Although dealers have numerous complaints about the communication skills of their regulators, some dealers are starting to notice positive steps being taken by regulators to make policies and rules easier to understand.
“[The Investment Industry Regulatory Organization of Canada] is more transparent in spelling out rule and regulation decisions and inviting the industry to comment on them,” says a chief financial officer at an Ontario-based dealer in this year’s Regulators’ Report Card.
Member firms of the Mutual Fund Dealers Association of Canada and IIROC, both based in Toronto, were asked to rate their self-regulatory organizations and their provincial regulators on the elements of communication — specifically, the transparency of the regulator’s policies, the ability of the regulator to communicate its priorities in a timely and effective manner, and the timeliness of the regulator’s response to questions and concerns expressed by its members. Communication scores were up across the board, with provincial regulators seeing a full 1.0 point increase from last year.
“SROs have clear and well-documented policies and processes for establishing policies,” says an official at an Ontario-based dealer. “With a number of securities commissions, there is a lack of documented policy. However, recent advances have been made through the regulatory reform project.”
This year’s results show a change in tune from last year’s Report Card, when members were disgruntled by both a lack of guidance with respect to rules and regulations and slow response times. Although there are still a few quibbles, regulators now seem to be making efforts to address members’ concerns.
The MFDA’s strategic plan for 2009-2011 says it is looking to “ensure rules are clear, relevant and balanced.” The SRO appears to be having some success. “They’ve made their suitability [guidelines] clearer, and the leverage policy was a lot better after MR-0069 came out,” says the CEO of one investment dealer in Ontario. “Before that, we were struggling to understand the policy.”
MR-0069 was developed after the MFDA found that some of its members had different views of the suitability guidelines, according to Karen McGuinness, the MFDA’s vice president of compliance: “It was then we decided we wanted everybody to be on the same page.”
Although some MFDA members are relieved to see the new guidelines, others have not been keen to change their ways — especially those members who thought they were already compliant. “MR-0069 was a double-edged sword, like playing street hockey with no slapshots or checking,” says an official at an investment dealer in Ontario. “Then, halfway through the game, they change the rules.”
The MFDA also saw its score on response times to members’ questions increase by 0.9 of a point overall. This significant increase, says MFDA president Larry Waite, could be the result of additional staff that were added to the member services department two years ago.
After the MFDA introduced MR-0069, IIROC followed suit and produced its own suitability guidelines. IIROC saw its scores jump by 0.6 points for both communication and transparency of its policies.
“We think it is important that as issues emerge with our members, we are communicating clearly and effectively,” says Susan Wolburgh Jenah, president and CEO of IIROC. “We want to set clear expectations with the members, and we are currently doing more of that.”
IIROC has already launched the first phase of rewriting its rule book, a document many members are quick to criticize. “IIROC never gives you a straight answer when you need guidance,” says a chief compliance officer at an investment dealer in Western Canada. “I don’t need the rule repeated to me. I want to know what their interpretation of it is. What do they mean by ‘best practice’? When they don’t know, I’m left floundering.”
Because many of IIROC’s rules were developed over time by different committees with different approaches and styles, the SRO felt it was time to review all of its policies and procedures.
The Ontario Securities Commission is also fine-tuning its communication policies with the recent launch of its compliance review program for new registrants, and this has paid off. Communication scores for the OSC dramatically increased by 1.2 points to 6.4 from 5.2 last year. In fact, scores for provincial regulators overall comprised the largest score increases in both communication and transparency.
In the compliance review program, OSC staff members meet with a number of smaller registrant firms every year to help them better understand their registration and compliance obligations.