MFDA says 'Canada deserves better' than IIROC merger proposal

IIROC releases paper outlining number of benefits but MFDA CEO responds by saying plan will help only the industry, not investors

MFDA says 'Canada deserves better' than IIROC merger proposal

The Investment Industry Regulatory Organization of Canada’s (IIROC) proposal to merge with the Mutual Fund Dealers Association of Canada (MFDA) was dismissed by the latter as having no benefit to investors, only the industry players.

IIROC yesterday released its paper, titled "Improving Self-Regulation for Canadians", which outlined what it believes are the benefits of bringing together the two regulators as “divisions of a consolidated self-regulatory organization (SRO)”.

It cited enhanced investor protection and access to advice, and a significant reduction in overlapping regulatory burden and red tape. However, MFDA president and CEO Mark Gordon said the paper was self-serving and paid little heed to the needs of the investing public.

He said: “It is clear that their proposal is meant to benefit only the industry, not investors or the public. Canadian investors deserve better. Canada deserves better.”

His IIROC counterpart, Andrew J. Kriegler, had earlier set out his belief that the proposal would not only enhance investor protection but would save hundreds of millions of dollars of duplicative regulatory costs over the next decade. This is money, he explained, that investment firms could direct toward client service, innovation and economic growth.

IIROC also said it has been working with an independent consulting firm to conduct a cost-benefit assessment and will publish this report in the coming weeks. The regulator said its merger proposal is a response to the “significant transformation that has been taking place in the investment industry in recent years”, which has been accelerated by the pandemic.

It listed the benefits of merging with the MFDA as: a positive for investors, regardless of where they live or how many assets they have; enhancing investor protection; improving dealers' and registrants' ability to serve Canadians, regardless of size or business model; reducing duplicative regulatory burden; being simple and inexpensive to execute, with minimal disruption to Canadians, the industry, or the CSA oversight regime; an SRO model that will allow for continued policy streamlining and evolution.

"Our learning from our Evolution of Advice engagement, which has been accelerated by the pandemic, demonstrates that we need to rethink how we regulate in this new reality and continue to be flexible, responsive and supportive of innovation while preserving investor protection," Kriegler said.

"Our proposal can be implemented within three months, delivering real, tangible benefits to Canadians and to the industry within a year of approval from the CSA. By working together and staying current with how the industry and our capital markets are evolving, we can achieve our shared goal: a structure that is more efficient, more effective and ultimately leads to better outcomes for Canadians.”

But after digesting the paper, Gordon referenced the MFDA’s own policy analysis of the SRO framework, published in February titled “A Proposal for a Modern SRO: A Special Report on Securities Industry Self-Regulation”, which he insisted outlined the path towards “real, lasting change in the public interest”.

He added: “Any serious revision of Canada’s SRO framework that is truly focused on the public interest needs to address the issue of public confidence. That means addressing the conflict of interest concerns that exist between the mandates of SROs and the interests of SRO members. 

“The MFDA Special Report addresses these issues through important governance changes that include amplifying the role of the Canadian Securities Administrators (CSA) – the country’s statutory securities regulators – in the governance of SROs. The MFDA Special Report sets out a framework for a new SRO that is built from the ground up to allow for a truly modern SRO with a culture that puts the public interest first. It can be flexible, nimble and developed through a scaled approach—efficiently and cost effectively.”

Gordon believes that only by designing a net new SRO, that addresses the interests of all stakeholders in a fair and balanced manner, can they create a system which delivers lasting benefit for Canada.

He added: “The time for real change is now. We cannot allow this to be a missed opportunity to improve the state of regulation in Canada.”

Both regulators said they look forward to further collaborating with the CSA and working with each other to find a lasting solution.