Regulators flag concern with IIROC’s use of collected fines

Eight of the securities commissions have deemed IIROC effective, efficient and fair in their collaborative 2016-2017 oversight review—which was released by CSA on Thursday.

All told, the commissions had only one medium- and one low-priority finding in their audit of IIROC’s financial and operations compliance, corporate governance, risk management and financial operations. The commissions from Alberta, Quebec, B.C., Saskatchewan, New Brunswick, Manitoba, Nova Scotia and Ontario took part.

The medium-priority finding had to do with IIROC’s corporate governance, which had a “low adjusted-risk score” overall. The commissions identified issues with the SRO’s “internal approval process for the use of monies from the restricted fund,” says the report from CSA on the review.

This issue was found during a review of factors such as whether the SRO has adequate board and committee succession plans in place and if it’s properly using fines collected.

IIROC’s restricted fund is designed for fines collected and payments made under settlement agreements, and the money can only be used for expenses tied to hearing panels, for example, and for “the development of systems or other non-recurring capital expenditures that are necessary to address emerging regulatory issues,” says the report.

What the commissions found was one written proposal for access to restricted funds didn’t include enough information. Further, “IIROC’s Restricted Fund Policy does not require IIROC management to provide a detailed analysis to the [corporate governance committee] when recommending the use of monies from the restricted fund,” the report adds.

To avoid situations where “an incorrect decision regarding the use of monies from the restricted fund” could occur, the commissions are requiring IIROC to explain the action plan it will take to improve its processes as well as provide a timeline for resolution.

The SRO’s response is it will ensure requests for funds are clear and detailed. It added its corporate governance committee “approved the amended restricted fund policy in November 2017.”

On top of addressing this issue, commissions staff expect “IIROC to develop applicable written procedures for the board succession planning process,” even though adequate plans are currently in place.

The commissions’ low-priority finding had to do with whether the SRO is complying “with legal requirements of general application in Québec.” IIROC has resolved this issue.

The overall review indicates that IIROC’s financial and operations compliance received an above-average adjusted-risk score, as did its risk management. Its financial operations received a moderate adjusted-risk score.

Read the full report.

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