Consortium of industry associations submits recommendations to strengthen investor protection and streamline regulation
As the Canadian Securities Administrators (CSA) continues its review of Canada’s framework of self-regulation in the investment industry, a consortium of investment industry groups is pushing for a consolidation of the two national self-regulatory organizations (SROs) as the best path forward.
“Consolidating the SROs will be a very worthwhile undertaking,” said the Investment Industry SRO Forum, a coalition comprised of the Investment Funds Institute of Canada (IFIC), the Federation of Mutual Fund Dealers (FMFD), and the Investment Industry Association of Canada (IIAC).
In a submission to the CSA, the forum recognized that improved self-regulation through consolidation will take time, underscoring the need to fully leverage the “considerable assets of both the MFDA and IIROC.” However, it added that the process should “proceed as quickly as possible” to ensure the stability of the Canadian capital markets.
The end goal, it said, should be to have a single national SRO in Canada, providing services in both English and French, whose operating model is flexible enough to accommodate all categories of dealer and advisor registrants.
The forum recommended a two-phase consolidation process, with the first phase focused on integrating the operations of IIROC and the MFDA. The second phase, it said, should consider other dealer and advisor categories not currently within the SRO framework, “but only after consultation with those other categories of registrants to ensure willing partners.”
It also outlined 32 “high-level, strategic, and practical” recommendations addressing a broad array of issues such as investor access to advice and financial products and services, stronger investor protection, better governance, and improved operating efficiencies.
To ensure that the deliberations of the SRO’s board of directors strike a balance between investor protection and efficient and competitive markets, the forum said it should include members with knowledge and experience relating to consumer issues, with a majority of independent directors sitting on the board. It also recommended the creation of an Investor Advisory Panel, similar to the setup for the Ontario Securities Commission.
Highlighting the importance of initial branding and messaging in fostering investor confidence, the forum said the new SRO should have a name that is “straightforward and reflects the advice-driven culture of the investment industry.”
With respect to regulatory changes and rule proposals, the forum said the SRO should follow a disciplined approach to rulemaking – including a clear statement of the problem, pre- and post-implementation cost/benefit analyses for significant proposals, and plain-language rules that articulate a clear regulatory outcome – which it said would “help control the future cost of regulation.”
Achieving consistent SRO rules is another key focus area, the forum said, with some concerns addressed in different ways by the MFDA and IIROC “without any principled reason.” It called for harmonization of SRO rules where appropriate, including know your client, outside business activities, continuing education, and suitability.
The submission also outlined several recommendations to potentially improve operating efficiencies for firms, including rules to enable easier transition of clients to different registrants or operating entities, provisions to consolidate and streamline business titles used by advisors in various registration categories, and reduce regulatory barriers to adoption of technologies that reduce costs for small clients and improve client access.
“An SRO consolidation of some sort is unavoidable and inevitable,” the forum said. “Even though the respective Boards and management teams of the existing SROs may have different approaches, they also share common objectives. We encourage them to begin discussion sooner rather than later.
