SRO’s offer compliance clarity

When Jean Chrétien was asked by reporters on the floor of last week’s Liberal convention about the motion to declare the Quebecois a nation, he replied, “I’m for clarity, and I love clarity.” Canada’s SROs feel the same way about compliance.

Last week, the staff of Market Regulation Services, the Mutual Fund Dealers Association of Canada, the Bourse de Montréal and the Investment Dealers Association of Canada issued a joint release on the role of compliance officers. While the document doesn’t propose any changes, it is the first time the SROs have banded together to write down precisely what they expect of compliance officers.

“It’s never really been written down in the level of detail that’s been written down here,” says Richard Corner, the IDA’s vice-president for regulatory policy. While there was no misunderstanding per se to prompt the SROs to prepare this release, the regulators felt it was necessary to make sure everyone was on the same page.

“We are just trying to be clear,” says Corner. “As you can appreciate, on the compliance side, there has always been a little bit of concern in the situation where even when everyone is doing their best, they still could be held responsible for certain things.”

Although the joint release is meant to offer guidance to compliance officers, it makes an even stronger point of what could happen to them if they don’t meet expectations. Three consecutive sentences begin with “A compliance officer may be subject to enforcement action if . . .” before finally breaking the pattern (and allowing compliance officers to breathe again) by ending “If the SRO is satisfied that the compliance officer has met these regulatory expectations, he or she will not be subject to an enforcement action.”

This notice has been a long time coming. The SROs have been comparing notes and compiling their list of expectations for the past year, according to Corner. The message from the SROs is that compliance officers who follow this guidance will receive the support of the regulators. More importantly, the SROs will turn their focus to the people doing the inappropriate behaviour, while compliance officers will likely skirt sanctions.

Compliance officers applaud the move. “I think the notice is beneficial to compliance officers for several reasons,” notes Wayne Bolton, AIM Trimark’s chief compliance officer. “It validates the importance and significance of the compliance officer role. It provides guidance on how to minimize personal regulatory exposure.”

He adds, “As a manager, it can be used to train compliance personnel. And the notice can be used to create awareness with senior management and/or reinforce with the firm the reasons why a compliance officer needs to ask the questions they do.”

Still, Bolton would like to see the SROs take it a step further. “I would like to have seen something on the role of the ultimate designated person versus the role of the chief compliance officer,” he says. “I appreciate the rules allow the same person to act as both UDP and CCO; however, in situations where the CCO is head of the compliance department and not the CEO, president or similar senior management member, do the SROs prefer that a senior officer — e.g., CEO, president — be the UDP?”

The joint release offers nine closing tips for compliance officers to help them meet the expectations of the SROs:

• Compliance offers should ensure they have a clear understanding of the nature of their responsibilities, including a detailed job description with clearly established reporting lines and a clear understanding of whether they are expected to act in a supervisory capacity.
• Lawyers who perform compliance functions in addition to legal functions should make it clear to other individuals when they are acting as legal counsel and providing legal advice.
• Compliance officers should maintain written records that detail all steps taken to correct, report or escalate issues that were identified, along with any supporting documentation that demonstrates actions taken.
• Compliance officers should be active in promoting compliance-related initiatives both inside and outside of their firm and be available to individuals within the firm for consultation on compliance issues.
• Compliance officers should ensure steps in the compliance process are appropriately tailored to the size and nature of the firm’s business and that they are tested to ensure that they adequately address any compliance gaps.
• Compliance officers should ensure that SRO rule changes, bulletins and notices are reviewed and incorporated into their firm’s compliance policies and procedures in a timely and effective manner and in a manner that addresses the nature and size of the firm’s business.
• Compliance policies and procedures should be constantly reviewed, tested and updated to ensure that existing procedures continue to effectively reflect the business practices of the Member and are in compliance with new rules and regulations.
• Compliance officers should periodically review the websites of provincial regulators and SROs and where possible attend SRO meetings or seminars devoted to regulatory issues. Doing so will give them advance notice of proposed and imminent rule changes that may affect the compliance officer and the firm.
• Compliance officers should develop a cooperative relationship between regulators and the firm.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(12/05/06)