1. In a recent article featuring you in Investment Executive, it stated “the job of the compliance department has never been more crucial.” Could you please give your insights on how the compliance department adds value for the firm and is key for investor protection?
The regulators have been vocal about dedicating more resources into the exempt market space. I believe regulation will become more rigorous, which will test compliance departments. More specifically, regulators will be looking more closely into suitability and referral arrangements. They will especially be looking into referrals from non-registered connections, and they will continue to look closely at related-parties and potential conflicts of interest between Issuers and Dealers. The educational background, experience and competence of your compliance department staff, including a solid compliance regime, will be the Dealer’s strongest act of defense in demonstrating investor protection.
2. You recently have taken on the role of Executive Director of the Association of Canadian Compliance Professionals (ACCP), why are their initiatives so important to you, and to the capital markets?
Compliance officers are referred to as gatekeepers. They have not been immune to rule changes, complex product releases, new regulatory bodies, and of firm’s operational model changes including amalgamations. The ongoing changes, or the occupational hazard of choosing compliance as your career, has sparked many members to return to the ACCP year after year looking for help in adapting to these changes. I have often heard our member’s share that they consider our newsletters, meetings and annual conferences the basic survival tools for today’s compliance officers. This resilient group’s membership is growing. It is comprised of our future gatekeepers protecting both investors and firms. There is no mistake that compliance professionals provide a key role in risk management in the efficiency of the capital markets.
The ACCP is a national organization founded in 2000. To date we have over 95 members. Our members are CCO’s, lawyers, students, and financial experts from MFDA, IIROC including a small number of MFDA/EMD dealers. Our members are dedicated to remaining on the leading edge of regulatory developments in both the mutual fund and exempt market communities. We provide advocacy on compliance related regulatory matters. We develop and share best practises including maintaining high standards of conduct amongst compliance professionals. Many of our compliance officers have over 25 year’s compliance experience. We meet regularly with capital market senior regulators and numerous industry groups including the Investment Funds Institute of Canada (IFIC). Most recently, the ACCP is excited to have joined NEMA.
3. What do you see as the key challenges and opportunities for the compliance industry in the coming years?
One of the challenges the compliance industry faces is the lack of quality comprehensive education for compliance officers. We have seen some evidence of this bar moving in the right direction with the NEMA education site and inclusion in private educational sites. Seneca College in Markham, Ontario[WU1] now offers a financial compliance curriculum for compliance officers. I hope these offerings will continue to grow for other provinces. Compliance officers have often stated that they find it difficult to find time to share their experiences. With increasing compliance demands for time and many seasoned professionals nearing retirement we may be cheating younger inexperienced compliance officers entering our field from valuable experience. Additionally, I think there is a tremendous opportunity to continue to create occasions for compliance professionals to share best practises through social media.
4. You have worked in a compliance leadership position in both the MFDA, Portfolio Management, IIROC and Exempt Market categories. Is the CCO role different in these categories?
From an educational perspective, the CCO courses, branch manager course, and most industry compliance courses provide compliance knowledge as it relates to overall investor protection. Self-Regulatory Organizations (SROs) have specific mandates that may differ in categories of supervision. Overall the mandate for compliance is relatively consistent for all categories.
Proficiency requirements are different for each category of firm registration for the CCO role. IIROC has the most senior proficiency requirements (detailed in NI 31-103 CCO proficiency requirements).
The oversight role is relatively the same, but tends to differ in terms of complexity of product. For example, the supervision role for real time trading on an active order desk may require substantive tiers of review, including a large team of proficient compliance officers and an analyst.
5. What are the main challenges and opportunities of a CCO in the Exempt market?
The main challenge for a CCO in the current environment for the exempt market is the lack of collaboration of Exempt Market Dealers (EMDs) in general. CCO’s have found a way to share best practises through the NEMA CCO committee and various organizations on compliance initiatives. However, the operational implementation has been lackluster. We have heard often that the ‘tone at the top’ must be consistent, and so should it be for client reporting and efficient compliant operations. This points to the fallout in the lack of technology. Dealing representatives (DRs) are demanding better services on behalf of their clients.
There is a surge of movement of DR’s moving from one dealer to another looking for improved client service. Regulators are knocking on the Dealer’s door for client disclosure and transparency (CRMII). While secondary markets may never have been initially considered, they indeed exist. Consider a client who has been with the same DR for three years. The DR moved twice in one year to another Dealer. The client had two registered accounts and a cash account. All of his holdings are in exempt product. The DR is being paid a trailer fee for servicing these accounts. His client simply wants to know the value of his assets. This should be presented in a client statement or an online tool.
Clients often call the compliance department for complaints regarding their lack of comprehensive statements. Compliance officers continue to struggle with antiquated systems making compliance approval and supervision processes a challenge. Technology is key for providing compliance tools necessary for CCO’s providing oversight over processes. Collaboration may bring shared resources in technology, and it was due yesterday.
The opportunity for CCO’s who work with evolving Dealers who support the compliance department, allow adequate resources for compliance training and embrace technology are the perfect marriage for today’s CCO’s. There are many organizations in our industry moving in the right direction and this story is still being written.
6. What are key things Exempt Market Dealers need to get right in order to continue to be a growth force in the Exempt Market?
I believe that we have conquered the liquidity issues in our market with the introduction of the much anticipated TSX Private Market exchange. In my opinion, this may lead to more Dealer collaboration I referred to earlier. Uniting through this exchange will perhaps lead to shared due diligence and combined efforts in technology. A big investment in technology could be the catalyst for continued growth, reduced risk and longevity for this market.
7. It has been notoriously challenging for exempt market dealers to work with regulators. There are many complaints of lack of professionalism towards industry. Do you think these dysfunctionalities can be improved?
I think that following the release of NI 33-103 and the past five years of experience is enough time for both dealers and regulators to understand each other’s mandates. We have an opportunity to continue to maintain the highest standards that we can for our investors. Additionally we have an opportunity at improving the way people invest their money. I remain optimistic - If we can’t change the regulators then we will have to take the opportunity to be the change for the industry.
8. Are there any words of advice you would give investors in the exempt market?
I think investing in any market requires a high level of due diligence from both the Dealer (registrant) and an investor. Investor education is crucial. On line education is provided through NEMA, through the CSA website and all investors jurisdiction securities commission sites. As you would look after your health with a trusted Physician, find a trusted Advisor. I have exempt market investments aligned with my risk tolerance and my financial goals. Why shouldn’t every investor?
9. Is there anything else you would like to add?
I hope to see more compliance officers dedicated to helping DRs build compliant practises. Often too much emphasis is placed on a CCO and the compliance team to maintain and monitor the firm’s compliance program. I do not want to add to the burden of a CCO role, however perhaps it should be a more visible part of the firm’s overall mandate. Dealers need to ask themselves: “How are we helping our reps grow compliant practices?”