The Investment Industry Regulatory Organization of Canada: What it is and how to stay compliant
Market integrity is paramount in the securities industry to ensure fair and transparent trading practices, protect investors, and foster confidence. So how does the Investment Industry Regulatory Organization of Canada (IIROC) tackle such a broad objective, and how can firms ensure compliance?
Written by a human
In brief:
- IIROC membership is typically applicable to Canadian investment dealers, investment fund managers, and marketplaces.
- The IIROC is often confused with the Canadian Investment Regulatory Organization (CIRO), when in fact, they’re the same entity.
- IIROC dealer member rules include stringent recordkeeping requirements to ensure transparency, accountability, and the integrity of the Canadian capital markets.
What is the Investment Industry Regulatory Organization of Canada (IIROC)?
As a self-regulatory organization, the IIROC Canada is similar to the Financial Conduct Authority in the U.K. and the Securities Exchange Commission in the U.S.
The IIROC oversees all investment dealers and trading activity on Canada’s debt and equity marketplaces, with a clear remit to:
- Protect investors
- Build trust in financial regulation and those managing investments
- Protect market integrity
The IIROC and UMIR
The IIROC is responsible for setting and enforcing the Universal Market Integrity Rules (UMIR), a set of rules governing trading practices in Canadian capital markets.
The regulatory framework of UMIR, and the rules it encompasses, apply to all IIROC members, dealer members, access persons, and marketplaces for securities-related trading activities.
UMIR rules are designed to ensure fair, equitable, and efficient markets by promoting transparency, preventing market manipulation, and protecting investor interests.
IIROC vs MFDA
Historically, the Mutual Fund Dealers Association of Canada (MFDA) was driven by the same key objectives as the IIROC, however the IIROC and MFDA merged into a single organization effective January 1, 2023. The IIROC MFDA merger was instigated to create a more effective and efficient regulatory framework for the Canadian investment industry.
IIROC recordkeeping: Books and records rules
As part of the stringent UMIR rules enforced by the Canadian regulatory body, IIROC member firms must maintain an adequate system of books and records. The minimum record requirements are outlined in full in IIROC Rule 3800.
Member firms should be aware of the books and records that must be maintained and/or produced, which include:
- Accounting, trading, and business conduct records
- Data entry and output systems (note that the electronic data processing structure may be situated outside of Canada)
- Records relating to physical stock and bond certificates, accounting, and credit operations
- All client communications
What are the challenges to complying with the IIROC record keeping requirements and how can firms overcome these?
The IIROC imposes rigorous recordkeeping requirements on its members to ensure transparency, accountability, and the integrity of the Canadian capital markets.
While compliance with IIROC recordkeeping and retention rules can present significant challenges for firms, practical guidance and leveraging solutions can minimize these obstacles.
Challenge#1: Keeping records of communications conducted on messenger platforms like WhatsApp
The volume and complexity of data that firms must capture, store, and retrieve can be overwhelming. This is especially true in view of the growing use of outside messenger services like WhatsApp to conduct business operations.
Solution:
Powerful cloud archiving solutions like Global Relay keeps firms’ data secure, including unstructured data like voice, trade data, and files, while providing instant access. Employees can collaborate compliantly via any channel, including SMS and WhatsApp.
Challenge#2: Maintaining compliance amid regulatory changes
IIROC regulations are subject to change, meaning firms must keep up to date with the latest requirements to remain compliant. This can be especially challenging in large organizations and those with a high turnover of employees.
Solution:
Professional compliance services can help firms ensure that employees are adequately trained to understand and comply with recordkeeping requirements. Services including access to expert advice and support and training programmes give firms peace of mind that employees have access to the most current information and resources to ensure compliance.
Challenge#3: Data security
Protecting sensitive data from unauthorized access, breaches, and loss is a major challenge. Firms must implement strong security measures to safeguard their records while ensuring these measures are updated regularly to combat emerging threats.
Solution:
Investing in new technology gives firms a strategic advantage, enabling them to maintain robust recordkeeping systems and meet regulatory standards. Global Relay’s complete compliance solution brings together disparate data into a single, compliant end-to-end system.
IIROC market surveillance
The IIROC rigorously monitors market activity to ensure compliance with UMIR and provincial securities law. This involves analyzing trading patterns and identifying potential misconduct by dealers, approved persons, and other market participants.
When violations are detected, the IIROC takes decisive action, imposing penalties such as fines, suspensions, or even permanent bans for individuals and firms.
IIROC compliance reviews
In addition to monitoring market surveillance, the IIROC regularly reviews firms to ensure they adequately supervise client accounts. This includes ensuring firms handle transactions that reflect client needs and provide appropriate advice.
Advisors must adhere to strict suitability and “know your client” rules, as outlined in IIROC Rule 3200, by understanding clients’ financial situations, investment goals, experience, and risk tolerance to deliver tailored recommendations.
What powers of enforcement does the IIROC have?
The IIROC has significant enforcement powers to ensure compliance with its rules and regulations. These powers include:
- Investigative authority: The IIROC can conduct investigations into suspected violations of its rules and regulations.
- Disciplinary authority: The IIROC can impose disciplinary sanctions, including fines, suspensions, and permanent bans, on individuals and firms that violate its rules.
- Enforcement through the courts: To enforce its decisions and collect fines, the IIROC can seek court orders.
- Referral to provincial securities regulators: The IIROC can refer matters to provincial securities regulators for further action, particularly if there are potential criminal offenses involved.
The IIROC’s 2023-2024 Enforcement Report demonstrates the organization’s unwavering commitment to investor protection and market integrity. Through decisive enforcement actions, the IIROC has taken steps to improve industry standards and ensure fair market practices.
Summary
Ensuring market integrity, the IIROC’s principal mandate, presents many challenges and opportunities for member firms. By complying with IIROC’s rules, firms can mitigate risks, enhance their reputation, and contribute to a robust and trustworthy financial ecosystem to help safeguard the securities industry.