The current rules require one registered Chief Compliance Officer (CCO) per registered legal entity, but important new Canadian Securities Administrators (CSA) guidance provides more ways to meet the CCO staffing requirement.
The CSA will on a case-by-case basis work with three new models summarized below as part of its burden reduction initiative.
Registered firms which are also members of IIROC or the MFDA should note that CSA Staff consulted with these self-regulatory organizations (SROs) to develop the new guidance, but the CCO requirements of these SROs have not changed. SRO Staff and CSA Staff will consult on a case-by-case basis to achieve, where possible, a coordinated approach on CCO staffing for SRO member firms.
- The shared CCO model.
Under this model, one individual may apply to be the CCO for more than one firm. While some affiliated firms have been allowed to use the shared CCO model in the past, the CSA is now open to the possibility of unaffiliated firms using a shared CCO model as well. This may benefit smaller firms and may also allow firms with only one individual to separate the role of the CCO from that of the UDP and sole director.
This model does not contemplate a registered firm outsourcing its CCO's responsibilities to a third-party service provider.
CSA Staff will consider the following factors when reviewing applications for the shared CCO model:
- Proficiency: The shared CCO must be able to demonstrate the proficiency to act as CCO for each firm's business. A CCO in a shared model would typically need to have had prior CCO experience. CSA Staff will evaluate the outcomes of compliance reviews of firms where the individual was registered as CCO in the past.
- Conflicts of Interest: The shared CCO and the sponsoring firms must identify and appropriately respond to existing or potential conflicts of interest resulting from the shared CCO model.
- Capacity: The shared CCO must be able to demonstrate capacity to act as a CCO for more than one registered firm in light of the individual's other commitments and outside business activities.
- Effective Compliance System: Firms that use a shared CCO must continue to maintain an effective compliance system.
- Confidentiality: The shared CCO and the sponsoring firms must show that they will continue to protect the confidential information of clients.
- The multiple CCO model.
A firm may apply to have multiple CCOs, each responsible for one or more business lines and/or different registration categories within the firm. This may benefit larger and more diversified firms.
In order to be approved for a multiple CCO model, a firm must demonstrate that this model is appropriate for their compliance system, that each CCO has their own separate responsibilities, and that no CCO delegates or transfers their responsibilities to another CCO.
- The specialized CCO model.
An individual who is applying to be the CCO of a non-traditional or specialized firm, such as a fintech firm, may ask the CSA to consider their industry-specific experience when assessing CCO proficiency and experience requirements. This may benefit firms with novel or more specialized business activities.
The individual being considered for the CCO position should have experience that is relevant for both the category of registration and the business of the sponsoring firm. Other business experience may be considered relevant for the purposes of assessing whether the individual meets the CCO experience requirements.
The CSA provides the following examples of relevant business experience:
- experience developing products or services where the firm exclusively operates an online platform for innovative products or services;
- experience from a related investment field, such as experience with underwriting or credit adjudication while working at a financial institution or investment bank, where the firm operates an online lending business.
CSA Staff will assess business experience on a case-by-case basis depending on the particular circumstances of the proposed CCO and the firm.
For certain categories of registration, there is a requirement that the individual being considered for the CCO position must have provided professional services to and/or worked at a registered firm. An applicant lacking that work experience will need to apply for exemptive relief.
If an individual is considered sufficiently proficient to be CCO under the specialized CCO model but not for a firm with a different business model, CSA Staff may recommend terms and conditions on the CCO's registration.
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Originally published July 7, 2020.
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