This Notice summarizes the significant activities and initiatives that we will focus on in our 2023 fiscal year: April 2022 – March 2023 (FY23). These activities and initiatives will take place in the context of the amalgamation of IIROC and the Mutual Fund Dealers Association of Canada (MFDA) scheduled to close on December 31, 2022, creating a New SRO effective January 1, 2023.

In addition to the ongoing delivery of IIROC’s core mandate of investor protection and market integrity, we are focused on the following priorities:

• advancing our various initiatives and commitments related to investor protection
• supporting industry transformation to more effectively and efficiently serve Canadians
• working towards the successful closing of the IIROC and MFDA amalgamation and the creation of a new, enhanced self-regulatory organization.

These IIROC priorities will help inform the development of a new strategic plan and priorities for the New SRO.

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

Further to our plan to establish an Expert Investor Issues Panel (EIIP), in May 2021 IIROC published a Request for Comments on panel composition, selection process, term limits and governance. When the CSA announced the consolidation of IIROC and the MFDA in August 2021, including the requirement to establish a New SRO Investor Advisory Panel (New SRO IAP), we paused our work on the IIROC-only panel.

We have been working closely with our MFDA colleagues to create a New SRO IAP.The draft Terms of Reference are available for public comment through June 27, 2022. We anticipate inviting applications to the New SRO IAP this Summer, and for Panel Members to be selected in the late Fall.

Disgorgement

We have started exploring ways to return disgorged funds collected from advisors and firms disciplined by IIROC to harmed investors. Last year, we conducted research examining existing regulatory frameworks that focus on investor compensation from disgorgement. Although disgorgement may not cover all of the investor losses, IIROC’s goal is to remove any ill-gotten benefits, such as profits, commissions, fees, compensation wrongfully obtained or losses wrongfully avoided by an advisor or a firm through their misconduct and return these funds to harmed investors. We anticipate completing our review this Spring and publishing a proposal for input from stakeholders and for the CSA’s review later this year.

Arbitration

To further investor protection and access to dispute resolution, IIROC sought input on its current arbitration program from an independent working group of investor advocates and investment industry and arbitration professionals familiar with the program. After an extensive review, the working group provided recommendations on how to make the program more accessible and tailored to investors’ needs. IIROC is currently reviewing the recommendations to determine the next steps. We anticipate seeking comments from stakeholders in some of the areas identified by the working group, such as publication of arbitration decisions, increasing the award limit and reducing the wait time for accessing the program, and making enhancements to the arbitration program this year.

Order-Execution-Only

Over the past two years we have witnessed an unprecedented increase in retail trading activity. This increase in trading activity has at times 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, given the the growing reliance by clients on sophisticated online technology-based services we are reconsidering this position. In particular, we are now examining the point at which service levels and interrupted access to investments would become an explicit investor protection issue.

As a first step we asked all Order-Execution-Only firms to provide detailed historical information related to their online trading availability, functionality and service. The information we received back clearly showed that there is a wide variety in technology support levels provided by firms, as well as inconsistent information provided by firms to clients regarding the service levels they can expect. In order to assess various options for strengthening investor protection standards in this area IIROC established a Working Group comprised of industry representatives and IIROC staff. These Working Group meetings have now concluded and the information gained from the meetings will be used by IIROC staff as one of the inputs for determining next steps.

Strengthening Enforcement

As announced last year, IIROC adopted the use of Early Resolution Offers, after 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. Four settlements were reached through Early Resolution Offers. In two of those cases, compensation was a relevant factor and over $38 million was paid to clients. Enforcement Staff anticipate increasing the use of Early Resolution Offers wherever possible in the upcoming year.

Enforcement will focus on ensuring those that engage in misconduct do not financially benefit by seeking disgorgement orders in enforcement proceedings. Enforcement staff have made concerted efforts to seek, where applicable, specific disgorgement orders in IIROC disciplinary cases. With the passage of legislative amendments in Newfoundland and Labrador in November 2021, IIROC now has fine collection authority in all Canadian jurisdictions. We continue to pursue efforts to obtain enhanced powers to collect evidence and statutory protection from malicious lawsuits while carrying out our regulatory duties.

Supporting industry transformation to more effectively and efficiently serve Canadians

The following initiatives in support of industry innovation and transformation are underway:

Member Intake Team

IIROC has created a new Membership Intake team dedicated to the review of new member applications, including applications for crypto asset trading platforms (CTP) for both new and current members. This dedicated team will focus on introducing efficiencies in our review processes and continuing to strengthen IIROC’s expertise in with respect to CTP and other novel business models to support industry transformation and innovation.

Regulation of Crypto Asset Trading Platforms

We continue to work closely with the CSA in ensuring that crypto asset trading platforms (CTP) subject to the securities law requirements discussed in the joint CSA/IIROC notice published in March 2021 are fully integrated in the Canadian regulatory system. To this end, we continue to review applications and onboard CTP where appropriate. In August 2021, the IIROC Board approved exemptions to Fidelity Clearing Canada (FCC), related to FCC’s intention to transact in crypto assets.

Modernizing our Rules and Approach to Regulation

IIROC is committed to modernizing our rules and approach to regulation, to help reduce risks associated with innovation and to make it easier for the industry to deliver the products and services that Canadians are looking for. We continue to identify and address rules that result in unnecessary process and cost, or that limit the appropriate use of technology.

Areas of focus in our rule modernization work include:

1. 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
2. a review of order-execution-only, advisory and managed account service offerings, to ensure our rules for these offerings continue to enable the increasingly sophisticated use of technology and the efficient and effective development of the investment services that Canadians demand.

Compliance Modernization Group (CMG)

In order to continue to support industry transformation and modernize IIROC’s approach to regulation, we established a new team – CMG – to explore ways to streamline processes across our compliance teams to create efficiencies for both IIROC and the firms we regulate. CMG will continue to focus on enhancing and modernizing the compliance programs and operations, harmonizing key common functions between the three compliance groups and exploring opportunities for automation where possible.

Back-office arrangements and subordinated debt financing

In July 2021, we announced that we would be looking at rules regarding back-office arrangements and subordinated loan financing. In August 2021, we commenced discussions with industry representatives on two working groups to discuss issues, concerns and potential resolutions. Due to the nature of the issues raised, analysis is ongoing including discussions with various external parties.

Leveraging Data and Analytics

We will continue to leverage data and analytics to provide opportunities to create efficiencies internally and support policy development. Our work on the “Failed Trade Study” focused on updating our intensive review of late settlements in 2008 is in the final stages and we anticipate publishing a report in the late summer/early Fall. With access to advanced analytical capabilities and a significant, granular five-year data set provided by the Canadian Depository for Securities (CDS), we were able to do an in-depth study of settlement processes in Canadian equities. We will use the findings to both benchmark and assess the current short selling regime.

Managing Technology and Cybersecurity Risks

We continue to focus on helping firms build operational resilience through the effective management of cybersecurity and technology risks.

We will be developing and releasing cybersecurity self-assessment checklists for use by IIROC firms to assess their cybersecurity posture and maturity level. The checklists were developed by Deloitte in consultation with IIROC and a number of representatives from IIROC member firms. They were designed to be user-friendly, accessible, and customized to the Canadian investment industry. They are available for free to any IIROC firm upon request. We strongly encourage all firms to conduct regular self-assessments to ensure resilience to cybersecurity risks and that they are aware of gaps that need to be addressed.

Working towards the successful closing of the IIROC and MFDA amalgamation and creation of a new, enhanced self-regulatory organization

Following the CSA’s decision to consolidate IIROC and the MFDA which was announced in August 2021, we have been working together with the MFDA and the CSA to prepare for the December 2022 closing and creation of a new SRO.

Last fall, IIROC and the MFDA jointly retained Deloitte to act as integration manager and are continuing with the planning and Day 1 readiness efforts related to the operational integration.

On May 12, 2022, the CSA published CSA Staff Notice and Request for Comment 25-304 with a comprehensive package of materials for public comment, including the proposed interim rules and Terms of Reference for the New SRO Investor Advisory Panel.

Following the confirmation of the New SRO Board and CEO, we will forge ahead with our MFDA colleagues to create a new SRO that delivers effective and efficient regulation in the public interest.

IIROC applauds the CSA for its leadership of this process and is focused on continued engagement with stakeholders to modernize securities self regulation in Canada and to create better outcomes for Canadians.

New SRO interim rules

One of the sets of documents included with the CSA notice outlines the proposed draft New SRO interim rules, which have three components:

1. the Investment Dealer and Partially Consolidated Rules,
2. the Universal Market Integrity Rules, and
3. the Mutual Fund Dealer Rules.

The substantive changes that are proposed to be incorporated within the New SRO interim rules (primarily within the Investment Dealer and Partially Consolidated Rules) are those designed to:

1. eliminate any remaining District Council regulatory approval authorities,
2. permit mutual fund dealers to introduce business to investment dealers, enabling greater mutual fund dealer client access to exchange traded funds, and
3. revise the upgrade rule requirements to give mutual funds only Registered Representatives employed by firms registered as both investment dealer and mutual fund dealer the option of conducting business primarily within the Investment Dealer and Partially Consolidated Rules on a permanent basis.

The comment period for the documents included with this notice expires on June 27, 2022.

Other priorities

Other initiatives and priorities which will continue to move ahead include:

• progressing derivatives rule reform to introduce greater consistency between derivatives and securities rule requirements
• developing and publishing proposed competency profiles for Supervisors, Portfolio Managers, Associate Portfolio Managers and Traders
• IIROC continues its work on Equity, Diversity, Inclusion and Anti-Racism program. Completion of Phase 1 resulted in a report containing both findings (based on interviews, an employee survey, and focus groups) and a recommended action plan. Phase II is underway with the creation of a Staff Advisory Committee, the presentation of the report and recommendations to all staff and the roll-out of an employee training plan. Under the aegis of the Staff Advisory Committee, a series of Lunch and Learn sessions are being developed and offered to all staff.
• IIROC employees formally returned to the office effective May 2, 2022. The organization has adopted a revised remote work policy which provides employees with substantially more flexibility.

Our priorities for FY23 reflect and support the objectives outlined in the Strategic Plan we published in June 2019. 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:

1. inspiring confidence and deterring wrongdoing by having and using robust and appropriate tools
2. making the delivery of securities regulation in Canada significantly more efficient
3. being known as a trusted, respected and valued partner by our stakeholders
4. being a leading-edge regulator
5. 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.

IIROC’s Vision, Mission and long-term strategies, along with those of the MFDA, will inform the development the New SRO strategic plan.

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 2021/2022 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 2020-21 Enforcement Report.

For more information on IIROC, please visit www.iiroc.ca.