Dealers still doing inadequate KYC, finds IIROC

IIROC’s priorities for the year ahead include compliance around CRM2, pre-trade risk controls, cybersecurity and online advice.

The self-regulatory organization (SRO) released its annual Compliance Priorities Report Thursday outlining its focus for the year ahead.

The report identified compliance concerns around CRM2 related to KYC information.

IIROC reported that it continued to find dealers who failed to collect a client’s investment time horizon as part of their KYC processes.

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The SRO also noted several cases where dealers didn’t maintain documented evidence that the required pre-trade disclosure of charges had been made, and where dealers lacked policies and procedures governing that disclosure.

Retail clients must be informed of all fees and charges associated with an instruction to purchase or sell a security in an account before the trade takes place.

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Rising robos

The report noted the continued growth in online advice, colloquially known as robo-advisors.

IIROC is developing a testing module for those services that will look for “clear disclosure” about the products and services offered; an account-opening process that includes KYC and “risk-tolerance assessments relative to the complexity of the products offered”; and supervision and oversight of the registrant, the report said.

Cybersecurity and e-trading

IIROC will be focusing more on cybersecurity this year, helping small- and mid-sized dealers develop response plans, the report said.

“In a landscape of heightened security, IIROC believes it is critical for firms to maintain policies and procedures that protect their clients and their businesses by safeguarding personal information and business data,” said Wendy Rudd, SVP member regulation and strategic initiatives at IIROC, in a release.

The report also noted issues with electronic trading controls. “A number of participants have yet to implement effective pre-trade risk controls, creating the potential for market disruptions and significant financial loss,” the report said.

The report also noted deficiencies when it came to reporting outside business activities and filing notices of termination.

Read the full report here.

Also read: Why to report outside business activities