On July 16, the Investment Industry Regulatory Organization of Canada (IIROC) requested comments in Notice 14-0181 (the “IIROC Notice”) concerning how it determines the proficiency qualifications for its members’ personnel.
At the present time, a private organization, the Canadian Securities Institute (CSI), owned by Moody’s Corporation, is the exclusive course provider for IIROC regulatory courses. The CSI also administers the qualifying examinations. The CSI is bound by quality, service, pricing and reporting standards established with the IIROC. Unless renewed, the CSI contract with the IIROC is scheduled to terminate in January 2016. The IIROC is seeking comment on the existing model for delivering these services and alternatives arising from an analysis of the approaches used in other jurisdictions and under other regulatory regimes.
The IIROC Notice includes a comparison of the differing approaches used by the Financial Industry Regulatory Authority (FINRA), the securities industry self-regulatory organization in the United States and the Financial Conduct Authority (FCA) in the United Kingdom.
FINRA develops and administers its own proficiency examinations for principals and representatives of member firms with input from industry committees. It publishes content outlines. However, it does not select or approve particular educational organizations or preparation courses. There are many commercial training providers in the United States and many larger firms conduct in-house training. In order to take a proficiency exam, an individual must generally be sponsored by a member firm.
The FCA imposes an ongoing competency requirement on all approved persons. FCA regulated firms must continually assess the competency of these employees and the FCA examines systems and procedures used by firms for this purpose. The FCA also has specific qualification requirements for persons engaged in specified retail activities, including approved qualifications, continuing education and assessment of competence requirements. Qualification providers and the qualifications they offer must be evaluated and approved by the FCA. Approximately 54 providers and 300 qualifications are presently approved. The FCA establishes examination standards with input from qualification providers, industry and awarding bodies.
One of the largest qualification providers in the UK is the Chartered Institute for Securities and Investment (CISI) which creates examinations and study materials, but does not itself provide training. The CISI does accredit course providers for optional training. Some qualification providers work with third party examination administrators, such as Prometric or Pearson VUE.
Hong Kong approach
Whilst the IIROC Notice does not cover the position in Hong Kong it is worth noting that common to other international financial centres, the Hong Kong securities regulator – the Securities and Futures Commission (SFC) – requires licensed and registered individuals to satisfy certain examination requirements as part of the criteria for becoming regulated. The necessary exams must correspond to the relevant licenses or registrations. The examinations are provided by the Hong Kong Securities Institute. There is per annum minimum training hours required for each activity a person is licensed or registered. Training may be received from recognised continuous professional training providers as set out in the SFC’s Guidelines on Continuous Professional Training, or other organisations where they are competent to provide the relevant subject matter training. Training records must be maintained by the relevant individual and its employer and maybe audited by the regulator. Corporations are required to evaluate the training available to licensed persons at least annually.
Likewise the IIROC Notice does not cover Australia but again it is worth noting that the Australian Securities and Investments Commission (ASIC) imposes an ongoing training requirement in relation to all persons who provide financial product advice to retail clients. These financial advisers must either have completed appropriate training courses that have been approved by the ASIC as meeting certain minimum training standards or been individually assessed as competent by an assessor that has been approved by the ASIC (of which there are a number). However, the ASIC and the Australian Government are also currently exploring options regarding these training requirements following the high incidents of client losses arising out of the global financial crisis and concerns relating to the quality of the associated financial advice.
In analyzing the different models within the report, the IIROC notes the dramatic difference in numbers of exam takers and registered personnel among these jurisdictions. In 2013, the CSI had 7,189 enrollments. FINRA administered 180,000 examinations. The IIROC had 27,976 approved persons, and FINRA 639,174 registered persons. In 2013, FCA authorized firms had approximately 32,690 retail investment advisers.
CSI’s charges to the Canadian securities industry
The IIROC Notice has information regarding the CSI’s charges to the Canadian securities industry, but comparative data is not provided for FINRA and the FCA. Given the differing multiple provider models, that cost information may be difficult to obtain.
The IIROC Notice provides an excellent comparison of the proficiency regimes in Canada, the US and the UK and the differing principles underlying each system. Global securities firms should consider providing cost information regarding the qualification of personnel under the various regimes that are discussed in the IIROC Notice as part of this consultation process.
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