IDA staffing shortages concern CSA

Canada’s provincial security regulators collectively released their respective audits of the Investment Dealers Association (IDA) on Tuesday. While it was a much more complimentary report than a June audit released by the Alberta Securities Commission (ASC), it still highlighted some core areas in which the IDA needs to improve, particularly in staffing and resources.

Tuesday’s report was compiled by the Canadian Securities Administrators (CSA) and included the audits of the IDA’s three offices, located in Toronto, Montreal, and Vancouver, by the Autorité des marchés financiers (AMF), British Columbia Securities Commission (BCSC), Nova Scotia Securities Commission (NSSC) and Ontario Securities Commission (OSC). The audits were conducted in September and October of 2006.

Although the IDA is a national regulator, each of its offices falls under the jurisdiction of different provincial regulators, which can have slightly different regulation philosophies and each levy its own registration fees.

Overall, the commissions offered only a handful of recommendations that they classified as high priority. There was a consistent concern about a decrease in IDA’s productivity, often due to limited staffing.

Staffing was a big issue for the OSC’s audit of the Toronto head office. According to the OSC, the IDA has a high turnover of staff, which is having a detrimental impact on its performance.

“The OSC staff noted high staff turnover levels during the period under review, due to several factors, including sales compliance officers accepting positions with member firms, resulting in delays in issuing sales compliance review reports and preventing the sales compliance department from completing all the reviews scheduled,” the report says.

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The OSC says 81% and 79% of the sales compliance review reports issued in 2004 and 2005, respectively, were issued within 15 weeks of the completion of field work; however, only 33% of reports issued between January 1 and August 31, 2006, were completed within 15 weeks.

The IDA wrote in its response that it is trying to actively recruit more qualified people.

With respect to retaining staff, steps were taken to identify and rectify compensation disparities in individual circumstances, and various automation projects and procedural changes have been and are being introduced to assist staff to operate more efficiently, the IDA wrote. “In addition, a recommendation for three additional sales compliance managers was approved for the 2007–08 budget year.”

Staffing was also identified as an issue for the regional offices. The AMF noted the IDA is falling behind in meeting its performance benchmarks on the sales compliance side. The AMF wants to see the IDA increase staffing for the Montreal office by at least one sales compliance officer. In its view, this would allow the IDA to review a greater number of branches and have sufficient staffing in place in case of an emergency.

Sagging sales compliance performance was the only high priority concern of the BCSC of the IDA’s Vancouver office.

“BCSC staff are concerned about the low productivity of the Vancouver sales compliance department. As a result, there is some delay in the coverage of its membership, especially some of its higher risk B.C. members,” the report noted.

Unlike the AMF, the BCSC believed a review of IDA processes and productivity should suffice, rather than hiring on new staff.

On the enforcement side, the AMF said the IDA needs to allocate more resources to its Montreal office to deal with the loss of one of its three enforcement counsels, who is on sick leave and left 10 open cases on hiatus. The AMF noted the Montreal office was still exceeding its benchmark of having 60% of cases processed within 10 months.

Of course, staffing was also a recurring theme of the ASC’s audit of the Calgary office, which was released in June, but that report was much more vocal in its criticisms. The ASC acknowledged there is a labour shortage in Alberta, but it still found some of the IDA’s employees ill-equipped to do their jobs.

“Interviews with registration officers identified a wide range of proficiency and knowledge among the individuals. The knowledge gap was not due, entirely, to different levels of experience in the position,” the ASC wrote. “When asked about specific submission types, the individuals who did not fully understand the registration process continually referred to checklists in order to answer the questions. This highlights both a lack of staff proficiency and the shortcomings of the department’s training program.”

The ASC took exception to the IDA’s hiring qualifications — for example, the job description for a registration officer requires high school and/or community college diploma and “one year’s progressive, related experience within the securities industry.”

“The IDA should not expect a high school graduate with one year of experience to read and fully understand complex IDA bylaws and multilateral instruments,” the ASC wrote.

The IDA defends its hiring practices, though.

“Generally, we believe we are hiring the right level of qualification and experience. Our education requirements for registration officers are the same as the provincial securities commissions’. We agree staff should have an understanding of high-level registration concepts; however, we do not believe these concepts are difficult to understand,” the IDA wrote in its response.

Not only did the ASC want the IDA to address the high level of turnover and poor quality of employees, but it also wants the regulator to increase the numbers of dedicated managers overseeing the office.

The ASC took offence to the fact that the Calgary office was essentially a sub-office to the IDA’s Vancouver office. The IDA appointed the Vancouver-based vice-president of Western Canada as head of the Prairie Region office.

“ASC staff were concerned when, during an interview, the vice-president, Western Canada, opined that he does not add value to the registration department and generally refers difficult registration questions to the vice-president, sales compliance and registrations, or the director, registrations, both of whom are based in Toronto,” the ASC audit said.

The ASC wants assurances that regulatory decisions that concerned Alberta were being made by staff who deal directly with the Prairie Region office. The IDA tried to remedy this situation by hiring a director of the Calgary office in July.

It should be noted, the IDA plays a much more active role in enforcement in Alberta than it does in other jurisdictions. The regulatory stakes are higher. For instance, the IDA has the authority in Alberta to file disciplinary decisions with the courts so that they have the same effect as if they were orders of the court, as well as the power to compel third parties and third-party witnesses to produce documents and attend disciplinary hearings.

The IDA has plans to meet all of the recommendations from the CSA. Paul Bourque, senior vice president of member regulation for the IDA says the SRO started to hire people as early as November 2006.

“Our response to this kind of thing is two-fold. We either hire more staff or we put in place more efficient processes. I believe we have the staff we need to do the job here,” Bourque says.

“I don’t we think we have a turnover problem at the IDA generally. I think we have them in different departments and in different cities,” he continued. “For example, we are having a tough time recruiting financial and compliance examiners in Calgary. So is everybody else. It’s hard to single out the IDA for those sort of issues. Our turnover at the IDA has basically been about 10 to 20%. I’m quite comfortable with that.”

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(01/16/08)