Canadian market regulator floats flexible firm CCO models

The staff of the Canadian Securities Administrators (CSA), an umbrella organization of Canada’s provincial and territorial securities regulators, on July 2 published new guidance (Staff Notice 31-358) applying to registration requirements for chief compliance officers. “Our aim is to allow registrants to implement their CCO responsibilities in a manner that better aligns with their operational needs and business models,” the CSA said.

Under current rules, registered Canadian firms must have a system of controls and supervision that enable it to comply with securities law and manage the risks associated with its business. To maintain an effective compliance system, a firm must designate at least one individual as the CCO who meets proficiency, experience, and other requirements under NI 31-103. This individual must also be an officer, partner, or sole proprietor of the registered firm.

The CSA guidance effectively provides a more flexible way to satisfy the CCO staffing requirements in NI 31-103 by setting out the following three optional CCO models:

Shared CCO: Under this model, an individual can be the CCO for more than one firm. “Many registered firms are large enough to need a full-time CCO in order to operate an effective compliance system,” the CSA said. “However, for some smaller firms, a shared CCO may suffice.”

In considering a firm’s request under this CCO model, the CSA listed multiple factors it will consider. These include, for example, the proficiency of the CCO; the existence, or potential for, conflicts of interest; and the firm’s and CCO’s ability to protect the confidential information of clients.

Multiple CCO: Granted that it has the necessary exemptive relief to permit it, a firm can designate multiple CCOs, as long as the firm can demonstrate that each CCO has their own separate responsibility for each business line and/or different registration categories within the firm. For example, a firm that is registered as an investment fund manager, portfolio manager, and exempt market dealer may apply to have three CCOs, one for each of the firm’s three registration categories.

“Some CSA jurisdictions have previously granted exemptive relief to allow certain firms to have multiple CCOs in similar contexts, such as multiple CCOs for different operating divisions within a large firm,” the CSA said. “Firms may wish to review such previous decisions to guide their applications for exemptive relief under this model.”

Specialized CCO: Under this model, an individual can apply to be the CCO of a non-traditional or specialized firm, in which industry-specific experience may be considered as relevant experience for the purposes of assessing the individual’s proficiency. According to the CSA, relevant business experience may include experience developing products or services where the firm exclusively operates an online platform for innovative products or services, such as a FinTech firm; or experience in a related investment field, such as underwriting or credit adjudication while working at a financial institution or investment bank where the firm operates an online lending business. “As experience and business models can vary greatly among firms and individuals, CSA staff will assess other business experience based on the particular circumstances of the proposed CCO and the firm,” the guidance states.

The CSA is encouraging feedback from the compliance community by Sept. 30 “on how each of these models addresses their needs and how they may use these models in their operations.” Comments, including firms’ experience with actual adoption of any of these models, will assist the CSA in assessing whether to consider additional policy initiatives in the future.