Building a Better and Stronger IIROC

This was a very successful year for IIROC. We made significant progress on the priorities we had set out for the first year of our three-year Strategic Plan and successfully completed a number of initiatives that will help make us a stronger and more effective regulator.

A full accounting of our progress is laid out in the report that follows, but I think it is important to highlight a few of the past year’s most significant accomplishments.

Advancing the legislative agenda to enhance investor protection
It is essential that IIROC has the right tools to investigate, prosecute and enforce the penalties levied by our disciplinary panels against those who have violated the trust of their clients.

I want to acknowledge and to thank the governments of Alberta, Ontario and Prince Edward Island for their leadership in taking action to enable us to better protect investors. As a result of their efforts, IIROC now has the ability to collect fines through the courts in Ontario and PEI, joining Alberta and Quebec in sending a strong deterrent message to potential wrongdoers that they will not be able to walk away from paying the price when they breach our rules.

The Government of Alberta was also the first in Canada to amend its securities act providing us with more effective legal authority to collect evidence during investigations and disciplinary hearings. As well, IIROC and our disciplinary tribunals now have statutory protection against legal action in that jurisdiction while undertaking our regulatory responsibilities in good faith.

These successes have generated considerable momentum and we plan to build on it by continuing our efforts with our Canadian Securities Administrators (CSA) and government colleagues across the country.

Our goal is to have the tools to provide a consistent level of investor protection across Canada and while much work remains to be done, I’m extremely pleased at what has been accomplished so far.

It is important to acknowledge that IIROC would not have been able to achieve as much as we have without broad support from both the investment industry and from investor and consumer organizations.

Closing gaps in the broader financial services regulatory system
I am also pleased to report that during the past fiscal year we signed agreements with insurance regulators in Alberta and British Columbia aimed at better protecting investors by closing gaps in Canada’s financial services regulatory system. And then in June, we concluded another agreement with the Life Insurance Council of Saskatchewan. The regulators in these provinces join those in Ontario and Quebec, with whom we signed memoranda of understanding in 2015-16. We also negotiated a Memorandum of Understanding with the Canada Deposit Insurance Corporation (CDIC) in November 2016 that will allow them to better protect depositors and investors through enhanced cooperation when a CDIC member institution or a connected IIROC-regulated firm encounters serious financial difficulties.

These agreements allow us to share information on investigations and discipline and enable joint inquiries when the same individual is under investigation by both regulators. Doing so prevents wrongdoers from moving to a new jurisdiction or switching designations and hiding their prior offences from new clients or other regulators.

Andrew J. Kriegler
A value-added partner to all stakeholders
As the CSA’s appointed Information Processor for corporate debt securities, IIROC launched a new website in July 2016 providing greater transparency in corporate debt trading information for the benefit of all market participants. This site publishes a subset of the information IIROC collects for regulatory purposes, without duplication of effort or cost. In July 2017, we expanded this transparency by extending the site’s reporting to include all corporate bond trades by all IIROC-regulated firms.

IIROC has also been able to provide value to the system in the area of cybersecurity. The global “WannaCry” ransomware attack in May targeted companies in at least 150 countries by encrypting data and demanding ransom payments. This served as a stark reminder of the vital importance of cybersecurity preparedness.

However, recognizing that not all firms have the resources or in-house expertise to keep up with quickly evolving cyber risks, we built upon the best practices guide and cyber incident management planning guide we previously provided to IIROC-regulated firms. This past year, we worked with firms to conduct self-assessments to determine their level of cybersecurity preparedness. All firms received a report showing their risk ranking by peer group, identifying gaps and recommending actions to improve their preparedness. We engaged cybersecurity expertise to work with firms that scored moderate or high risk to help them manage the specific risks identified and protect their clients’ data and their businesses.

Finally, we also created and issued complaints statistics reports to firms for the first time. These reports provided firms information that ranked them against their peers to help them improve compliance and enhance customer service. We will continue to produce these annually so firms can strengthen their internal processes and address investor issues before they become formal complaints.

Taking strong, principled policy positions
Nationwide, discussion continues on the potential establishment of a best interest standard and other targeted reforms to better align the interests of investment advisors with those of their clients. IIROC is committed to working with all CSA members to provide consistently high standards across all jurisdictions and regulatory platforms.

In our view, the core of the best interest debate relates to conflicts of interest and to compensation-related conflicts in particular. In other words, how firms and their advisors act when their interests conflict or are perceived to conflict with those of their clients.

This year IIROC completed a comprehensive review of a cross-section of firms to assess how well they are meeting the best interest requirements of our conflicts rules vis-à-vis compensation. We published the results to share best practices and identify areas in need of improvement, provide guidance in clarifying our existing rules and change our compliance examinations to focus more attention on this important issue.

Strengthening our core regulatory responsibilities
While I am pleased with our progress on our Strategic Plan, I would be remiss if I didn’t emphasize the importance of the regulatory work that IIROC’s employees execute every day to protect investors and support healthy Canadian capital markets.

For example, our teams in Vancouver and Toronto carried out surveillance of nearly 447 million equity trades on five stock exchanges and eight alternative trading systems this past year and reviewed 3,584,951 debt security transactions.

Our Complaints and Inquiries team headed up in Calgary responded to more than 3,500 complaints and inquiries.

Our examiners across the country conducted more than 261 on-site firm compliance reviews and our enforcement staff completed 128 enforcement investigations with 59 disciplinary hearings conducted coast to coast.

Committed to smart, effective and efficient regulation
As a public interest regulator, we have a responsibility to ensure that we invest appropriately to advance our priorities and ensure we have the appropriate resources and systems in place to fulfill our core regulatory mandate through the activities I outlined above.

We practice strong fiscal discipline. Our revenue and operating expense growth continues to be among the lowest of our peer regulators. I am pleased that our fiscal year 2018 fees for continuing activities will be flat with a modest 0.6 per cent overall increase attributed to our new corporate debt information processor activity.

We remain committed to delivering smart, effective and efficient regulation and working with the CSA to ensure a level playing field for all market participants and consistent investor protection across the country.

I would like to take this opportunity to thank the IIROC Board of Directors for their ongoing support, our executive and management teams for their leadership and all of my IIROC colleagues for their diligence and unwavering commitment to protecting investors and fostering fair, efficient and competitive capital markets across Canada.

Without their dedication and integrity, it would be impossible for us to achieve our goals. They do their jobs with respect both for those we regulate and those we protect, in the spirit of fairness and transparency, to deliver efficient regulation in the public interest. I am grateful for all their efforts and I hope you will also appreciate them as you read of our progress in this Annual Report.

Andrew J. Kriegler signature

Andrew J. Kriegler
President and CEO

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