In addition to its PPN review findings, the Investment Industry Regulatory Organization (IIROC) also released findings and recommendations last week concerning its regulatory review of new product due diligence. The review, conducted earlier this year at a sample of dealers that distribute structured products, tested for such things as adequate written policies, procedures and operational controls on new products. The review also assessed how dealers have incorporated IIROC's due diligence Guidance Note of March 2009 into their business practice.
Ultimately, IIROC found that many of the written policies and procedures reviewed were deficient in a material respect. Deficiencies indentified included the lack of the following: (i) a clear definition of "new product"; (ii) an appropriate level of internal review; (iii) an adequate analytical framework for the consideration of whether the new product should be offered; (iv) consideration of possible conflict of interest scenarios and how they should be addressed; (vi) consideration of proficiency, training and marketing issues; and (vii) a process to monitor and review customer complaints regarding new products and for monitoring compliance with any restrictions placed on the sale of the new product.
IIROC also found deficiencies in its review of the controls implemented by dealers, including with respect to (i) adequate controls underlying written policies; (ii) control methods to capture sources of new products; (iii) standardized processes requiring a written new product proposal for internal review; and (iv) product due diligence committees.
Of particular interest, IIROC also stated that effective immediately, significant and material deficiencies in the new product due diligence process encountered during examinations will be referred to IIROC's Enforcement Department.
See IIROC Notice 10-0234.