[co-author: Alexandra MacKenzie, Articling Student]
The Investment Industry Regulatory Organization of Canada (IIROC) has released its Annual Report for 2019-2020 (Report). The Report outlines IIROC’s progress over the last year in increasing enforcement and collection efforts, promoting innovation in market supervision and streamlining its operations, all in furtherance of the goals set out in its Strategic Plan released in June 2019 (Strategic Plan).
As one might expect, developments related to COVID-19 made it into the regulator’s annual reflections. The Report contains information regarding IIROC’s response to the pandemic, including its efforts to provide pandemic-related exemptive relief to member dealers facing compliance difficulties. These developments will be important for dealer members to consider as they navigate their regulatory obligations during the pandemic.
INCREASED FINES, COLLECTION AND ENFORCEMENT CAPABILITIES
IIROC levied C$6.81-million in fines in 2019-2020, as compared to C$3.07-million in fines levied in 2018-2019. IIROC fined firms a total of C$5.87-million, up from C$860,000 in the previous year, while fines of individuals totalled C$937,000, down from C$2.2-million in the previous year. Since obtaining legal authority to collect fines in Ontario and Alberta in 2017 and British Columbia in 2018, IIROC appears to have focused on imposing sanctions against firms, rather than individuals.
Total collections in 2019-2020 increased to C$6.31-million, up from C$1.4-million in 2018-2019. IIROC collected fines from firms at a rate of 96 per cent, while the rate pertaining to individuals increased to 64 per cent from 25 per cent in the previous year.
Saskatchewan and New Brunswick passed legislation giving IIROC the ability to collect disciplinary fines through the courts. IIROC now has authority to collect fines in 12 of the 13 Canadian provinces and territories, including in Ontario, Alberta and British Columbia. In addition to the power to collect disciplinary fines through the courts, IIROC also has the power to collect and present evidence during investigations and hearings and has statutory immunity when acting in the public interest in five provinces: Alberta, Quebec, Nova Scotia, New Brunswick and Prince Edward Island.
In response to the increased sophistication of market manipulation techniques, IIROC has continued to take steps to leverage data and analytics across its operations. It has made continued use of data tools such as predictive modeling, artificial intelligence (AI) and machine learning to improve efficiency and automate manual processes. It has also made headway in its multi-year project to implement an “enhanced market surveillance system.” In this regard, IIROC recently implemented a new surveillance technology and has begun exploring the use of AI to improve the efficiency of its alert management capabilities.
EXEMPTIVE RELIEF IN RESPONSE TO COVID-19
In response to COVID-19, IIROC has offered certain exemptive relief for dealer members facing pandemic-related compliance issues. IIROC staff have granted over 112 exemptions to over 66 dealer members in a broad range of compliance areas, including supervision of registrant accounts and trade reviews, client verification requirements and auditor procedures. IIROC has stated that it is committed to allowing dealer members to operate efficiently and in compliance, despite the difficulties caused by the pandemic. In addition to exemptions, IIROC has deferred fees for small and medium-sized firms.
The Report explains that some of these exemptions have helped identify efficiencies and improvements in IIROC’s operations. Importantly for dealer members hoping to minimize administrative and regulatory inefficiencies, the Report also indicates IIROC’s plan to make some of the exemptions permanent through proposed rule amendments in the coming months.
In the year ahead, IIROC plans to prioritize a number of strategic objectives, including:
- Addressing various ongoing concerns related to the pandemic, including through the rule amendments noted above
- Improving investor protections through continued research and the development of the safe harbour rule
- Continuing to investigate methods of improving self-regulation, including through its proposed consolidation with the Mutual Fund Dealers Association of Canada
- Working with the Canadian Securities Administrators to develop a regulatory framework for crypto-asset trading platforms in the fall of 2020
- Monitoring and adapting to cybersecurity risks, including by enforcing the recent amendment to its Dealer Member Rules related to cybersecurity incident reporting
- Continuing to explore the use of AI to improve alert management and predictive capabilities
These priorities are consistent with the goals outlined in the Strategic Plan and reflect IIROC’s stated commitment to remain adaptive and responsive to the concerns of dealer members in an uncertain and changing environment.