Certain market participants that trade or advise in securities in Nova Scotia must register under section 31 of the Securities Act, unless they rely on a registration exemption. Compliance examinations are the main tool we use to monitor registrants. Examinations help ensure that registered firms have a compliance program in place and are conducting their activities in accordance with Nova Scotia securities laws. The authority to conduct examinations is set out in section 29E of the Securities Act.
Prior to the examination, we send the chief compliance officer (CCO) of the registrant a letter authorizing the examination under section 29E of the Securities Act and a list of books and records to prepare in advance of the examination. If fieldwork is being conducted, upon arriving at the registrant's office, the examiner will speak to the CCO and conduct an initial interview.
Subsection 29E(3) of the Securities Act allows the Commission to require a registrant that is subject to a compliance examination, to pay prescribed fees for the costs of the examination. Examples of situations that might result in the Commission exercising this discretion includes when a registrant:
- fails to provide records to compliance examiners in a reasonable time
- requires excessive attention from Commission staff during the compliance examination: for example, failure to answer questions or allow Commission staff to interview employees or agents
- fails to resolve past compliance deficiencies
- fails to maintain proper records
During the review, the examiner may ask the registrant for compliance evidence of review, the checks and balances used, and information relating to specific practices or business units. These help us understand the registrant’s operations, and determine whether there are effective internal controls in place. Some areas of focus include:
- overall compliance processes
- account opening practices
- products offered
- working capital and financial condition
The examination process involves reviewing specific books and records and interviewing the registrant’s staff. Registrants must have books and records in accordance with Part 11 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations(NI 31-103). Samples of documents we could review include:
- policies and procedures manual
- financial and working capital records, including subordination agreements, and bonding or insurance policies
- client records and files
- fee schedules and fee calculations
- client disclosures, forms, and contracts, such as investment management agreements and investment policy statements
- correspondence files
- referral arrangements and conflict of interest disclosures
- complaint files
- employee registration files and representative contracts
- performance numbers and presentation
- marketing materials, including advertising and promotional documents
- website and social media activity (blogs, Twitter, Face Book, LinkedIn)
A compliance examination report will be provided once the examination is completed. The examination report will be sent to the registrant and will require a response with a plan of action to resolve the deficiencies.
Examination findings may be addressed in one or more of the following ways:
- Deficiency letter - a deficiency letter is sent to the registrant requesting a response to the deficiencies and a written plan to resolve the deficiencies
- Conditions of registration or suspension of registration - if the problems found are very serious or there is evidence of systemic compliance problems, we may recommend that the Executive Director impose conditions of registration on the registrant and its staff or suspend the registrant’s registration
- Enforcement referral – the examiner may refer very serious problems to our Enforcement Branch for further investigation or action.
Questions please contact:
Chris Pottie, Manager, Compliance and SRO Oversight