Dealers say regulators are getting a bit better at their jobs

The self-regulatory organizations weren’t far behind; scores also went up, or remained the same, for the Investment Industry Regulatory Organization of Canada in all but one category (industry representation on the board). And the Mutual Fund Dealers Association of Canada also saw higher scores in most categories.

Last year, Investment Executive added a survey on regulators to our lineup of annual surveys in which front-line advisors are invited to rate their own firms in various segments of the industry. As with the more traditional surveys, for the Regulators’ Report Card, we ask executives of firms to rate the regulators (both the provincial securities commissions and the SROs) in a variety of categories, giving them a score between 0 and 10 (10 being best), and then we average the responses to each question to achieve an overall score for each regulator in each category.

But this survey is somewhat different from our other rating exercises. For one thing, we target chief compliance officers, rather than advisors, to respond to the survey — on the basis that they are in the best position to evaluate the regulators.

This year, we received 122 responses from a vast array of industry firms, ranging from very small shops that have a handful of advi­sors and just a few million dollars in assets under administration to some of the industry’s largest players, which have thousands of advisors and billions in AUA.

More important, unlike the industry Report Cards, in which high scores are unambiguously a good thing, regulators don’t necessarily want to be too popular with the firms they oversee. Score too highly, and that may suggest that the watchdogs are seen as a soft touch by the industry, which implies that investor protection is suffering.

This inherent ambiguity in the exercise of asking firms to rate their regulators had made it tricky to draw too many conclusions the first time we did this survey.

Now, with a second year of data, we can observe scores evolving over time. We can see how, and in what areas, the industry’s perception of regulators’ performance is changing. This may be more meaningful than the ratings in isolation.

From that perspective, the provincial regulators have enjoyed some of their biggest ratings jumps in categories that relate to the quality of their communication with the industry. For instance, their scores for both communicating their priorities to the industry in a timely manner and the effectiveness of the public comment process on new rules and policies jumped by about a full point compared with 2009.

“The individuals at [the Manitoba Securities Commission] are great. The way they regard compliance obligations is fair and reasonable,” says an official at one dealer. “People in the Prairies don’t have an ‘out to get you’ mentality.”

The sense that some regulators are “out to get” firms and advi­sors — either by uncovering nitpicky compliance lapses or by engaging in unwarranted fishing expeditions in search of technical violations — still prevails at many firms. Indeed, the perceived fairness of investigations is one category in which the MFDA saw its scores drop noticeably (by 0.9 of a point) vs 2009.

“The MFDA is very rigid,” complains an official from a dealer in British Columbia. “It has a lack of appreciation for the context in which members have to operate.”

According to another MFDA member in B.C., the time constraints involved are the biggest problem: “They want a reply within 21 days during RRSP season.”

Although these sorts of complaints are common about all regulators, IIROC actually saw its average score for the fairness of its investigations rise notably this year (by 0.7 of a point).