also considering how we can better support investors who suffer losses at the hands of wrongdoers. We are exploring ways to return to investors disgorged funds collected from an advisor or firm disciplined by IIROC. Disgorgement refers to any direct or indirect financial benefit obtained as a result of wrongdoing which may include profits, commissions, fees, compensation or any losses avoided. We anticipate completing our review later this year, at which time we will publish a proposal for input from stakeholders and for CSA review, and seek any required CSA approvals.
Returning wrongdoers' ill-gotten gains to investors would supplement IIROC's existing investor protection efforts as today IIROC does not have the necessary authority to return funds to harmed investors.
Improving the Experience of Complainants
To further deliver on our investor protection mandate, IIROC recently completed research directly with complainants. With the assistance of an independent research firm, we interviewed individual complainants to determine if there are opportunities to improve our complaint handling process. In the short term, IIROC will examine the results of this research closely and determine areas where we can provide better education, clarity and transparency about our processes. We will publish the survey results, and complainant feedback related to issues that extend beyond the limits of IIROC’s mandate will require broader consideration.
The effects of the pandemic and more recently, the trading in “meme” stocks, has led to unprecedented retail trading activity over the last year. This surge in trading created stress across the system. IIROC has historically considered phone delays or electronic platform lapses to be a service issue and not a regulatory matter. However, we are reconsidering this position in light of the trend of escalating complaints and the significant disruptions caused by recent events. In particular, we are now examining the point at which service levels and interrupted access to investments would become an explicit investor protection issue.
We have asked all Order-Execution-Only firms to provide detailed historical information related to their online trading availability, functionality and service. We will review the degree to which outliers exist and what if any response is appropriate.
The CSA recently announced that they are on track to publish final amendments this summer that will enhance the protection of older and vulnerable clients. IIROC will continue our work with the CSA in support of a safe harbour rule and developing additional tools to help dealers protect vulnerable investors.
IIROC will also continue to seek additional authority to strengthen our enforcement toolkit so that investors in every Canadian province and territory have a consistent level of protection regardless of where they live. As IIROC has obtained fine collection authority in all jurisdictions except one, our efforts will focus on obtaining statutory protection from malicious lawsuits while carrying out our regulatory duties and enhanced power to collect evidence.
As announced earlier this fiscal year, IIROC has adopted the use of Early Resolution Offers, after extensive public consultation. Early Resolution Offers promote the efficient resolution of cases at an earlier point in the enforcement process, while also enabling investor harm to be addressed through voluntary acts of compensation and the implementation of remedial measures by firms.
We continue to leverage the online pool of 10,000 Canadian investors we established to engage retail investors directly about their investment needs and views. Administered by an independent national research firm, these surveys help inform our policy-making and allow us to gauge investor understanding and awareness of key issues.
Supporting industry transformation to more effectively and efficiently serve Canadians
The significant transformation across the investment industry continues, driven by the changing needs and expectations of Canadians and the ways in which technological advances allow them to be met. The following initiatives in support of industry innovation and transformation are underway:
Regulation of Crypto Asset Trading Platforms
On March 29, 2021, the CSA and IIROC published a joint staff Notice outlining the securities law requirements that apply to crypto asset trading platforms (CTP) and how they may be tailored by regulators for the CTP business model. We will continue to work with the CSA in ensuring that CTP subject to such requirements are fully integrated in the Canadian regulatory system. To this end, we will create a cross-organizational team dedicated to the review of applications and onboarding of CTP where appropriate. This team will build on the expertise gained by IIROC staff through both our internal and external crypto asset working groups.
Pan-Canadian Regulatory Approach to Innovation
The industry continues to introduce innovative models and products to meet the evolving needs of investors. Closer coordination and streamlining of regulatory innovation initiatives could accelerate the ability for innovators to deliver value to investors and the Canadian economy. We look forward to exploring how IIROC can participate in a pan-Canadian approach to supporting innovation with the CSA and other stakeholders, without compromising investor protection.
Modernizing our Rules and Approach to Regulation
We will continue to respond to the significant transformation that has been taking place in the investment industry as firms adapt in order to deliver what Canadians want and need throughout their life stages.
We continue to identify and address rules that result in unnecessary process and cost, or that limit the appropriate use of technology. By modernizing our rules and our approach to regulation, we can help to reduce risks associated with innovation and make it easier for the industry to deliver the products and services that Canadians are looking for.
Areas of focus in our rule modernization work include:
- a review of the scope of activities that are subject to IIROC’s regulatory oversight, in part to assist us in determining which activities a registered individual must perform within their firm and which activities may be conducted by the registered individual as an outside business activity, and
- a review of order-execution-only, advisory and managed account service offerings, to ensure our rules for these offerings continue to enable the efficient and effective development of the investment services that Canadians demand.
Leveraging Data and Analytics
We will continue to leverage data and analytics to provide opportunities to create efficiencies internally and support policy development. One major effort is the “Failed Trade Study” that is focused on updating our intensive review of late settlements in 2008. With access to advanced analytical capabilities and a significant, granular five-year data set provided by the Canadian Depository for Securities (CDS), we will do an in-depth study of settlement processes in Canadian equities. We anticipate publishing the results in late 2021 and will use the findings to both benchmark and assess the current short selling regime.
Managing Technology and Cybersecurity Risks
The evolution of the industry has led to significant reliance on technology and automation by IIROC firms in order to meet investor needs, drive growth and achieve their business and strategic objectives. Such reliance can also bring significant risks that need to be managed. Accordingly, we will continue to focus on helping firms build operational resilience through the effective management of cybersecurity and technology risks.
On March 31, 2021, we issued the Fundamentals of Technology Risk Management as a guide to help small and medium-sized firms to assess and manage technology risk. As part of this initiative, we will also be focusing on ways to identify and manage the risk of systemically-important vendors and service providers to the industry.
Leveraging our learnings to manage implications related to the pandemic
As the pandemic continues in Canada and around the world, it is critically important that we leverage our collective learnings to better support both investors and the industry that serves them.
We will continue to efficiently consider and grant, where appropriate and without compromising investor protection, certain types of exemptive relief for Dealer Members related to issues arising from the COVID-19 pandemic. Since March 2020, IIROC has granted 189 exemptions providing Dealer Members additional flexibility in complying with relevant IIROC Dealer Member Rules where their activities have been significantly impacted by provincial restrictions imposed in response to the pandemic.
In March 2020, IIROC was able to transition very effectively and efficiently to working entirely from home, a model which continues today. IIROC, as a pan-Canadian regulator, remains fully operational as an essential service carrying out all core and critical regulatory responsibilities securely. This includes the front line surveillance oversight of equity and debt trading in Canada to ensure our markets operate in an orderly manner and with integrity. Similarly, the cooperation with IIROC-regulated firms has allowed us to conduct compliance examinations effectively and securely when working remotely.
Of paramount importance to IIROC is the well-being and safety of our employees, investors and all Canadian market participants. We will develop our plans for an eventual return to our offices in accordance with government and public health directives across jurisdictions where we have offices. As the situation evolves, we will adapt our plans and issue further communication, where appropriate.
Supporting the CSA in their review of the self-regulatory framework and preparing for potential next steps
In December 2019 the CSA announced that it would undertake a review of the regulatory framework for the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). The CSA published their consultation paper in June 2020 for a four month comment period.
After extensive dialogue with investors, investment and mutual fund dealers and advisors, professional bodies and industry associations, IIROC developed and published its proposal “Improving Self‑Regulation for Canadians” in June 2020 and our response to the CSA consultation in October 2020.
We continue to recommend the consolidation of IIROC and the MFDA as a first step, to build on what is currently working with self-regulation by:
- improving investor access to advice, experience, and protection
- giving investors a greater voice in the self-regulatory process
- prioritizing benefits to investors through early integration of enforcement, investor inquiries and complaints, and risk‑based compliance
- enhancing transparency, independence and accountability in governance
- supporting small, independent and regional business models
- supporting innovation in partnership with the CSA.
In addition to these important benefits, our proposal is also expected to save hundreds of millions of dollars of duplicative regulatory costs over the next decade – money that investment firms could direct toward client service, innovation and economic growth, according to an assessment conducted in 2020 by Deloitte.
To further support the CSA, IIROC has recently provided the CSA with our detailed analysis and recommendations related to structural and operational planning in support of an effective and efficient consolidation. We believe our proposal could deliver real, tangible benefits to Canadians and to the industry within nine months of approval from the CSA.
IIROC applauds the CSA for its leadership in this review and remains committed to continuing to engage and collaborate with the CSA and all key stakeholders to modernize the regulatory system in Canada and create better outcomes for Canadians.
Other initiatives and priorities which will continue to move ahead include:
- adopting Client Focused Reform rule amendments in accordance with the extended CSA timelines
- progressing derivatives rule reform to introduce greater consistency between derivatives and securities rule requirements
- publishing post-trade information for government debt securities for Schedule I, II and III banks, further to the CSA’s decision to expand IIROC’s role as Information Processor
- completing the implementation of the client identifier requirements
- developing competency profiles for Directors, Executives, Ultimate Designated Persons, Chief Compliance Officers and Chief Financial Officers
- continuing to evolve our HR, workplace and remote working strategies, incorporating Equity, Diversity, Inclusion and Anti-Racism initiatives and learnings from the pandemic.
Some initiatives IIROC will be able to advance independently, while for others, we will need to move forward with our colleagues at the CSA. We will continue to collaborate with provincial/territorial securities commissions on various initiatives including those related to financial planning and title protection.
Our priorities for FY22 support the objectives outlined in the three-year Strategic Plan we published in June 2019, as impacted by the pandemic. IIROC’s Mission is to protect investors and support healthy Canadian capital markets. Our Vision, which represents our definition of long-term success, is to demonstrate how our self-regulatory model serves the public interest by:
- inspiring confidence and deterring wrongdoing by having and using robust and appropriate tools
- making the delivery of securities regulation in Canada significantly more efficient
- being known as a trusted, respected and valued partner by our stakeholders
- being a leading-edge regulator
- creating a culture that attracts and retains high-quality employees.
These priorities support the seven key strategies that enable us to deliver effectively on our mandate and our Mission and Vision:
- deliver value for Canadians and the financial system
- support industry transformation
- leverage data and analytics
- help firms with compliance
- strengthen enforcement
- drive efficiency and operational effectiveness
- attract, retain and enable skilled people.
As a conduct and prudential regulator, we will continue to take a risk-based approach to business conduct, trading conduct, and financial and operational reviews of IIROC-regulated firms to ensure they comply with statutory and IIROC requirements, and to encourage a strong culture of compliance. As a market regulator, we will continue to oversee both debt and equity trading in Canada to ensure the integrity of our capital markets. For more details of our compliance activities and priorities, see the IIROC 2021 Compliance Report: Helping Firms with Compliance.
Our Policy teams will continue to strive to deliver timely, relevant, comprehensible and proportionate regulation that minimizes undue impact. Our quarterly Policy Priorities publication is an important way we help Dealer Members investors and other stakeholders anticipate, plan for and/or comment on our current and upcoming policy initiatives.
In keeping with our oversight role, we will continue to investigate and enforce our rules and hold IIROC-regulated Dealers and individual registrants responsible for their actions through various disciplinary sanctions. For more details of our enforcement activities, see our 2019 Enforcement Report.
For more information on IIROC, please visit www.iiroc.ca.