Inheriting Someone Else’s Compliance Program: A New CCO’s Playbook to Assess, Fix, and Document Compliance Weaknesses at Existing Firms
When you step into an existing firm as the Chief Compliance Officer, you inherit more than a title. You inherit your predecessors’ judgment calls, potentially undocumented compromises, and whatever has – or has not – been disclosed to CIRO and the CSA. In the current environment of escalating expectations under NI 31‑103 and increasingly personalized regulatory scrutiny, assuming that if there were problems, someone will tell you is not a viable risk management strategy.
A structured forensic onboarding approach may be necessary, to build your own evidence‑based map of the firm’s true risk profile, surface legacy weaknesses (including the ones no one volunteers or even knows about), and convert them into a prioritized remediation roadmap you can defend to regulators use to get support from your board. As a new CCO you may also want to focus on an often underplayed dimension of the role: proactively securing the mandate, authority, and personal protections you need – in writing – before you start signing off on anything.
Whether you are taking over at a long‑established dealer, a rapidly scaling portfolio manager, or a complex multi‑registration platform, the goal is the same: move quickly from blind spots and informal assurances to a documented, auditable narrative that both mitigates client and firm risk and protects you as an individual registrant. The following practical playbook can help you do exactly that: clarifying your mandate and coverage, constructing an independent risk picture of the firm, and systematically assessing, fixing, and documenting compliance weaknesses you did not create – but will now be expected to own and address.
1. Build your relationships
Your most important priority is the relationships you will build and nurture with your colleagues, especially the heads of the business, product teams, sales force, operations, legal, management, IT, and other critical areas. Just as important are your immediate colleagues, including those who will report to you. Spend the time to get to know them, and let them know you, because relationships and the trust they can create are the glue that holds firms and people together, particularly when times get tough. Schedule introductory coffee meetings with all of them, keeping it informal to allow for more natural interaction.
2. Clarify mandate, authority, and personal protection
Your first step is to understand exactly what role you are stepping into and how you are protected if historic or ongoing issues surface.
Key actions include:
Confirm role and registration status: Ensure you are properly registered as CCO in the correct category under NI 31‑103 and that the regulator has approved any transfer or new registration (for example, via Form 33‑109 filings or reinstatement forms). Check that your title, officer status, and reporting lines match what NI 31‑103 contemplates for a CCO and what the firm represented in its registration materials.
Confirm functional independence: Secure direct reporting or connection to the Ultimate Designated Person and regular access to the board or equivalent governance body, with a clear expectation that you can raise issues independently of business lines. Written role descriptions and an updated organization chart should show you with oversight authority over the firm’s compliance system.
Review indemnification and advancement of costs: Assess your employment contract, indemnity agreements, and corporate by‑laws to confirm that legal fees and settlement amounts will be advanced and indemnified to the fullest extent permitted by law if you are drawn into investigations or proceedings. Pay attention to exclusions (e.g., fraud, wilful misconduct, prior known issues) and to whether indemnification covers regulatory investigations as well as civil claims. Seek independent legal advice where necessary.
Review Directors’ and Officers’ (“D&O”) and dedicated CCO liability coverage: Confirm that you are an “insured person” under D&O policies as well as any standalone Errors and Omissions (“E&O”) or compliance coverage, and understand the priority of payments and sub‑limits. Ask specifically about coverage for regulatory investigations, informal inquiries, and fines or penalties where insurable, in addition to whether there is a separate limit for the CCO or compliance personnel or whether you share limits with all directors and officers.
Understand historical disclosures: Ask for copies of all recent regulatory correspondence: review or audit deficiency letters, terms and conditions, settlement agreements, exemption decisions, and material change reports relating to compliance matters. These documents often reveal risk themes (e.g., KYC/KYP weaknesses, conflicts, custody issues) and indicate how regulators already view the firm and its control culture.
As an illustration: Before accepting the role, a CCO negotiates (i) explicit recognition in the board mandate that the CCO can report in camera to the board, (ii) a side letter confirming advancement of legal fees, and (iii) a representation that all open regulatory investigations have been disclosed and summarized.
3. Build an independent risk picture of the firm
As a new CCO, you should not rely solely on what management, your new colleagues including the compliance team, or even a predecessor CCO tells you about the state of compliance; you need an evidence‑based map of the business, its regulatory obligations, and where breaches are likely to exist.
Core diagnostic work:
Understand the business model in regulatory terms: Map each line of business to its registration category, exemptions relied upon, and client types (retail, eligible, accredited, permitted, institutional). Confirm that activities undertaken by the front office and affiliates remain within the scope of existing registrations and exemptions (for example, advisory vs. dealing vs. fund management activities).
Review the overall compliance system design: Review the compliance manual, supervisory procedures, testing plans, and any documented risk and control self‑assessments. Compare the documented system to regulatory expectations under NI 31‑103 and its companion policy, including governance, supervision, conflicts management, complaint handling, Client Focused Reforms, recordkeeping, and business continuity.
Analyze historical issues and themes: Review internal monitoring or testing reports, exception reports, error logs (e.g., NAV and pricing errors), complaints, and whistleblower reports for the last three to five years. Look for patterns, repeated findings, deferred remediation, or accepted risks that actually represent non‑compliance with securities laws or self‑regulatory expectations.
Test a sample of high‑risk files: Perform targeted reviews on known risk areas—complex products and Know Your Product decision making, Know Your Client collection, concentration in illiquid or high‑risk securities, vulnerable clients, exempt offerings, related‑party products, or custody arrangements. Use a risk‑based sample: for example, top producers, accounts with outlier performance, large concentration in proprietary or related‑party products, or clients who have complained.
Clarify third‑party and affiliate dependencies: Identify outsourcing arrangements (e.g., back‑office, IT, AML, cybersecurity, valuation, KYC utilities) and related parties that may introduce regulatory risk, such as inadequate functionality or an inability to allow supervision. Confirm that the firm can demonstrate appropriate oversight, due diligence, and contractual protections over these providers.
Consider using the most recent regulatory compliance annual report as a roadmap for a review of topics that are of significant and current interest to regulators. Map how procedures address policies to ensure there are no gaps, and review supervision results, looking for understanding, not just boxes that have been checked.
At the end of this phase, you should be able to describe the firm’s business lines, key regulatory obligations by line, main control layers, and top compliance and operational risks.
4. Surface what people are not telling you
An incoming CCO must assume that some compliance and risk issues are under‑appreciated, rationalized away, or deliberately unspoken. Your task is to create channels and techniques that expose these blind spots without triggering defensiveness or whistleblower‑style fear.
Practical techniques:
Conduct structured stakeholder interviews: Meet separately with the UDP, Chief Financial Officer, Chief Operating Officer, heads of sales and operations, IT/security, legal, and senior advisors or portfolio managers. Use a consistent question set that probes for “things that keep you awake,” recurring near‑misses, and workarounds staff use to get business done.
Listen for cultural and incentive signals: Ask about sales targets, compensation structures including supervision, cross‑selling practices, and how often deals or trades are blocked for compliance reasons. Where compliance issues are rare despite aggressive growth, there may be implied pressures or weak escalation practices.
Provide low‑friction escalation channels: Once discussed with management and the Board, publicize that staff can raise concerns with you confidentially and that the firm prohibits retaliation. Ask HR about themes in grievances and exit interviews that implicate conduct, supervision, or conflicts of interest.
Corroborate stories with data: If senior management insists that suitability processes are robust, test that position against client file evidence and exception reports. If operations says there is no custody exposure, confirm with agreements, custodial arrangements, and auditors’ notes.
Watch for surprisingly problem-free areas: A remarkable absence of complaints, errors, or escalations in high‑risk businesses may itself be a red flag indicating under‑reporting or weak recordkeeping.
An example: In a series of interviews, advisors repeatedly mention that “compliance is easy to deal with as long as you don’t send them too many questions,” prompting the CCO to dig into whether complex products were being launched without adequate KYP and training.
5. Construct a defensible remediation program
Once you have a working inventory of issues, you need a remediation program that both fixes problems and demonstrates to regulators that you are exercising meaningful oversight instead of inheriting and maintaining deficiencies.
Key elements:
Build a formal issues inventory: Catalogue all identified issues, each with a description, regulatory reference, root cause, severity, ownership, deadlines, and status (open/closed). Distinguish between technical gaps and issues with real client harm or market integrity implications.
Prioritize by risk and regulatory expectation: Use a simple but explicit matrix: high/medium/low impact vs. likelihood. High‑impact areas typically include client KYC and suitability, conflicts, custody and safeguarding of assets, capital requirements, and complaints and dispute resolution.
Develop remediation workplans: For each material issue, define specific actions, owners, timelines, and success metrics. Workplans can include policy revision, form and system changes, enhanced supervision, file remediation (e.g., updating KYC, revisiting suitability, compensating clients), training, and changes to governance or escalation processes. Consider where the personnel will come from for this work; if you don’t have enough capacity on your team, a discussion with management about shifting priorities or external help may be warranted.
Embed testing and validation: Design follow‑up testing to confirm that remediation is effective and sustainable (for example, re‑sampling client files six months after changes, monitoring exception reports, or conducting focused internal audits). Document both the testing results and management’s responses.
Formalize reporting and sign‑off: Report the issues inventory and remediation status regularly to the UDP and board, with clear identification of items that may require regulatory self‑reporting. Keep contemporaneous records of advice you provide, decisions taken (including where management decides on a course you disagree with), and how you assessed materiality.
Where historic issues involve potential client harm or regulatory breaches, you should consider whether self‑reporting or proactive engagement with regulators is appropriate, factoring in guidance on cooperation and remediation. Your personal protection improves when you can demonstrate that, upon becoming aware of an issue, you promptly escalated, advised on remediation, and monitored follow‑through.
6. Protect yourself over the long term
Beyond initial onboarding and remediation, protecting yourself as CCO is an ongoing discipline: maintaining proficiency, documenting judgment, and ensuring you are not set up as a lightning rod for systemic failures you cannot control.
Ongoing protective practices:
Maintain and demonstrate proficiency: Regulators expect CCOs to maintain the education, training, and experience necessary to perform the role competently. Track and evidence your continuing education (regulatory developments, product knowledge, governance and risk courses), and ensure your knowledge keeps pace with the firm’s business evolution.
Insist on resourcing aligned with mandate: Document your assessment of compliance staffing, systems, and budget relative to the firm’s complexity and risk profile. Where resources are inadequate, escalate in writing to the UDP and board with clear articulation of the risk of proceeding without additional support or external supplement.
Use formal challenge and escalation: When you disagree with management on how to address a material issue, provide them with a written assessment referencing specific regulatory expectations and potential consequences. Keep a file of these communications and board/committee minutes reflecting your challenge.
Periodically review your protections: Re‑visit indemnification, insurance, and role descriptions at renewals, during major business changes, or following any significant regulatory event. Confirm that insurance wording remains aligned with the firm’s risk (e.g., coverage for investigations, no erosion of personal protections through new exclusions or sub‑limits).
Prepare for regulatory interactions: You, and to a lesser extent the UDP, will be central to any regulatory compliance review. Maintain a “regulator‑ready” package: up‑to‑date org charts, compliance program descriptions, annual CCO reports to the Board, issues inventories, and remediation status reports, so that your leadership and oversight are always available.
In practice, a CCO who can show: (i) familiarity with applicable regulatory expectations, (ii) a structured approach to identifying and prioritizing issues, (iii) clear documentation of advice and escalation, and (iv) consistent efforts to obtain adequate resources is in a materially stronger position if regulators later scrutinize historic problems or enforcement action is considered.
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Next Steps
Choose the North Star Group as your partner for legal and regulatory compliance support. North Star’s team of former compliance officers, regulators, educators, and private practice lawyers are ready to help you confirm that compliance and legal expectations are addressed, report to your stakeholders on the effectiveness of your compliance program, and, most importantly, ensure that clients’ trust in your firm is secure.
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About the Author
Martha Rafuse (B.A. Western, LL.B. Osgoode, LL.M. London School of Economics), Counsel at North Star Legal, brings more than two decades of securities regulatory experience across the financial industry, private practice, and government. Before joining North Star Legal, Martha led large compliance teams for both Canadian and U.S. firms, including RBC Phillips, Hager & North Investment Counsel Inc., and RBC Dominion Securities Inc. (Retail), and RBC Royal Mutual Funds Inc. As Legal Counsel at the Ontario Securities Commission, Martha developed legal solutions for novel regulatory issues and led significant policy initiatives.
Read Martha’s full bio here.