More controls needed to prevent insider trading, tipping, says IIROC

Preventing illegal insider trading and tipping is hard enough at the best of times, so the shift to remote working only heightens the challenge.

The Investment Industry Regulatory Organization of Canada (IIROC) issued a guidance note stressing the importance in the work-from-home environment of overseeing the use of material non-public information — the sort of inside information that can drive stock prices when it’s publicly disclosed, potentially enabling illegal insider trading.

“Dealers should ensure that key risks are appropriately managed despite the challenges associated with the remote work environment,” IIROC said in its note.

The guidance said that firms should consider whether added controls as well as guidance and training for employees are needed to help ensure that inside information remains adequately contained when firms are operating remotely.

“An important factor to consider is the effectiveness of technological barriers in place to limit access to only those authorized to view electronic documents and records containing [inside information],” the guidance said.

“Dealers should also consider the various methods their staff can use to communicate in this environment and adapt their controls and supervision accordingly,” IIROC noted.

Additionally, the SRO recommended that firms review their current use of “grey and restricted lists,” and their use of surveillance technology — “to ensure they continue to be effective.”

The guidance also indicated that dealers should remind their employees that they have an obligation to report to their compliance department if they come across inside information.

The SRO stressed that this is not just an issue for firms that are involved with corporate finance or investment banking, but that it also applies to retail firms.

“Dealers that do not engage in corporate finance or investment banking should identify the possible means by which their staff may come into possession of [inside information] that could be used for potential insider trading, such as through relationships between personnel and corporate insiders,” the guidance said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.