Investment dealers will see their regulatory costs and fees creep higher this year, according to the latest financial outlook from the Investment Industry Regulatory Organization of Canada (IIROC).
The self-regulatory organization published its latest annual report on Tuesday, which includes financial forecasts indicating that regulatory costs continue to increase, and that IIROC fees will be heading higher, too.
The report shows that IIROC’s total operating expenses for the coming year are budgeted to increase by about $2.2 million to $92.3 million. About half of that cost increase is due to higher technology expenses, which the IIROC report says is “mainly due to the first full year of debt market surveillance”. Compensation, which is the SRO’s single biggest expense, is expected to remain more or less unchanged year over year.
On the revenue side, fees are also slated to increase, rising by 3.3% for dealer regulation activities, 1.6% for equity market regulation, and by 10.7% for debt market regulation. According to the report, notwithstanding these latest increases, total fees for fiscal 2017 will remain at approximately 40 basis points of industry revenue, which is the level it has been at for the past three years.
The report also notes that IIROC is facing a new lawsuit in connection with the loss of laptop containing confidential client data back in fiscal 2013. An earlier class action suit was rejected by the court. A new motion from a new plaintiff “was filed by the same counsel as in the original motion for authorization, and is based mainly on the same alleged facts and grounds as the previous motion, but in addition alleges that the petitioner has been the victim of identity theft,” the IIROC report says.
There is currently no scheduled date for hearing the new motion, and “based upon the advice of counsel, management believes that the action is entirely without merit and will be defending the action vigorously,” the IIROC report adds.
The report also indicates that IIROC is continuing to analyze the feedback it received on a white paper published last year, which proposed allowing investment dealer firms to employ mutual fund reps and utilize directed commission structures.
The report also addresses the ongoing debate over the need for a best interest standard, and reiterates IIROC’s position that its existing rules and guidance already require firms and reps to put the best interest of the client before their own interests. “Having said that, we are committed to improving oversight of our [dealers] and their representatives and are enhancing our compliance test procedures in this area,” the IIROC report says.
“We agree with the [Canadian Securities Administrators (CSA)] that regulatory action is required to better align the interests of registrants with the interests of their clients in order to improve outcomes for clients,” the IIROC report says. “We are committed to working with the CSA through this process to ensure a consistent standard of care across all regulatory platforms.”
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