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Preparing for the future…

IIROC is a national public interest regulator with a mission to protect investors and support healthy Canadian capital markets.

Capital markets in Canada and around the world have continued to evolve significantly in recent years with innovations in technology and trading, shifting investor demographics and other changes that are reshaping the regulatory and investment landscape.

Andrew Kriegler In order to not only adapt and keep pace with this environment but also ensure that we are well-positioned to deliver on our mandate for the future, IIROC began a new strategic planning process in 2015. In May 2016, we published our Strategic Plan which sets out our vision for moving forward for the next three years.

Our planning process was built upon the most comprehensive stakeholder consultation that we have ever conducted. The results of the consultation and the Strategic Plan which emerged from it both reaffirmed the foundation for IIROC’s mission and described our vision in five key goals that explain what we want to accomplish and why.

1. Making the delivery of securities regulation in Canada significantly more efficient
As Canada’s national securities self-regulatory organization, we can and must provide leverage to the system in the delivery of not only our own rules and guidance but those which we deliver for and on behalf of our partners in the Canadian Securities Administrators (CSA).

Increasing the efficiency of securities regulatory delivery will also make it more effective and, we believe, be the basis for reducing the gaps, overlaps and regulatory arbitrages which today harm investors and the health of the capital markets themselves.

2. Being known as a trusted, respected, and valued partner by our stakeholders
Given IIROC’s role, we can achieve most of our public policy objectives only in partnership with our stakeholders: investors, our member firms, our regulatory partners, their governments and other agencies.

To serve them together in the public interest, we also need their support and collaboration. To have their support, we must earn it through our efforts. We must also work together with our regulatory partners to ensure that investors benefit from consistent high standards of protection and that there is a level playing field across the broader financial services industry.

3. Being a leading-edge securities regulator
We earn the support of our stakeholders by being good at what we do on behalf of the public.

The quality of our work will be shown, in many cases, through delivery of tangible outputs: the introduction of a new market surveillance system that supports cross-product, cross-asset surveillance, a revised plain language rule book that is easier to use and to enforce, and updated risk models that allocate compliance resources where they are needed most.

Equally though, the value of what we do can and will be measured by the policy positions we take: we have made it clear, for example, that our rules and guidance put the best interest of the client before the interests of IIROC-regulated dealers and their representatives.

4. Inspiring confidence and deterring wrongdoing by having and using robust and appropriate tools
Our stakeholders also rightfully demand that IIROC supports and is seen to support the integrity of the Canadian capital markets by taking action against wrongdoers. To do so, we need the right tools – tools that will strengthen our enforcement efforts.

IIROC will continue to pursue the power to collect our fines through the courts and to implement agreements with other regulators across Canada to exchange information and implement mutual recognition of disciplinary actions to better protect investors.

Together, these steps would ensure that sanctioned individuals could not work in another registered capacity in the financial services industry, and could not avoid payment of a monetary sanction once they have left the industry. Closing this gap would give the public the confidence of knowing that they can trust their financial services providers and, in turn, have trust in Canada’s capital markets from coast to coast.

5. Creating a culture that attracts and retains high-quality employees
IIROC’s employees who together are called upon to deliver on our mission are highly skilled and dedicated to working in the public interest. We continue to focus on attracting and retaining top talent by engaging our employees, investing in them and by creating a strong performance culture.

…by building upon the past

As we pursue our work, we will be transparent and accountable to you, our stakeholders. IIROC will continue the practice we began last year of publishing a statement of priorities for the coming year and evaluating our performance against those priorities in the following year’s Annual Report.

While you can read about the progress we made against last year’s objectives further in this report, I would like to highlight a few key initiatives here.

Difficult conversations lead to better public policy

Last November, we published a White Paper designed to stimulate dialogue about ways to make the delivery of securities regulation in Canada more efficient by reducing overlaps and harmonizing our requirements and standards with those on other regulatory platforms – while pursuing the public interest and maintaining or enhancing investor choice and protection.

The paper and its illustrative proposal generated considerable debate and, over an extended comment period, we received more than 30 differing and thoughtful opinions. These are hallmarks of healthy and sometimes difficult conversations that need to take place in order to develop strong public policy that takes into consideration the views and needs of all stakeholders.

We are in the process of analyzing what we have heard and will continue to consult extensively on any future steps we may take.

Another public policy issue that continues to generate significant discussion in Canada and around the world is the concept of a “best interest” standard.

IIROC already requires, under Dealer Member Rule 42, that those on the IIROC platform address conflicts of interest, whether existing or potential, in the best interest of the client. In April we published guidance affirming our intention to strengthen compliance by our Dealer Members with the best interest requirements of this rule, with a particular focus on the management of compensation-related conflicts – which we believe is a key part of any discussion of aligning the interests of investment firms, their registrants and their clients.

We believe that, taken together, our Dealer Member Rules and guidance put the best interest of the client before the interests of IIROC-regulated dealers and their representatives.

Having said that, we are committed to improving oversight of our Dealer Members and their representatives and are enhancing our compliance test procedures in this area.

We also more recently completed a comprehensive survey of IIROC-regulated firms. These results will enable us to more accurately and completely assess the quality of controls being used and assist firms in more effectively managing compensation-related conflicts, while at the same time recognizing that materiality and reasonability need to be taken into consideration. We are in the process of conducting targeted follow-up exams to address concerns resulting from the survey. The survey and the exam results will also help inform the appropriate regulatory response.

We agree with the CSA that regulatory action is required to better align the interests of registrants with the interests of their clients in order to improve outcomes for clients. We are committed to working with the CSA through this process to ensure a consistent standard of care across all regulatory platforms.

Collaborations to strengthen enforcement and enhance investor protection

In IIROC’s renewed vision, investor protection remains a critical responsibility – and one that can’t be fulfilled in isolation. Investors benefit from greater protections when there is regulatory coordination across regulated sectors.

Collaboration with regulatory and government partners helps to improve harmonization across regulatory platforms and level the playing field for market participants, while strengthening and making more consistent protections for investors.

It’s not acceptable, for example, that disciplined individuals can abandon their registration and move to a different part of financial services or a jurisdiction where another regulator and potential clients are unaware of their past wrongdoings.

Over the past year, IIROC has negotiated formal cooperative and information-sharing agreements with the Chambre de la sécurité financière in Québec, the Financial Services Commission of Ontario and the Insurance Council of British Columbia. These agreements institute a range of tools to protect investors – from early detection and joint investigations to restrictions on registration/licensing. While we currently have more than a dozen agreements with other Canadian and international regulatory organizations, we continue to pursue additional arrangements to improve the consistency and effectiveness of the regulatory system that protects Canadian investors.

We have also continued to pursue legislative changes in various provinces so that we can more effectively collect fines levied against IIROC-regulated firms and individuals who have breached our rules. To provide some perspective, more than $28 million in fines against individuals we have sanctioned across the country since 2008 are uncollected.

Currently, we have the ability only in Alberta and Quebec to enforce sanction decisions through the courts against those who break the rules. In seeking amendments to securities laws in other jurisdictions, we believe we will be able to collect more fines and ensure there is consistency and fairness across the country.

A valuable resource that enables investors, firms and other regulators to check to see if an IIROC registrant has been disciplined or has any restrictions in place is our online advisor check service. It also enables people and organizations to search and learn about the qualifications, educational backgrounds and employment histories of individuals registered with IIROC.

IIROC has made it clear, as part of our submission to the Ontario Government’s Expert Committee Considering Financial Advisory and Financial Planning Policy Alternatives, that we support the creation of a Central Registry for Ontario. We have also offered that IIROC’s comprehensive advisor check database and expertise could be leveraged for this purpose. We look forward to discussing this potential with other financial services regulatory partners as a way to provide one-stop shopping for the investing public.

Leveraging information to enhance market integrity

Another important priority for us is leveraging the information we collect as part of our market oversight role.

Last November, our new debt transaction reporting rule took effect. It requires IIROC-regulated firms classified as government securities distributors with the Bank of Canada to report all debt trade information to IIROC.

Earlier this year, the CSA announced that it had selected IIROC to be the Information Processor for corporate debt securities. In doing so, the CSA is leveraging IIROC and the information we collect to enhance debt market transparency and regulatory oversight without duplicating efforts or costs.

These objectives align with IIROC’s public interest mandate and our commitment to ensuring that the Canadian market operates with integrity. We are pleased to be an essential partner in this effort to bring more transparency to the debt market.

On July 6, in our capacity as the Information Processor we launched a new website providing wide access to corporate debt trading information for the investing public and other market participants.

In addition to helping retail and institutional investors make more informed decisions, this initiative underscores how securities regulation in Canada can and does benefit from IIROC’s national scope of work and unique pan-Canadian role.

Keeping pace and providing predictability

The trends we identified as part of our strategic planning process impact all regulators – everything from the rapid pace of technological change to changes in the profile of those we regulate and changing investor behaviours. We, like other regulators, face significant challenges resulting from these transformative and often complex changes and must be not only prepared but also flexible in our approach to regulation.

Investing for the future is a necessity, not a choice. IIROC is committed to building and improving the infrastructure, resources and expertise needed to adapt to the changing environment so that we can continue fulfilling our regulatory responsibilities. In the near future this includes, for example, bringing in the next generation of real-time and post-trade surveillance technology to enhance our cross-product, cross-asset and cross-dealer oversight capabilities.

At the same time, we appreciate the varying business models employed by IIROC-regulated firms and remain mindful of the pressures facing market participants. Our focus continues to be on flexibility in our regulatory approach and a fee model framework that is both fair and predictable. This enables all firms – no matter their size or business model – to plan to meet their regulatory responsibilities.

Cost control, planning and predictability are as crucial to IIROC as they are to the firms we regulate. Our need to balance revenues with required spending was challenged this year as we faced a significant unforeseen revenue shortfall from one of our regulatory partners in respect of the registration services provided by IIROC. We are adapting to this shortfall and working with our regulatory partners to avoid any unexpected changes in the future.

I am pleased to report that over the past five years IIROC member fees have grown at a rate that is among the lowest for Canadian financial services regulators. This result is especially gratifying as we continue to balance the growing challenges and demands of investor protection and of maintaining well-functioning capital markets with our overarching commitment to fiscal prudence.

I would like to acknowledge and thank one of our key regulatory partners, the Canadian Securities Administrators, as well as others for their ongoing support. In today’s shifting landscape, it is more important than ever that we work collaboratively to protect investors and ensure a level playing field for all market participants. Partnerships such as this one form the basis for harmonization and consistency in regulation, which support healthy capital markets and strong protections for investors.

Sincere thanks also to my IIROC colleagues across the country for their continuing efforts and commitment. They carry out the important day-to-day work of regulation with diligence and with respect for those we regulate and for all who participate in Canada’s capital markets.

Finally, I am grateful to my talented partners on IIROC’s management team for their dedication and hard work, and for the valuable guidance of IIROC’s Board of Directors in serving the public interest and in delivering effective and efficient securities regulation across Canada.

Andrew J. Kriegler signature

Andrew J. Kriegler
President and CEO

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