Raising the Bar for CCOs of Securities Registrants in Canada – Proposed Amendments to NI 31-103

NI 31-103 AmendementsThe Canadian Securities Administrators (CSA) has recently proposed various amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that include, a proposal to add an experience component to the proficiency requirement to be a chief compliance officer (CCO) of not only an exempt market dealer (EMD) but also for a mutual fund dealer (MFD) and scholarship plan dealer (SPD). If implemented, it will get a lot tougher to be a CCO for an EMD, MFD and SPD. The CSA proposal would require a CCO candidate to have,

gained 12 months of relevant securities industry experience in the 36-month period before applying for registration.

The CSA states that the proposed amendment results from its findings during compliance reviews of dealer firms and aligns with the requirement that registered individuals must not perform any activity that requires registration unless they also have the experience that a reasonable person would consider necessary to perform the activity competently.

The CSA further states that during the course of its compliance reviews, they have identified a number of dealer firms that have CCOs who are not adequately performing their responsibilities, and this deficiency is often associated with a finding that the CCO does not have the relevant experience. The CSA states that by adding the experience component for CCOs of dealers, the CSA would be harmonizing the proficiency requirements with those applicable to CCOs of portfolio managers and investment fund manager.

What does ‘relevant securities industry experience’ mean?

The Companion Policy to NI 31-103 presently includes guidance on the meaning of the phrase ‘relevant securities industry experience’ which includes experience acquired:

  • during employment at a registered dealer, a registered adviser or an investment fund manager in related investment fields, such as investment banking, securities trading on behalf of a financial institution;
  • securities research, portfolio management, investment advisory services or supervision of those activities
  • in legal, accounting or consulting practices related to the securities industry
  • in other professional service fields that relate to the securities industry, or
  • in a securities-related business in a foreign jurisdiction.

Other proficiency matters

The CSA have also proposed revising the Companion Policy in connection with section 3.4 of NI 31-103 involving initial and ongoing proficiency requirements with the addition of the following CCO specific requirement:

CCOs must have a good understanding of the regulatory requirements applicable to the firm and individuals acting on its behalf. CCOs must also have the knowledge and ability to design and implement an effective compliance system.

Bottom line

Raising the bar for new CCOs would make it more difficult to be a CCO and possibly limit the number of new EMDs, MFDs and SPDs entering the marketplace assuming there are a limited number of individuals who could satisfy these requirements.

Readers are encouraged to provide comments to the CSA

If readers have any issues, comments or concerns in connection with these proposed CCO experience requirements or other matters in the proposed NI 31-103 amendments, you are encouraged to provide comments to the CSA before the end of the comment period on March 6, 2014.

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This blog is not intended to create, and does not create an attorney-client relationship. You should not act or rely on information on this blog post without first seeking the advice of a lawyer.  This material is intended for general information purposes only and does not constitute legal advice.  For legal issues that arise, the reader should consult legal counsel.

Brian Koscak is a Partner at Cassels Brock & Blackwell LLP located in Toronto, Ontario and Chair of the Exempt Market Dealers Association of Canada. Brian is also a member of the Ontario Securities Commission’s Exempt Market Advisory Committee. Brian can be reached by phone at 416-860-2955, by e-mail at bkoscak@casselsbrock.com or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at www.briankoscak.com.

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