The Role of Compliance and formal compliance Structure 15%

Question 1

What is the role of Compliance?

Answer 1

In an organization with a culture of compliance, employees obey the spirit of the law, not merely the letter of the law.

Question 2

Board of Directors

Answer 2

represents the corporation and establishes the environment in which management and staff undertake corporate objectives. The board is also obligated to act in the best interests of the corporation. Not their role to verify that the firm and its staff are in compliance with the relevant requirements. establish the firm’s ethical code. must act on reports received from the CCO.

Question 3

What are senior management:

Answer 3

The primary responsibility for developing a firm’s culture. The UDP must oversee the development and implementation of adequate written policies and procedures. firm’s CCO report to the board of directors at least annually on the status of compliance.

Question 4

What is the role of the compliance department?

Answer 4

implementing and monitoring many regulatory initiatives. Such initiatives include new processes regarding anti-money laundering, client identification, corporate governance, and privacy. must also report all material incidents of noncompliance to the UDP. The CCO’s role can be fulfilled only with the ongoing support of senior management and the board of directors. Under normal circumstances, the compliance department does not have direct authority over line staff. compliance function encompasses surveillance, advice, reporting, and other risk management activities

Question 5

What are line managers

Answer 5

The primary objective of line managers and supervisors at a dealer member is to meet specific production goals established by their superiors. Therefore, their focus is often on revenue.

Question 6

What are the three general types of violations are categorized by the laws, rules, or policies that they violate?

Answer 6

• Criminal violations
• Civil violations
• Regulatory violations.

Question 7

What is Formal Compliance Structure?

Answer 7

The compliance department is a business unit whose role is to identify, assess, advise on, act on, communicate, monitor, escalate, and report on the dealer member’s compliance with regulatory requirements. Surveillance and monitoring are seen as the primary functions of the compliance department. However, it is also the department’s role to interpret rules and to address and explain compliance issues.
IIROC requires that dealer members appoint a chief financial officer (CFO) who is typically responsible for managing the firm’s financial and accounting functions. Responsibilities include the maintenance and monitoring of the firm’s capital position as required by regulations. The CFO also oversees activities that are integral to the firm’s business activities, such as budgeting, expenditure controls, and cash management.

Question 8

What should a supervisor provide

Answer 8

at a minimum, the following: (i) The establishment, maintenance and enforcement of written policies and procedures acceptable to the Corporation regarding the conduct of the types of business in which it engages and the supervision of each partner, Director, Officer, Registered Representative, Investment Representative, employee and agent of the Dealer Member that are reasonably designed to achieve compliance with the applicable laws, rules, regulations and policies.

Question 9

IIROC distinguishes between supervision and compliance as follows

Answer 9

• Compliance staff identifies issues and typically refers them to the appropriate supervisor for resolution. * Supervisors resolve issues after they have been identified.

Question 10

How often must a CCO report to the board about the status of compliance?

Answer 10

Reporting must occur as often as necessary, typically on a quarterly basis, but at least annually.

Question 11

How many ppl does the IIROC require as UDP?

Answer 11

Dealer member must have only one person approved as a UDP.It also requires
that the designated UDP be the chief executive officer (CEO) or a person who acts in a similar capacity. The CCO is permitted to also serve as the UDP, but this arrangement typically occurs only in smaller firms. It is more likely that investment in compliance will be treated as a high priority when the business head is appointed to the position of UDP. The UDP is responsible to the applicable self-regulatory organization (SRO) for the conduct of the dealer member and the supervision of its employees. The UDP is also responsible for developing and implementing policies and procedures that adequately reflect the regulatory requirements of the firm.

Question 12

What must a Chief Compliance Officer do?

Answer 12

1. Establish and maintain policies and procedures for assessing compliance with the Rules and applicable securities laws by the Dealer Member and individuals acting on its behalf;
2. Monitor and assess compliance by the Dealer Member, and individuals acting on its behalf, with the Rules and applicable securities laws;
3. Report to the Ultimate Designated Person as soon as possible if the Chief Compliance Officer becomes aware of any circumstances indicating that the firm, or any individual acting on its behalf, may be in noncompliance with the Rules or applicable securities laws and (A) the noncompliance creates a reasonable risk of harm to a client; (B) the noncompliance creates a reasonable risk of harm to the capital markets; or (C) the noncompliance is part of a pattern of noncompliance;
4. Submit an annual report to the firm’s board of directors, or individuals acting in a similar capacity for the firm, for the purposes of assessing compliance by the firm, and individuals acting on its behalf, with the Corporation’s Dealer Member rules and applicable securities laws.

Question 13

IIROC requires that a dealer member appoint as many supervisors as necessary to properly supervise its various lines of business. IIROC requires designated supervisors to be responsible for functions including:

Answer 13

• Opening new accounts and supervising account activity
• Supervising options and futures accounts
• Pre-approving advertising, sales and literature, and correspondence materials

Question 14

IIROC expects that the CCO’s report to the board will identify and discuss material findings contained within the following articles:

Answer 14

• IIROC compliance reports
• Early warning designations
• Gatekeeper reports
• Disciplinary actions
• Compliance risk trend reports * Any other relevant findings

Question 15

How long must a CCO keep evidence of compliance?

Answer 15

seven years from the date the record is created. Firms should also consider specific document retention policies, including those applicable to electronic records such as email. The ability to prove compliance with the applicable rules is as important as actual compliance with the rules. The documentation requirement applies particularly to the following activities:
* Client account openings
* Compliance with the Know Your Client (KYC) rule and suitability requirements * Correspondence with clients
* Compliance and supervision activities of the firm

Question 16

The CCO cannot?

Answer 16

ignore a substantiated concern about illegal or improper activities by the UDP or by any other member of senior management or the board. Depending on the situation, the CCO should confront the relevant party or formally escalate the matter to executive management or the board (assuming there is no evidence
of complicity). In some cases, the CCO’s only option is to resign and seek legal counsel. The resignation must be accompanied by a full, written description of reasons for doing so. The CCO must also notify the securities regulatory authorities and, if necessary, the police.

Question 17

What is the compliance department’s role?

Answer 17

to advise rather than dictate. Final decision-making authority should reside with the business unit manager or supervisor, or with someone further up the line of accountability. The compliance department should maintain its independence in the process. However, should a business unit manager choose to ignore the advice of the compliance department, the dialogue that has taken place surrounding the issue itself should be clearly documented.

Question 18

To qualify as a carrying broker, a dealer member must meet the following conditions

Answer 18

• It must be an IIROC dealer member.
• It must have the approval of the district council of the province in which the carrier’s head office is located. * It must otherwise be in compliance with applicable IIROC rules and any requirements of the regulatory authority in the jurisdiction of the introducing broker.
  A carrier can carry the accounts of clients introduced to it by another IIROC dealer member.

Question 19

Carriers are considered the gatekeepers in an IB/CB relationship what are their responsibilities?

Answer 19

Their responsibility lies in ensuring that introducers abide by IIROC’s rules.

Question 20

What is the only Introducers that share equal responsibility?

Answer 20

share equal responsibility for client supervision regarding KYC rules are Type 1 introducers. Both parties in a Type 1 arrangement must understand the day-to-day division of functions and maintain clear lines of communication.

Question 21

What are carriers obliged under IIROC rules?

Answer 21

ensure that introducers have the necessary system requirements, forms,
and other reports required to abide with the regulations. This obligation is one of the benefits for the introducer
of entering into an IB/CB relationship: it is the carrier’s responsibility to ensure that any affected internal control systems are aligned with new or amended rules. The carrier in a Type 1 relationship conducts daily trade and month-end client statement reviews at the head office level under IIROC rules.

Question 22

An exemption in the IIROC rules allows carrying brokers to enter into an IB/CB relationship with a foreign affiliate. This exemption exists only for foreign affiliates of the carrier, with the following conditions:

Answer 22

• The foreign affiliate must disclose the relationship to its clients.
• It must obtain approval from the requisite authority in its jurisdiction.

Question 23

The carrier must apply for this exemption, documenting the services provided and the completion of the necessary conditions.

Answer 23

IIROC states that the following core functions may not be outsourced: * The account opening process
* Suitability assessments
* The handling of client complaints
However, the following core activities may be outsourced:
* Investment decisions for managed accounts
* Certain client account-related functions, such as the clearing and settlement of trades
* Administration of margin and other account loans
* Management and maintenance of information systems
* Preparation of client account statements, regulatory financial reports, non-financial regulatory reports, registration filings and database maintenance activities, treasury functions, corporate finance activities, research reports and marketing, and professional services such as accounting and internal audit services
The following non-core functions may also be outsourced:
* Office service management
* The procurement of external consultant services
* Human resources management

Question 24

What must the Firm maintain for accessible records?

Answer 24

records of all designated supervisors to ensure compliance with IIROC dealer member rules. The firm should also maintain accessible records of compliance governance documents and related items. Such records must include changes to designated supervisors, delegations of functional responsibility, and similar material. These records must be maintained for seven years. The board of directors should approve the corporate governance document, and the document must be filed with IIROC.

Question 25

What is the primary role of the government document?

Answer 25

to identify the people who have regulatory roles in a dealer member and provide an overview of their responsibilities. On the other hand, the policies and procedures manual identifies the people responsible for specific activities and supervisory functions, describes in detail all requirements for the roles, and explains how they are conducted.