On July 2, the Canadian Securities Administrators (CSA) published Staff Notice 31-358 Guidance on Registration Requirements for Chief Compliance Officers and Request for Comments (SN 31-358), which outlines and provides guidance on three optional models for employment of chief compliance officers (CCOs). We highlight key features of the three models below.
Under the shared CCO model, an individual could become the CCO for two or more registered firms. Although larger firms likely need a full-time CCO, SN 31-358 acknowledges that some smaller firms might be able to operate an effective compliance system with a shared CCO. The shared CCO model also would enable firms with only one individual to separate the CCO function from that of the ultimate designated person (UDP) and director. CSA staff emphasized that the shared CCO model is not an “outsourced CCO” model, with services provided by a compliance consultant. The shared CCO will become an officer of each firm sharing their services.
According to SN 31-358, staff considering an application for a shared CCO will want to see how the sponsoring firms and the individual applicant plan to address potential conflicts arising from the arrangement and protect clients’ confidential information. Staff also will consider the individual applicant’s capacity to fulfil their obligations as CCO in light of their commitments at all the firms where they would serve as CCO, as well as any other commitments (such as their outside business activities). SN 31-358 also indicates that applicants to serve as a shared CCO typically will already have a track record as an effective CCO evidenced by, for example, the outcomes of compliance reviews at firms where they served as the CCO.
Under the multiple CCO model, a firm will employ more than one CCO, with each individual responsible for a different business line or registration category. According to SN 31-358, a firm seeking to implement this model will need exemptive relief and have to demonstrate, among other things, that each CCO will have their own responsibilities and that no CCO will delegate or transfer their prescribed responsibilities to another CCO.
Under the specialized CCO model, staff will consider an individual’s relevant business experience in assessing whether the individual has the proficiency and experience required to serve as the CCO of a non-traditional or specialized firm. For example, experience developing financial products or services might be relevant in a CCO application for a firm that operates an online platform for innovative products or services. SN 31-358 notes that, in some circumstances, exemptive relief might be required.
CSA Wants Feedback: Somewhat unusually, SN 31-358 incorporates a request for comments even though the guidance on CCO models already appears to be in effect. CSA members want to hear from registrants about whether these CCO models meet their needs and their experience in implementing them, so that the CSA can determine if further policy initiatives are needed. This suggests that the CSA might be open to tweaking the models or proposing others, as needed. The deadline for comments in September 30.
Our Takeaways: SN 31-358 reflects a change in regulatory practice, not a change in the rules. We expect that the process to register a CCO under one of these models will be more time-consuming and complex than a typical application, potentially involving an application for exemptive relief and/or incorporation of terms and conditions on the CCO’s registration. AUM Law has extensive experience helping firms prepare applications to register CCOs and engaging with regulators on firms’ during the application process. If you are interested in exploring a non-traditional CCO arrangement, please contact us to discuss how we can help.
July 31, 2020