1. Trading Supervision Obligations
Presentation for CCLS Annual Conference 2017

2. Agenda Three lines of defense OSFI E-13 Enterprise Compliance Program
Large Firm Supervision Structures
UMIR 7.1 Trading Supervision Obligations
Past, present and future
Monitoring, testing and issues tracking
Questions

3. Three lines of defense model – OSFI Guideline E-13
*E-13 communicates OSFI’s key expectations for Federally Regulated Financial Institutions to establish and maintain an enterprise-wide framework of regulatory risk management controls.

4. Enterprise Compliance Framework

5. Large Firm Supervision Structures – parallel structures
Regulatory Structure
UDP & CCO
Governance IIROC Policy 38
All registrants must report to a Registered Supervisor
Registered Supervisors
NRD filing current employment item 10 description of duties
Categories of registration and/or proficiency requirements
Delegation letters
Evidence of Supervision
Employment Structure
Global Titles and Operating Groups span multiple jurisdictions
Trading business split between Bank and Dealer depending on registration requirements
Many registrants report to non registrants on org chart
Issues tracking system maintains evidence of reviews and outstanding regulatory issues
Outsourced centralized services

6. Process for Supervision (the 6 W’s)
Identify Regulation (Rules or Policy) – new or existing
Interpret the regulation – the WHY and WHAT
Map the Regulation to a Business Unit
This identifies the WHERE
This allows for Issue tracking and documentation of the regulation
Risk Assessment (nature and size of the business, risk and impact)
Monitor Regulatory Developments for new or changing regulations
Comment process
Complete coverage
Effective challenge & Advisory
High/Med/Low Regulatory Risk
Risk sets priorities for audit and reviews

7. Second Line - Compliance
(cont.)
First Line - Supervision
Second Line - Compliance
Delegation
WHO does the supervision
Implement a control
WHEN and HOW you supervise
Document the frequency, sample size, procedures etc.
Monitoring and Testing plans (M&T)
Recording of the exceptions and results of M&T
Submit to Compliance for review and approval
Is registration required to perform supervision tasks
Document delegation of functions and tasks
Document the control (P&P)
Is the control effective
Does the control mitigate Regulatory Risk
Preventative or Detective Control
Compliance implements their own independent M&T plans (i.e. Trade Desk Review)

8. UMIR 7.1 what is new and what does that mean to dealers
You can stay the same but that won’t make sense very quickly!
Adjust to principle based rules and guidance
Pro, Introduces flexibility in policies and procedures
Con, Increases risk that firms don’t do enough or do too much
Document risk based analysis and any changes to existing P&Ps
Very subjective to determine if Supervision and/or Compliance is adequately funded
Increased reliance on technology solutions (i.e. surveillance tools)
Vendor solutions bring their own risk – reliant on vendor’s interpretation (group think)
Making changes to vendor solution may be misguided
In house solutions can be expensive, lengthy development and do not get the benefit of leveraging other firms ideas and experiences
More meetings and committees to discuss changes
More focus on documentation and reporting

9. Monitoring, Testing and Issues Tracking
Monitoring controls – risk based approach
assessing compliance with regulatory requirements using information from daily business activities
Testing
to determine if controls are operating effectively at a specific point in time
Risk base approach
Issues Tracking
Recording deficiencies (which line of defense identified the issue, who remediates and what is the plan)
Reporting Issues to Management (division and legal entity)
Compliance Department - effective challenge on the above
CCO assess’ the adequacy of, adherence to and effectiveness of the controls and the compliance program.

10. Questions?