Earlier this month, each of the Investment Industry Regulatory Organization of Canada (IIROC) and its U.S. counterpart the Financial Industry Regulatory Authority (FINRA) disclosed their compliance and examination priorities for the firms they supervise. Although these reports are of most relevance to firms directly supervised by these regulators, these supervisory trends may also be of interest to other Canadian registrants as well.

IIROC’s Compliance Priorities Report indicates an emphasis on areas such as: pro-active management of cyber-related risks (which may involve table-top simulations of cyber-incident scenarios as well as self-assessment exercises); reviews of dealers’ accounting systems for compliance with CRM2 reporting requirements; service arrangements between portfolio managers and dealers; trading compliance (including best execution, fair pricing, electronic trading controls, and supervision of over-the-counter debt trading); dealer compensation-related conflicts of interest; automated/online advice service offerings; CRM2 (especially KYC information regarding clients’ investment time horizons and pre-trade disclosure of charges); and registration filings (including concerns about notices of termination, filings relating to outside business activities, and late or incomplete disclosures with respect to regulatory, civil, criminal and financial disclosure items). 

FINRA’s 2018 Annual Regulatory and Examinations Priority Letter indicates an emphasis on areas such as: microcap fraud schemes including schemes that target senior investors; registered representatives who raise funds from investors they serve away from their firms; business continuity planning; customer protection and verification of assets and liabilities; technology governance; cybersecurity; anti-money laundering programs; liquidity planning; procedures for monitoring rates charged to customers for short sales; controls to meet suitability obligations; initial coin offerings and cryptocurrencies; firms’ disclosure and supervisory practices related to margin loans; market manipulation; best execution where firms provide price improvement when routing customer orders for execution or executing internalized customer orders; fixed income data integrity; front running in correlated options products; and market access.