This Notice discusses the phases of this multi-year project and the results of the initiative as it enters its final stages.

Transcription

1 Administrative Notice General Please distribute internally to: Institutional Legal and Compliance Operations Registration Retail Senior Management Trading Desk Training Contact: Sonia Keshwar Senior Counsel, Registration and Complaints February 5, 2015 IIROC Institutional Proficiencies Project IIROC has undertaken an initiative to review IIROC s institutional proficiency training and make improvements in this area. This project is focused on the training of individuals seeking approval to operate in sales and trading, compliance and/or supervision capacities in the institutional market segment. This Notice discusses the phases of this multi-year project and the results of the initiative as it enters its final stages. I Background IIROC conducted a proficiency survey of the IIROC Membership in The survey posed questions designed to (i) gauge the degree of satisfaction with the services and courses (including quality and pricing) of the Canadian Securities Institute (CSI), and (ii) elicit Membership feedback regarding IIROC proficiency requirements.

2 302 survey responses were received. Survey respondents provided constructive comments about course content and proficiencies. Three-quarters of respondents felt that no knowledge or content gaps exist in the CSI courses. Of those identifying gaps, the most prevalent content-related criticism dealt with insufficiency of institutional content and the fact that IIROC proficiency courses currently focus more heavily on retail business activities. The comments relating to this particular survey question assisted IIROC Staff in framing its review of institutional proficiency matters. II Project Plan The project plan is comprised of the following steps: 1. Analyze proficiency survey results. 2. Strike an ad hoc committee to consider institutional proficiency issues. 3. Prepare competency profiles (lists of the competencies and skills required to successfully perform the roles being examined). 4. Compare the competency profiles to existing course content to identify gaps in course content. 5. Assess gaps in course content within the context of the current course curricula and industry practices. 6. Consider alternatives for course revisions (i.e., revise existing courses or create new courses) and determine which approach to pursue. 7. Oversee CSI in the preparation of the course material necessary to address content gaps. 8. Identify changes, if any, that must be made to IIROC s rules to implement changes to the course requirements. 9. Update the Membership on the results of IIROC s review of institutional proficiencies and communicate the changes. IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 2

3 III Progress Report 1. Survey analysis: The results of the proficiency survey were analyzed by IIROC Staff and CSI. The results of the survey were reported to IIROC s Board of Directors in November 2010 and to the IIROC Membership in Strike committee: Registration Staff consulted the IIROC Education and Proficiency Committee to assist in the striking of an ad hoc industry committee to consider institutional proficiency issues. This committee was comprised principally of Dealer Member employees working in operations, compliance and supervisory capacities. 3. Competency profiles: CSI, in consultation with its own external experts, created two competency profiles (lists of required skills and competencies). The first profile combined the front office roles of institutional sales and trading. The second profile combined institutional supervisor and chief compliance officer roles. These profiles were presented to and validated by the ad hoc industry committee. 4. Comparison to course content: 2 CSI compared these profiles against the curricula of the relevant licensing courses (Canadian Securities Course (CSC), Conduct and Practices Handbook Course (CPH), Trader Training Course (TTC), Branch Managers Course (BMC), Chief Compliance Officers Qualifying Exam (CCO), Partners, Directors and Senior Officers Course (PDO)) and conducted a gap analysis to determine which competencies and topics were not taught or discussed in CSI s existing course materials. 5. Contextualize gaps: To determine how to best deliver content that addresses the gaps and appropriately prepares people for roles subject to licensing requirements, the existing course structures and certain industry practices (i.e., how firms are organized to conduct retail and/or institutional business, to what extent there is personnel conducting both types of business, etc.) must be considered. IIROC consulted with CSI in considering course structures and with the ad hoc committee in considering how the industry organizes itself. 1 The results of the proficiency survey, together with the renegotiated pricing terms of the agreement with CSI, were communicated to Dealer Members via a letter sent from the President and CEO of IIROC to the executive management of each Dealer Member in April Rule 2900 currently requires an individual seeking IIROC approval as a Registered Representative (Institutional) or Investment Representative (Institutional) to complete the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH). An individual seeking IIROC approval to supervise RRs or IRs dealing with institutional customers must complete the Branch Managers Course or the Partners, Directors and Senior Officers Course and the CSC and CPH. IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 3

4 6. Consider alternative means of implementing course revisions: The institutional content necessary to address the gaps identified by CSI could have been introduced through augmentation of existing courses or through the creation of separate courses for retail and institutional streams. IIROC determined that a single course solution was best suited to the existing regulatory and proficiency structure and would provide the greatest degree of flexibility to the industry. 7. Content implementation/course rollout schedule. The requisite institutional content was added to the CCO course and the BMC in April 2014, and to the CSC and TTC in December The augmentation of the institutional content in the CPH will be completed in March Rule amendments. No rule amendments are required to implement the training improvements as no new courses are being introduced. IIROC is, however, considering aligning the proficiency requirements of retail and institutional Supervisors. Any such amendments would be included in IIROC s registration reform amendment proposals scheduled for later this year. IV Discussion and Particulars Course Content Analysis Chief Compliance Officers Qualifying Examination To address the content gaps identified in CSI s comparison of the compliance competency profile to the existing CCO course, a new chapter focusing on institutional business compliance, including investment banking and trade desk compliance, was introduced. New material was also added throughout the course. The new material dedicated to institutional business compliance training resulted in a 7% increase in the volume of the CCO course. Branch Managers Course A chapter focusing on institutional business supervision had been added to the BMC in To address the content gaps identified in CSI s comparison of the new supervisory and compliance competency profile to the existing BMC, additional material was added to the course and the institutional business supervision chapter was refined. IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 4

5 Trader Training Course A chapter providing an understanding of the institutional investor and the framework and business structure for conducting institutional business was added to the TTC. Conduct and Practices Handbook Course Refinement of the CPH to improve the training of advisors working with institutional clients will be completed in March The scope of the content required to address the gaps in institutional content in the CPH is modest. These refinements are not expected to result in the addition of a significant amount of new material. Canadian Securities Course To address the gap analysis relating to the CSC, a significant amount of material was added to the chapter entitled, Working with the Institutional Client. Improvements were also made to relevant sections throughout the course. These revisions have increased the volume of the course by approximately 5%. The CSC was streamlined by approximately 10% in 2011 to remove non-essential material in preparation for this addition of institutional content. Taking account of these improvements, the breakdown of CSC content is now as follows: i. 73% of the course content is relevant to both retail and institutional business, ii. iii. 21% of the course content is most relevant to retail business, and 6% of the course content is focused on institutional business. IIROC understands that CSI is also developing and will seek accreditation for continuing education courses tailored to advisors working with institutional clients. It is IIROC s hope that other continuing education providers will also develop and seek accreditation of more institutional content. Continuation of the Integrated Course Approach During the course of Staff s consultations with the ad hoc institutional proficiencies committee and other advisory committees, consideration was given to the question of whether IIROC should continue to integrate retail and institutional content in the IIROC proficiency courses (particularly the CSC) or whether the course content should be separated IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 5

6 into distinct retail and institutional courses. This matter has also been discussed in the course of IIROC s proficiency assurance model consultations. IIROC s proficiency assurance consultation paper and the comments submitted can be accessed via the link appearing in the footnote below. 3 IIROC has decided to continue the integrated course approach for the following reasons: IIROC prefers the flexibility of a single course solution. o New entrants to the industry often do not know if they will conduct retail or institutional business exclusively. o Some IIROC Dealer Members conduct both retail and institutional business and employ representatives that serve both retail and institutional clients. o In the course of their careers, representatives often cross over from retail to institutional business and vice versa. The vast majority of course content is relevant to individuals operating in retail businesses as well as individuals operating in institutional businesses, as demonstrated by the breakdown of CSC content noted above. IIROC rules permit individuals approved as retail representatives to conduct both retail and institutional business. Institutional representatives are restricted to dealing only with institutional clients. Requiring retail representatives to complete two standalone courses would involve significant repetition and place an undue burden on individuals seeking approval in that category. Members of the ad hoc institutional proficiencies committee believe that professional standards should be high and that all new entrants should understand the market as a whole, not just the retail or institutional segment. Certain committee members also noted that many retail representatives serve high net worth individuals and would benefit from the institutional training. 3 %20assurance&KTYPE=445&LINKTYPE=srch&MAXROWS=50&PARTIALRESULTSLIST= %2039%2C %201663%2C %201613%2C %201270%2C %2028&POSITIONINLIST=5&SORT ORDER=3&SSEARCHTYPE=Contents&STARTROW=1&TOCFOLDERSPARENT=0%200%20ALL%20DOCUMENTS &TOTALRESULTS=5&VISITEDDOCUMENTSLIST= IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 6

7 The size of the IIROC institutional proficiency market (i.e., the number of prospective students) may not warrant creation of a new suite of standalone courses, given that (i) the majority of the material in the existing IIROC proficiency courses is relevant to those operating in the institutional segments of the market, and (ii) the existing courses have now undergone extensive review and revision to better prepare individuals entering the institutional segments of the industry. o In 2013, CSI administered the following numbers of IIROC course enrolments: 1,370 CSC students 4, 248 BMC students, 96 CCO students, and 119 TTC students. o As of December 31, 2014 there were 19,636 Registered Representatives (Retail); 1,657 Registered Representatives (Institutional); 5,336 Investment Representatives (Retail); and 52 Investment Representatives (Institutional) on the IIROC platform. Supervisor Proficiency IIROC Dealer Member Rule 2900 currently provides that the BMC and the PDO are alternative accepted proficiencies for individuals seeking approval in the category of Supervisor of Approved Persons dealing with institutional clients. The PDO is not, however, an accepted proficiency for those seeking approval to supervise Approved Persons dealing with retail clients. IIROC is of the view that the content of the PDO is not preparative for the role of Supervisor of Approved Persons dealing with institutional clients. IIROC will propose, in its forthcoming registration amendment package, removal of the PDO as an acceptable proficiency for this category. 5 In the course of discussions with the ad hoc institutional proficiencies committee, the committee suggested that the Branch Managers Course would be more appropriately branded as a Supervisors Course, given that this course is a requirement for the Supervisor 4 In 2013, CSI administered a total of 10,476 IIROC and non-iiroc enrolments in the CSC. Some non-iiroc students would pursue employment with IIROC Dealer Members after completing the course. 5 The PDO would continue to be a required proficiency for certain other approval categories. IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 7

8 approval category. IIROC will rename the BMC in the registration amendments to be proposed later this year. Industry Feedback IIROC sought and received industry feedback throughout the course of this project. IIROC s proficiency survey was well received and elicited a high response rate from Dealer Members. IIROC also engaged industry participation through its work with the ad hoc institutional proficiencies committee. In addition, IIROC Staff discussed these matters with a number of IIROC advisory committees. IIROC has also considered the related feedback provided in the context of the proficiency assurance model consultation. IIROC thanks Members for their engagement on these proficiency matters. IIROC extends particular thanks to the members of the ad hoc committee for their work in this area. Maintaining High Proficiency Standards IIROC believes that high proficiency standards play a key role in investor protection and the integrity and efficiency of capital markets. IIROC, accordingly, maintains high proficiency standards and a robust proficiency regime. IIROC s institutional proficiencies project is in its final stage of implementation. IIROC will, however, continue to work collaboratively to enhance proficiency standards for individual registrants and ensure the highest levels of professionalism in the industry. IIROC Notice Administrative Notice General - IIROC Institutional Proficiencies Project 8