Developing a new vision for IIROC

Instead, IIROC is looking to develop a new, long-term strategic vision for itself. To that end, in July, the SRO published a notice requesting help in defining and shaping that vision. The comment period closed at the end of August, and IIROC intends to produce a new strategic plan early next year.

“By early 2016, we expect to have a renewed strategic vision, objectives for the following three years and ways to measure our progress,” says Kriegler.

Tremendous change

There’s no question that financial markets, and the investment business itself, has undergone tremendous change in the years since the global financial crisis. Unprecedented technological innovation and regulatory reform have occurred against a background of ongoing demographic and global economic shifts.

Yet, despite these powerful forces for change, much of the feedback that IIROC has received largely reflects well-worn refrains from both the industry and investors. Says Kriegler: “Some of the themes that are emerging so far include protecting investors, improving the efficiency and effectiveness of regulation, reducing investor confusion, duplication and costs and ensuring a level playing field with consistent industry standards.”

Firms in the industry, particularly small dealers that made submissions as part of the public comment process, maintain that they are overregulated. For example, the comment from Tom Caldwell, chairman and CEO of Toronto-based Caldwell Securities Ltd., suggests that the growing regulatory burden has “created an unsustainable business model for independent firms.”

Caldwell’s comment suggests that many in the industry believe that regulation works to the advantage of the large, bank-owned dealers at the expense of small, independent firms: “Many independent firms or individual advisors wonder how long they can last after each IIROC audit, as they see the noose [of regulation] continually tightening.”

Weighing in against that grim vision from the independent dealer side of industry are the views of investor advocates such as Toronto-based Canadian Foundation for Advancement of Investor Rights (FAIR Canada), which argues that IIROC must be doing more to ensure adequate investor protection in the years ahead. FAIR Canada’s submission suggests that the need for investor protection is growing, not shrinking.

FAIR Canada’s submission suggests that the most important trend for IIROC to face in the coming years is the rising demand for advice from retail investors: “IIROC should explicitly recognize this trend and IIROC’s strategic planning should reflect it.”

Moreover, the group’s comment argues that IIROC should not be worried about creating value for its members, and that its role in the industry doesn’t really need to change; rather, IIROC should “more fully embrace its existing role.”

Fiduciary debate

To that end, FAIR Canada says the SRO should become a champion for the introduction of a “best interests” standard for advisor conduct. The comment also argues that IIROC “should not remain on the sidelines of the fiduciary duty debate.” Instead, the comment recommends that the SRO make developing rules to impose a best interests standard on member firms and advocating for a statutory standard with the provincial regulators one of its strategic priorities for the years ahead.

In addition, FAIR Canada suggests that IIROC rethink whether certain business models and practices should be allowed to continue, and whether the SRO’s tolerance for misconduct should shift. The comment also recommends that the regulator include representation for retail investors on its board, and introduce a version of the Ontario Securities Commission’s independent Investor Advisory Panel to provide IIROC with investor input on policy.

Another demand for a greater voice in policy also came from the industry side. A submission from Vancouver-based Haywood Securities Inc. recommends that IIROC do more to involve small, independent dealers in the SRO’s rulemaking efforts. Haywood’s comment suggests that simply sending out requests for comment is not adequate, and that IIROC should be “more proactively and creatively” reaching out to the industry through mechanisms such as advisory committees or roundtable meetings in order to engage dealers better in the process of developing rules.

Fostering greater input may be one way to address the industry’s central concern about the ever-rising regulatory burden. As Caldwell’s comment suggests: “The future IIROC might consider setting a new, positive goal of capital market efficiency. This requires a new vision that would mean trying to make regulations more efficient (less volume but greater relevance). It also requires greater skills and industry knowledge.”

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