IIROC Consultation Paper (Phase III) — Competency Profiles for Supervisors, Traders, Associate Portfolio Managers and Portfolio Managers
The consultation is in the third phase of a multi-year project to set out competency profiles for all of IIROC’s registration categories. A “competency” is a set of knowledge, behaviour, and skills that an individual must have to perform effectively in their role. The proposed profiles for supervisors consist of 3 high-level competencies associated with their oversight responsibilities, focusing on the general regulatory framework, supervisory firm responsibilities and supervisory specific responsibilities. Traders (whose activities are limited to trading through a marketplace member and who do not advise the public) have 3-high-level competencies that related to their technical and regulatory skills, being marketplace structure and regulation, trading in capital markets and trading rules and orders. APMs and PMs have 6 categories of high-level competencies associated with their relationship, regulatory and technical skills, focusing on regulatory environment and ethics, investment policy, research and analysis, portfolio construction, portfolio monitoring and servicing institutions. APMs and PMs must also meet the competencies proposed for Registered Representatives in Phase 1 as they are permitted to carry out RR activities. All categories have numerous sub-competencies and specific knowledge requirements.
IIROC intends to publish the final profiles in advance of the expiry of the CSI contract; a request for expressions of interest will be sent out later this year for education service providers.
Overview of the Council’s Comments:
We firmly support initiatives to examine and improve registrant proficiency, especially for categories of registration that involve dealing directly with clients. We also think it will be helpful, when finalizing the competencies for all registration categories, to review the expectations against the requirements of the end-clients served by those registrants, and to set in place processes that regularize the review of the competency profiles to be responsive to changing markets, client demands, and the resulting emerging competency needs.
While the proposed competency profiles are generally comprehensive, we have noted potential gaps for further consideration in the approach:
- We note that the framework begins “at the top” by considering each individual registration category. We have recently made a number of comments responding to various client-focused regulatory initiatives, including the need for those within the financial industry to be educated and proficient on themes of increasing secular importance, such as consideration of sustainability and ESG reporting by issuers and approaches in investing, Indigenous reconciliation, rights and title, DEI (diversity, equity and inclusion) and vulnerable clients. We suggest reviewing the competencies against requirements for the types of investors who are serviced by these registration categories, from the bottom up. Such a review would accord with the investor protection mandate of securities regulators.
- We also believe that both a retrospective and regularized review of related programs that survey for and analyze emerging topics and professional competency needs, such as the results of the CFA Institute Practice Analysis Annual Review would lead to an improved and increasingly forward-looking competency analysis process for IIROC’s competency profiles.
With respect to the proposed competency profiles for Supervisors, we are of the view that the competency expectations capture the appropriate level of knowledge that should be expected from individuals holding these important roles. Our core recommendations include knowledge in the following areas:
- Pension legislation, and related investment restrictions at a high level (for example, as set out in the Pension Benefits Standards Act, 1985).
- A high-level understanding of documents typically utilized in derivatives trading such as ISDA and credit support annexes.
- We would recommend adding a reference to mortgage loans, given the prevalence today of utilizing same in various collective investment vehicles and the current interest rate environment.
- In connection with the proposed behaviours and skills for Supervisors, we believe there are gaps in connection with required soft skills that should be added. We had made this comment in our previous letters on Phases I and II as well. CFA Institute has developed its own competency framework used to inform ongoing professional development of its members, which includes items such as collaboration, communication, curiosity and leadership. All of these could be considered for inclusion in the competency profiles.
Moving to the Trader Competency Profiles, we believe there could be improvements and more specificity relating to a few key concepts, such as:
- Specific reference to fair and allowable trade allocation practices, both in a sell- and buy-side context.
- Express requirement to have knowledge of the proper understanding and use of key modern trading tools such as trading algorithms and smart order routers, both of which have been prevalent for some time across most types of trading desks and most addressed asset classes in Canada.
- Adding a reference to the different methodologies and benchmarks used for calculating not just explicit but implicit trading costs.
- Understanding sources of liquidity and related dynamics, including (as one example) the complexities of effectively trading interlisted securities, or (as another example) the pros/cons and trade-offs implicit in the use of different execution venues or order types.
Specifically with respect to the categories of APMs and PMs, we believe this is the most robust and well thought out of the proposed competency profiles. We agree with the proposed six categories of high-level competencies associated with their relationship skills, regulatory skills and technical skills.
Under the regulatory environment and ethics competency, we appreciate that the sub-competency related to the fiduciary duty of a PM and APM has been broken out and highlighted in its own category. We believe that the competency profile could be incrementally improved through requiring competencies relating to an understanding of specialized legislation and regulation applicable to certain client types such as pensions (as mentioned in comments relating to the Supervisor competency profile above). It could also be improved through additional competency requirements relating to the understanding and application of various asset allocation frameworks applicable to both institutional and retail clients, understanding and evaluation of risk-adjusted performance, and the assessment and understanding of investment and investment manager performance through widely utilized performance evaluation methodologies and metrics. All of these topics are extensively addressed in the CFA Program’s learning objectives and curriculum.