The Investment Industry Regulatory Organization of Canada (IIROC) has published findings of a review assessing how well investment firms are meeting the requirement to manage compensation-related conflicts in the best interest of the client. Based on the results, it has published supplementary guidance clarifying its rules to ensure compliance, announced the regulator April 27.
IIROC has made it a priority to gain an understanding of firms’ compliance with conflict of interest rules, particularly Rule 42, which requires any conflict of interest between an advisor and their client must be resolved in a fair, equitable, and transparent manner, in the best interest of the client.
Three main concerns
In its review, the IIROC says three main concerns were identified: reliance on disclosure without first addressing the conflict and poor quality of disclosure; a lack of comprehensive oversight of compensation programs and their associated conflicts by investment firms; and a shift to fee-based and managed accounts without appropriate supervision and monitoring of the unique risks associated with these account offerings.
“As a public interest regulator, we believe that the proper management of conflicts of interest, and compensation related conflicts in particular, is at the core of the best interest debate and critical to improving public confidence in our capital markets and our financial system,” says Andrew J. Kriegler, president and CEO, IIROC. “As a result of these findings, IIROC is immediately taking a number of important steps to make it clear that our rules and guidance put the best interest of the client ahead of the interests of IIROC-regulated firms and their representatives.”
Click here for more information on IIROC’s findings and guidance.