PMAC meeting update BCSC Examination February 15, 2011 Michael - - PowerPoint PPT Presentation
PMAC meeting update BCSC Examination February 15, 2011 Michael Sorbo, CFA Manager, Examinations Janice Leung, CA CFA Senior Securities Examiner 1 Todays topics Annual report card & key exam activities Top 2010 examination
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February 15, 2011 Michael Sorbo, CFA Manager, Examinations Janice Leung, CA CFA Senior Securities Examiner
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Annual report card & key exam activities Top 2010 examination findings Compliance tips CSA Compliance Committee CSA Marketing sweep
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my own rules. Jesse Livermore, to his son
something that happens about every 20-30 years, because that is the length of financial memory. It is about the length of time needed for a new set of suckers to come and imagine that they have a new and wonderful fix on the future. John Kenneth Galbraith
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9 9 4 1 3 Restricted dealer 84 48 36 101 87 14 Exempt market dealer 896 896 7 7 Scholarship plan dealer 20 9 11 Investment fund manager 455 151 311 385 307 78 Portfolio manager Total # of representatives Outside based representatives BC based representatives Total # of firms Outside based BC based Category
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lack of a formal top-down compliance program – need for
“tone at the top”
ineffective compliance procedures to support policies and
strategic goals
In 53% of reviews, we saw that firms did not establish well
thought-out or stress-tested disaster recovery and business continuity plans
In 40% of reviews, firms did not manage the conflicts of
interest and personal trading adequately.
In 40% of reviews, firms did not adequately disclose fees,
affiliations or services adequately
Controls and records to support the management of
personal trading practices remains an issue
A large number of firms had poor marketing policies,
supervision and approval of advertising and inadequate verification of stats represented.
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Are clear procedures set out for compliance policies? Did your program detect any actual compliance problems? If not,
why not?
Have you learned from past lessons, examinations, or errors? Are your compliance problems resolved swiftly, with quality, and
ethically?
Does your staff talk candidly about compliance issues, and would
they escalate potential issues to compliance staff in a forthright fashion?
Do you have active orientation and training programs? Are your disclosures designed to meet the new requirements set
Is risk management linked into your compliance program? Does your staff understand and follow the firm’s code of ethics
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15% 33% Compliance officer function 8 15% 40% Advertising, marketing and holding out 7 45% 40% Disclosures 6 50% 40% Conflict of interest and personal trading 5 50% 47% Capital monitoring 4 45% 53% Disaster recovery and business continuity 3 70% 60% Know-your-client and suitability 2 85% 73% Policies and procedures 1 2009 All 2010 Advisers only Type of deficiency Rank Top Deficiencies by Frequency
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5% 13% Anti-money-laundering procedures 17 0% 13% Insider and early warning reporting 16 5% 20% Fund advertising and perf. presentation 15 0% 20% Fund records, trading and administration 14 15% 20% Performance presentation/ benchmarking 13 30% 20% Records 12 20% 27% Registration administration 11 10% 20% Compliance program 10 5% 27% Trade execution 9 2009 All 2010 Advisers only Type of deficiency Rank Top Deficiencies by Frequency
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always a major area of focus in our registration and examination process.
the Standards of Practice Handbook contains the CFA Institute Code of Ethics and Standards of Professional Conduct with related guidance and examples illustrating application in day-to-day situations.
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recent examinations, we found compliance officers were not familiar with current disclosure requirements. While we understand that NI 31-103 set out many new requirements and changes from previous rules, we expect firms to be proactive in learning the new regulatory requirements and to update programs and practices accordingly.
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examinations include a review of how past deficiencies were resolved, and whether you followed through with your plans. In some recent reviews, we found some firms have been too casual about ensuring prior deficiencies were resolved. For example, new policies and procedures were not enforced and compliance action plans fell short of being completed.
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and dealers face numerous risks. Many of your firms are managed on a line-of-business basis with a variety of business segments, as determined by the products and services provided. Firms may also face risks generated by affiliated firms such as business partners, brokers, and custodians. In many cases a comprehensive review
regularly conducted. This could also be done annually as part of a risk assessment process.
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sample of client files to review whether firms documented KYC information. Consider:
Are investment strategies or solutions clear? Are they tailored to the client? Do they explain the reasons for the recommendations
and how they relate to the customers objectives?
Have you clearly documented client objectives, needs,
priorities, relevant existing investments, implementation plans?
Do you have tools to assist with rebalancing?
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Long-term Capital Management collapsed in 2000 Lehman Brothers Holdings collapsed in September 15,
2008
SEC receives emails warning Bernard Madoff’s
investment vehicle is a Ponzi scheme in May 2003
Aramanth Advisers loses over $6 billion in a week in
September 2006
Bear Stearns collapses in March 2008 –sold to JP
Morgan for $2.21 per share
Merrill Lynch told to Bank of America for $50 billion
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We tend to perceive what we expect to perceive?
I have a policy manual = therefore I have a good
program
The compliance program operates in “silos”; is not
integrated
The program is not proactive but reactive They are not put into a visible or written structure; cannot
be easily defined
They fail to consider out-lying potential risks They miss the spirit of the law and do not enforce
“ethical behavior”
They are not adapative, but static (same old model)
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Committee mandate Co-ordination between regulators Current projects
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Six provinces participating Ten firms selected in BC
Publication of a CSA Staff Notice in
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Fair, true, complete, adequate disclosure Suggested practices – CFA Institute’s
Compliance with GIPS is voluntary
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GIPS requires firms to document policies and procedures used in establishing and maintaining compliance with GIPS.
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“proven performance” “proven track record” “best performing fund in Canada” “precedent setting”
Discuss and disclose the assumptions behind your “proven” performance. Also show the source of your claims.
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Includes back-tested and model numbers GIPS allows presentation of hypothetical
Hypothetical performance should never be
Disclosures must be very clear that the
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