Consultation Paper – Proposed Proficiency Model- Approved Persons under the Investment Dealer and Partially Consolidated Rules

1. Background

CIRO firmly believes that high proficiency standards play a key role in delivering investor protection and strengthening the integrity and efficiency of capital markets. Currently, CIRO sets and enforces rules regarding the proficiency of more than 31,000 registered individuals employed at investment dealer firms (Dealers). It is vital that CIRO ensure a robust assessment process that includes meeting prescribed baseline proficiency requirements.

Our current proficiency model is a course centric model delivered by a single course provider. That is, our current proficiencies are satisfied by the successful completion of exams that are based on mandatory courses, which are offered by the Canadian Securities Institute (CSI). Our contract with CSI will expire on December 31, 2025.

The initiative to enhance the investment dealer proficiency standards originated from an earlier review by IIROC, a predecessor of CIRO, of its proficiency assurance model.1  The review included a broad public consultation and produced two key outcomes:

1. The development and publication of competency profiles, and
2. A commitment to a transparent and competitive procurement process in the selection of a single education service provider, following the expiry of our contract with CSI.

Over the last few years, CIRO, through its predecessor organization IIROC, undertook an in-depth and broad consultative exercise in the development of competency profiles for all 11 Approved Person categories. The profiles were published in three phases.2

One of the primary purposes of the competency profiles is to provide vendors with information to support education content and examination development.

On October 11, 2022, we published an REOI3  for prospective education services vendors. Our REOI helped to assess interest from and identify potential partners for our new proficiency regime. It also invited submissions on new and alternative models for the delivery of our education services.

In parallel with the REOI process, we engaged in some modelling work, with the assistance of an education consultant, that included research and analysis of current and alternative proficiency models and industry best practices. Both this work and the REOI submissions served as key inputs to help us identify a proficiency model which we believe best serves the public interest and our regulatory needs.

2. Purpose

The purpose of this phase of the project is to ensure that we have considered our current proficiency model, and any changes that need to be made, before moving forward with the Request for Proposal(s) (RFP) by vendors to provide the services to support our new proficiency regime and proceeding with any rule amendments. Considering the contract with CSI expires on December 31, 2025, we wanted to ensure we have sufficient time for implementation of a new proficiency model.

We are publishing this consultation paper to solicit feedback on our proposed approach before moving forward with the other phases of the project.

3. Development of the proposed proficiency model

Concurrent to the REOI phase of this initiative, we undertook additional work for the purpose of identifying a proficiency model which best serves the public interest and our regulatory needs. Through an internal steering committee, we conducted a wholesale review and assessment of our current and alternative models, with consideration of industry best practices. We also engaged with various stakeholders including conducting a survey of Approved Persons who recently took one of our CSI exams.

We also hired an education consultant to ensure that we are following a robust process in designing a proficiency model, and to ensure we have considered the relevant factors in our analysis.

3.1 Research and review

In developing our proposed proficiency model, we conducted a review of relevant proficiency related standards and best practices with applicability to regulatory bodies.

We noted that there is a range of organized bodies that establish standards for professional or occupational licensure, credentialing, and other similar certification processes. Among them is the International Standards Association (ISO), which has set international standards for relevant education, personnel certification, and credentialing bodies. The American Educational Research Association (AERA), the American Psychological Association (APA), and the National Council on Measurement in Education (NCME) are US-based organizations that have also collaborated to create recognized international standards for educational testing and assessment. In general, standards adopted by certification and credentialling bodies separate education from assessment.

Our research and review demonstrated that assessments based on competencies, and not based on courses are a best practice. Our review also demonstrated that assessments based on courses offered by the same provider could create a conflict of interest.

We also considered different approaches to proficiency design and delivery taken by foreign securities regulators. A comparative review of proficiency models in the US (FINRA)4 , Singapore (MAS)5  and Australia (ASIC)6  found that each of these jurisdictions rely on an assessment centric model, either in whole or in part.

In the US, FINRA applies an assessment centric model which requires individuals to pass qualifying exams to demonstrate competence in particular activities in which they will work. The purpose of the exams is to ensure that individuals acquire a minimum level of understanding and expertise. FINRA relies on qualification exam content committees to advise on content for all qualification exams. Test delivery is managed by a single test delivery vendor. It offers approximately 21 representative and principal-level exams, including one general industry exam open to the public, which assesses knowledge of basic securities industry information and concepts fundamental to working in the industry. All other FINRA exams pre-require firm sponsorship and are designed to assess the relevant competencies required to conduct the type of business the individual will engage in.

In Singapore, the MAS similarly requires successful completion of specific examination modules before an individual can provide capital markets and financial advisory services. MAS examination modules are divided into discrete areas of knowledge which cover specific rules, regulations, product knowledge and analysis. An individual seeking relevant licensing is expected to complete several applicable examination modules before providing a licensed service.

In Australia, ASIC applies a similar assessment centric model to that of FINRA and the MAS, but specifically for financial advisers only as part of the regime’s required education and training, which also includes completing an approved university degree. Passing the financial adviser exam is necessary to comply with applicable professional standards for financial advisers. The exam covers regulatory and legal requirements applicable to financial advice, financial advice construction, and applied ethical and professional reasoning and communication. To ensure that an opportunity for learning exists, ASIC publishes study guides with some supplementary materials.

3.2 Stakeholder engagements

Over the course of our competency review and leading up to the publication of the REOI, we have consulted with various stakeholders including our advisory committees.

The following are some of the key findings from our engagement with stakeholders:

• Strong desire and expectation for change
• Greater oversight and involvement by the new SRO
• Greater currency and relevancy of content; more responsive to changes in the industry
• The learning experience needs to better meet the demands and expectations of end-users
• Improved value relating to current costs
• Reduced barriers to entry as a result of reduced proficiency costs
• Raise the proficiency bar
• Improved alignment to firm training

4. Proposed proficiency model

In considering the best proficiency model for our regulatory framework, we considered our approval categories, the size of our Membership, the impact on our stakeholders including dealers, and the investing public. We focused on the feedback from stakeholders within the context of our regulatory mandate of investor protection, while recognizing that we needed to propose a practical approach that would meet our regulatory needs. We also considered the impact on individuals in the industry that will be subject to our proficiency requirements. We were mindful of the market of education service providers, including CSI, available in the Canadian market. Overall, any proficiency model proposed would have to be realistic within the context of our Canadian market.

4.1 Framework overview

We are proposing an assessment centric model, qualified with some mandatory education and training. Assessments will be based directly on published competencies. The mandatory education and training will focus on professional training shortly after approval, and annual CE addressing key regulatory topics as determined by CIRO.

In order to ensure all prospective Approved Persons demonstrate a baseline of industry knowledge, we propose having a general industry exam (the general exam), based on the competencies common between all the profiles. The successful completion of the general exam can then lead to a form of firm sponsorship which will be required in order to enroll in an Approved Person exam. The firm sponsorship confirmation, prior to enrolling in an Approved Person exam, may be in the form of a letter from the dealer which confirms a conditional offer of employment or intent to hire an individual.

There will be 9 Approved Person exams available, based on the competency profiles we have developed for our Approval categories, details of which are outlined further below.

Under our proposed model, CIRO will play a greater role in the development and design of its proficiencies. It will be actively involved in the exam design process, both in the initial build and on-going maintenance through periodic updates to reflect changes in regulatory requirements. CIRO will also be actively involved in designing the mandatory education and training component including the content of the professional conduct training, and in identifying and developing the required CE in a given year. These are discussed in further detail below.

Based on the analysis conducted, we are of the view that an assessment centric model, being exams based on published competencies, along with some mandatory education and training, will allow us to achieve our core objectives, and is the best model for the Approved Persons under IDPC. Specifically, it will:

• Raise the proficiency bar and enhance the proficiency regime applicable to Approved Persons,
• Allow for greater currency and relevancy and more responsiveness to industry changes,
• Enable greater alignment with firm training,
• Create opportunities for better learner experience, and
• Lower the cost of licensing and entry barriers to end-users.

4.2 Assessment

4.2.1 Exams based on competency profiles

We are of the view that we need to ensure that exams for each Approved Person category are based on published competencies for that specific category. In some cases, an individual may need to take more than one exam. However, through this model, there is a substantive reduction in the number of exam types that are available and required. There will be a total of 9 Approved Person exams available in comparison to the current total of 19 courses and exams under the current proficiency model.

4.2.2. Exam types

Under the proposed model, we would provide the following specific Approved Person exams:

• RR and Investment Representative (IR)- Securities- Retail
• RR and IR- Securities- Institutional
• RR and IR- Derivatives
• Associate Portfolio Manager (APM) and Portfolio Manager (PM)
• Supervisor
• Trader
• Directors, Executives, Ultimate Designated Person (UDP)
• Chief Compliance Officer (CCO)
• Chief Financial Officer (CFO)

4.2.3 Key changes relating to assessment

4.2.3.1  RRs and IRs

In order to reflect the difference in their roles, we are proposing to have an exam for securities RRs and IRs who deal with retail clients, that will be different from the exam for individuals who deal with institutional clients. This approach better aligns with the two separate competency profiles that has been developed for retail and institutional RRs and IRs.

Although RRs and IRs will continue to deal with product types of securities, futures and options, in considering the objectives of the proposed Derivatives Rules Amendments7 , to simplify and clarify the derivatives related requirements, we are proposing one consolidated exam for RRs and IRs who trade in derivatives. This will serve as a supplement to the securities exam. We are of the view that all those who trade in derivative products, including options and futures, should have a baseline and demonstrated understanding of all derivatives products, trading and associated risks. Rather than have separate exams focused separately on either options or futures, each of which currently has a different set of course and exam requirements, one consolidated exam would cover the requisite understanding of all derivatives.

4.2.3.2  APMs and PMs

We have proposed a separate exam for APMs/PMs based on their competency profile. We have considered the continued need to align with the proficiencies applicable to Associate Advising Representatives and Advising Representatives under National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations, and will be reviewing the best approach for mapping to those proficiencies for the purpose of recognizing them as acceptable equivalents. Currently, anyone who has completed the CFA level 1 or CIM^® designation8  for APMs, or the CFA Charter or CIM® designation for PMs, is required to complete the Conduct and Practices Handbook. Under our proposed model, we will continue to require relevant investment management experience for the APM and PM categories.

4.2.3.3  Supervisors

We are proposing one exam applicable to all types of Supervisors on the basis that we have one competency profile for all Supervisors to reflect supervisory responsibilities, authority, and accountability. We recognize that in some instances, a Supervisor may be required to complete an additional underlying exam. One example of this would be Supervisors who supervise derivatives trading; they will need to complete the derivatives exam mentioned above. For those Supervisors who supervise managed accounts, we would similarly continue to require completion of the underlying exams applicable to the APMs and PMs.

4.2.3.4  Traders

While developing the competency profiles, we developed a specific one for Traders that includes competencies relating to trading on different marketplaces. Our current proficiency requirements have focused on the proficiencies mandated by the exchanges. During our engagement with stakeholders, we received feedback that the current required proficiency, being the Trader Training Course, is equities focused and that the Trader competency profile should include competencies beyond equities. We will be proposing a separate Trader exam based on the published and more comprehensive competencies for Traders.

4.2.3.5  No mandatory courses tied to exams

Under this proposed model, we will not be mandating any courses as prerequisites for exams. Through our research, we discovered an existing competitive market of preparatory courses for some of our mandated regulatory courses and exams offered by other education service providers. We believe that in response to our proposed model, some education providers may decide to continue to offer such preparatory courses and modify accordingly to more closely align with our published competencies, to assist candidates with preparation for exams proposed through the model. 

We have considered that in some instances, in particular for those courses or exams that have historically lower enrollment volumes, a competitive market of preparatory courses may not be available. We are of the view that as a regulator, we need to ensure that there is an opportunity to learn and study for our mandated exams. Where we find that such an opportunity does not exist, we will prepare study guides, or supplementary materials.

4.3 Training

4.3.1 Mandatory professional conduct training

We are of the view that while assessments based on published competencies are an appropriate tool to verify the competency of those who apply to be an Approved Person with CIRO under the IDPC, specific and targeted training on ethics and professional conduct, are also an integral part of a robust proficiency regime. We therefore propose to create mandatory professional conduct training that all new Approved Persons would have to complete within 30 days of approval.

We are mindful that any training or exams provided by us must meet accessibility standards. While the design and content of this training is still to be finalized, our current thinking is to have case studies provided through interactive online training programs. This will enable newly Approved Persons to access training from any location where the individual works or resides, at any time that is convenient for the individual. We plan to include some form of assessment throughout the interactive training to ensure that the individual is learning the information, rather than passively listening.

Equally important and in conjunction with the training program, we will also publish a code of conduct which outlines how our Approved Persons should conduct themselves when carrying out their regulatory responsibilities in dealing with their clients, the investing public and in their professional relationships with others.

4.3.2 Mandatory Continuing Education

We, along with stakeholders, believe that our proficiency model should generally allow for greater relevancy and currency than is available today. To address this, we plan to provide 1 to 3 hours of mandatory CE on an annual basis for all Approved Persons to ensure that they keep up to date with those matters which we find are of utmost importance in a given year. This will be part of the mandated appliable CE currently set at 10 hours of compliance and 20 hours of professional development. This may include training linked to ethics or to new regulatory changes. Similar to our proposed approach with the professional conduct training, we plan to offer online interactive CE training in order to enable Approved Persons to access the training program from any location where an individual works, resides and accessible at any time that is convenient.

We recognize that the proposed proficiency model may have some downstream impact on the current CE requirements. We will be reviewing those as part of our review of the applicable rules and make any necessary amendments.

4.4 Baseline education or experience

We considered whether our current education and experience requirements for each of our Approved Person categories are appropriate, or whether there are opportunities to raise the bar and enhance our proficiency regime to better carry out our public interest mandate, which includes investor protection. We also considered the importance of access to advice for the investing public, and not setting the bar so high that dealers will not be able to hire individuals as needed to support their business. While it is important to ensure that our model is such that it can continue to attract individuals who carry out regulatory functions on behalf of the dealers, it is equally important that those who have core regulatory responsibilities have a certain level of education or experience before undertaking some of these roles and responsibilities.

4.4.1 Education or experience for RRs

RRs are approved to trade or advise on securities, options, and/or futures with the public in Canada. Our rules do not include any baseline education or experience requirements for RRs other than the proficiency requirements set out in IDPC Rule 2602(3). Considering their relationship with the investing public, RRs have an integral role in and impact on our capital markets. We are of the view that a baseline education (i.e., relevant diploma or degree) or 2 years of relevant experience working in the financial industry, is a necessary first step before being approved in a role as an RR. A baseline education requirement for RRs will enhance our proficiency regime and is consistent with our public interest mandate. This requirement, in addition to exams based on published competencies applicable to RRs, and mandatory training discussed above, will ensure that those who are on the frontline providing advice to clients have the appropriate level of education and experience.

4.4.2 Experience for Executives

In reviewing the current education and experience requirements applicable to our Approved Persons, we considered that while Supervisors are required to have two years of relevant experience working in the financial industry, we do not have the same experience requirement for each Executive at a dealer. IDPC Rule 2503 requires that 60% of a Dealer Member’s Executives must have at least five years of experience in the financial services industry, or such lesser period as may be acceptable to the Corporation. We also have an experience requirement for Chief Compliance Officers to have 5 years of experience working for an investment dealer or registered advisor, with three years in compliance or a supervisory capacity.

We are of the view that each Executive at the dealer, including the UDP, should have experience that is, at a minimum, the same as the experience applicable to Supervisors in addition to the general experience requirement set out in IDPC Rule 2503.

4.5 Firm training

4.5.1 Firm training - retail

The IDPC currently requires RRs and IRs dealing with retail clients to complete, respectively, a 90-day or 30-day training program prior to approval. We are of the view that this is an important part of individual RR and IR training. We find that we have an opportunity to create greater alignment between our competencies and firm training. We plan to update the current criteria set out in the guidelines for the 90-day9  and 30-day training10  programs. We also propose that when hiring new RRs and IRs, firms should consider whether additional training is required for them to comply with, in addition to any other training that may have been provided to the individual by their previous sponsoring firm.

4.5.2 Firm training- institutional

Currently, RRs/IRs who deal with institutional clients do not have a similar training requirement. We propose that new RRs and IRs dealing with institutional clients should also be required to complete a firm training program that is aligned with the competency profile. Similar to the approach with the training program for retail RRs and IRs, we will publish criteria that firms would utilize in creating their training programs.

5. Implementation of the model

We recognize that any changes to our current proficiency model will require a robust transition plan that requires working with our current education provider, CSI, and updates to our rules and internal processes. We will review the proficiency rules under the IDPC for any amendments that may be required and intend to publish for comment in the second half of 2024.

We also recognize that exam design, with our involvement and oversight, requires a certain level of expertise and resources in order to ensure appropriate design. We will use the RFP process to select third-party organizations who have the expertise to assist us with certain elements of the services required. We will be finalizing the details of the RFP(s) and will provide further information in due course.

And finally, we recognize that shifting from a single-course provider model to an exam centric model is a significant change that may have some practical implications for our stakeholders. For this reason, we encourage you to provide feedback on this proposal, with particular attention to the topic noted in section 7 below.

6. Next steps

Following the closing of the comment period on September 20, 2023, we will review and consider the comments in advance of proposing any rule amendments.

We intend to publish the finalized competency profiles in early fall 2023. We also plan to proceed with one or more RFPs in the fall of 2023. We aim to publish amendments to our proficiency rules by fall of 2024 to reflect the requirements of the new proficiency regime.

7. Specific requests for feedback

We welcome all comments on all aspects of our proposed proficiency model. We request comments specifically on the following:

• The need and/or utility of a general exam requirement.
• The feasibility and implications of requiring firm sponsorship prior to enrolling in an Approved Person exam.
• The value, impact and utility of requiring a baseline education or relevant experience for RRs in both retail and institutional.
• The elimination of mandatory courses tied to exams and views as to leaving this primarily to the competitive market and/or relying on study guides provided by CIRO. We are interested to know if dealers will take an active role in training their new hires to prepare for the exams.
• A consolidated derivatives exam, based on published competencies, to ensure all Approved Persons who trade or supervise derivatives understand trading and risks associated with trading in all derivatives products.

8. Consultation

Please submit your comments on the Consultation Paper in writing via email (only) by September 20, 2023 to:

Canadian Investment Regulatory Organization
Sherry Tabesh-Ndreka
Acting Senior Director, Registration
416-943-4656
[email protected]

Commentators should be aware that a copy of their comment letter will be made publicly available on the CIRO website at www.iiroc.ca.

9. Applicable Rules

IDPC Rule 1200 - Definitions of Approved Persons, RR, IR, Supervisors, Designated Supervisors, Traders, Associate Portfolio Managers, Portfolio Managers, Directors, Executives, UDP, CCO, CFO

IDPC Rule 2500- Approval of individuals

IDPC Rule 2600- Proficiency requirements and exemptions from proficiency requirements

• 1Proficiency Assurance: The Next Phase in Proficiency Regulation | IIROC
• 2Phase I: IIROC Notice 20-0174 Consultation Paper- Consultation Paper - Competency Profiles for Registered Representatives and Investment Representatives, Retail and Institutional | IIROC, Phase II: IIROC Notice 21-0153 Consultation Paper (Phase II) - Competency Profiles for Directors, Executives, Ultimate Designated Persons, Chief Compliance Officers, and Chief Financial Officers | IIROC, Phase III Consultation Paper (Phase III) - Competency Profiles for Supervisors, Traders, Associate Portfolio Managers and Portfolio Managers | IIROC
• 3Request for Expression of Interest (REOI) For Education Services (iiroc.ca)
• 4Financial Industry Regulatory Authority
• 5Monetary Authority of Singapore
• 6Australian Securities and Investments Commission
• 7Re-publication of Proposed Derivatives Rule Modernization, Stage 1
• 8CSI offers the CIM® designation which includes passing the CSC, IMT and PMT exams or the CSC, WME, AIS and PMT exams.
• 9Guidelines for the 90-day Training Program | IIROC
• 10Guidelines for the 30-Day Training Program | IIROC