• Tasks lists that can be diarized;
• Forms and logs;
• Guidance to staff on specific matters that must be brought
to management’s attention;
• Record keeping protocol to document significant and
supervisory matters and client communications;
• A database and appropriate software to organize client and
• Periodic independent reviews and checks; and
• Formal training for all affected parties.
A compliance manual and some forms to be completed by
clients are not a compliance structure.
To illustrate the importance of process, I’ll review how the
client reporting mandates set under NI 31-103 assume certain
processes. These reporting requirements are intended to provide
clients with greater disclosure so they can make better investment
decisions. To understand the intention behind these series of rules,
one has to visualize six different stages of the client account process.
My intention is not to minimize the work involved in meeting
the above requirements. However, for a firm that has an organized
account/order acceptance protocol and a database of purchase and
redemption activity, the client reporting requirements are largely an
exercise in database management, report generation and training.
EMDs and other securities registrants who fail to establish
and maintain organized compliance processes are gambling that
securities regulation, and their obligations will stay steady. Firms
that have organized compliance processes know they never will.
For more information contact:
“Everyone thinks they have a plan until they get punched in the mouth.”
Step 1 A client walks into firm’s office, enquires about
the firm’s offering and decides to open a client account. Matters
that the client should be aware of at the time of account opening
are set out under section 14.2 of NI 31-103. To address this
requirement the firm is expected to have an organized “client
fulfillment process” that includes the delivery and appropriate
explanation of account opening materials (including a disclosure
document that has been previously reviewed and approved
by management) and, a process for documenting the client’s
receipt/understanding of what they have been given.
Step 2 Though most clients will only open an account
when they are ready to purchase, let’s assume that this is done in
two stages. When the client calls to make a purchase transaction
section 14.2.1 sets out further disclosures that the client must
receive regarding the costs and charges relating to the purchase
(so they can make an informed decision at that time). This
assumes that the firm has a formal order acceptance process.
This could include; providing Dealing Representatives with a script
or checklist of matters to consider/discuss prior to accepting an
order, a review/ follow up discussion by supervising staff, etc.
Step 3 The trade is settled and a confirmation along
with other materials are sent to the client. Section 14. 12 sets
out requirements of what should be included in the trade
confirmation sent to the client. This assumes the firm has a
database for recording purchases and settlements, software to
generate the trade confirmations and a process for post trade
delivery of such information to the client.
Step 4 At quarter end, month end (if a reportable
transaction occurred during the month) or, more frequently if
requested by the client, a statement of activity during the period
must be sent to the client. Starting July 15, 2015 the NI clarifies
that if the EMD has possession of the client’s securities or any of
the conditions under 14. 14( 7) or 14. 14.1(1) apply, the statement
(or a supplemental statement) must show the market value of
settled security positions. Starting July 15, 2015, the statement
must also show the cost of securities held in the account, as
defined under 14. 14.2(2). This assumes that the firms that must
report positions on the client account statement have a database
where such positions are recorded and a process for calculating
their market values periodically.
Step 5 Section 14. 17, describes a report on compensation
earned by the firm and certain charges to the client, that must
be provided annually to each client starting July 15, 2016. This
assumes that the firm has an organized database of commissions
and charges from which to generate the report.
Step 6 Section 14. 18, describes a performance report
that must be provided annually to clients, starting July 15, 2016,
if the firm has to report settled positions under Step 4 above. This
further assumes that the firm has a properly organized database of
prior purchases and settlements and, a process for updating the
market values of settled positions along with appropriate software.