Chapter 7 - Development of Policies and Procedures (v1.2)

CIRO Rules and Policies

• CIRO requires that dealer members have policies and procedures governing specific processes like retail account supervision and trading.
• Dealer members must have policies and procedures in place that address daily and monthly supervision of trading activity in retail client accounts, outlining actions to address problems or issues identified by the review.
• CIRO does not dictate the specific content of policies and procedures, nor does it review or approve them prior to implementation.
• CIRO may perform post-implementation reviews, focusing on policies rather than procedural details.
• If serious gaps in a firm's policies and procedures are found during such reviews, CIRO can require that they be rectified.
• CIRO provides guidance on what areas a dealer member's policies should cover and how they relate to regulatory requirements.
• A policy generally describes a rule designed to address a particular risk and is likely based on a regulatory rule or pronouncement.
• Procedures are designed to ensure specific requirements are met, such as ensuring each employee understands their responsibilities under the written policies and procedures and requiring written policies and procedures to be amended, as appropriate, within a reasonable time after changes in applicable laws, rules, regulations, or policies.

Developing and Amending Policies and Procedures

• The process for developing, approving, implementing, amending, and updating policies and procedures is itself a matter of policy and procedure.
• Factors considered when developing policies and procedures include the policy's necessity, who will be affected, staffing requirements for implementation, information technology requirements for implementation or monitoring performance, training needs, expense or revenue implications, risks of inaction, and if all alternatives have been considered.
• The chief compliance officer (CCO) approves all policies that address securities regulatory requirements within the scope of compliance.
• Policies and procedures can originate from any department and may have regulatory aspects that are not apparent to all.
• The CCO should be familiar with developments in other departments.

Policy and Procedure Ownership and Creation

• Policies and procedures should have an owner within the firm, usually the manager of the relevant business or functional area.
• Policies and procedures are often prepared by the staff of the departments that are affected.
• The CCO and the compliance department may provide advice and guidance during the development process.
• It is important to identify other areas of the dealer member that have a direct interest in the application of policies to ensure the policy is drafted and implemented appropriately.
• Draft policies should be circulated to the management teams that will be affected by them.
• Procedures might be circulated to those who will primarily use them to solicit feedback and ensure acceptance.
• Post-implementation reviews with the same group can identify areas for improvement.
• Managers and staff must be trained and informed about established guidelines for policy and procedure development.

Examples of Policies and Procedures

• Dealer members have a regulatory obligation regarding document retention, including electronic mail.
• The CCO must ensure the head of information technology is familiar with these requirements to ensure proper email archiving and document retention.
• If an employee tries to establish ad hoc policies to make their job easier, proper training can prevent such problems.

Major Considerations for Creating and Reviewing Policies and Procedures

• Depending on the business, a dealer member's policy manual may include sections on various topics, such as:
  • Corporate policies, including the firm's mission statement and code of conduct
  • Compliance policies for registrants, including policies aimed specifically at certain categories of registrants and their respective obligations, as well as policies regarding anti-money laundering and other gatekeeper responsibilities
  • Compliance policies for supervisors
  • Credit and margin policies
  • Client accounts policies
  • Operations policies
  • Sales policies
  • Trading and order execution policies
  • Investment banking and syndication policies
  • Research policies
  • Human resources policies
  • Policies for other support services

Writing Guidelines for Policies and Procedures

• Write policies for specific readers but acknowledge a wider audience may have access to the material.
• Write in the present tense using plain language and active verbs.
• Be concise and precise.
• Avoid using information that can quickly become outdated, such as the names of persons in certain positions; use titles relating to positions instead.
• Adopt a consistent format and consider obtaining outside expertise to ensure grammatical correctness and readability.
• Use a numbering system for ease of reference and tracking historical changes.
• When a policy or procedure is eliminated, do not reuse its reference number.

Disseminating Policies and Procedures

• Accessibility and utility must be considered when policies and procedures are disseminated.
• Policies and procedures that govern employee behavior should be kept up to date and made readily accessible.

This quiz covers the essential elements of CIRO rules and policies governing dealer members. It discusses the requirements for supervision of trading activities in retail accounts, along with the implications of policy implementation and review by CIRO. Understand the significance of policies in regulatory compliance and risk management.