As demands on regulators intensify, regulatory costs are also rising, according the Investment Industry Regulatory Organization of Canada’s (IIROC) Annual Report for 2017-18, published Wednesday.
The self-regulatory organization (SRO) expects total regulatory expenses to rise by about $5.1 million for fiscal 2019 to $98.4 million. The increase is mainly due to rising compensation and technology expenses, the report says.
As a result, fees for dealer regulation are expected to rise by about 1%, equity market regulation fees are expected to stay flat, and debt market regulation fees are projected to rise by about 15%.
Overall, the SRO’s revenues are projected to increase at a compound annual growth rate (CAGR) of 1.9%, with expenses rising by about 4.7%. The report also points out that IIROC’s fees are growing slower than industry revenues (based on four-year CAGR).
On the policy front, the annual report highlights the SRO’s commitment to the Client-Focused Reforms that were proposed by the Canadian Securities Administrators (CSA) back in June . IIROC has been “working collaboratively” with the CSA on developing its proposed changes that aim to enhance investor protection and adopt best interest principles into the existing CSA rules, IIROC says in a news release..
“We have actively participated in this important initiative because we share a commitment to requiring registrants to put their clients’ interest first. It is also important that we continue to work together to harmonize these requirements across regulatory platforms and set a high standard of conduct for all registrants,” says Andrew Kriegler, IIROC president and CEO, Andrew Kriegler, in a statement.
“IIROC believes that the proper management of conflicts of interest, and compensation-related conflicts in particular, which are among the issues dealt with in these reforms, is critical to improving public confidence in our capital markets and the broader financial system,” he adds.
IIROC says that it will continue to work with the CSA on these reforms, and aims to ensure that its requirements are harmonized with the final CSA rules.
In the year ahead, the SRO also expects to revise its plans for alternative approaches to disciplinary action, and, is aiming to finalize its rewrite of the IIROC rulebook into plain language by the end of 2018.
“The goal is to implement final rules in plain language and establish an appropriate implementation period,” the annual report states. “Old rules have been simplified and clarified, and some have changed substantively. Dealers will receive training prior to the introduction of the new rules taking effect, and on an ongoing basis.”
The report highlights IIROC’s significant progress in persuading the provinces to beef up its collection powers. However, the SRO only collected 6.8% of the fines levied against individuals in fiscal 2018, down from 14% in the previous year. IIROC’s collection rate against firms was 100% in fiscal 2018.
Cybersecurity remains another key focus for the SRO. According report. The SRO is planning a second self-assessment survey, and two tabletop cybersecurity exercises in fiscal 2019. It’s also working to finalize a rule requiring dealers to report cybersecurity incidents, which was proposed back in April.
“IIROC has made significant progress in achieving the priorities laid out in our three-year strategic plan, leading to a more consistent level of investor protection for Canadians. This work, along with the essential regulatory activities carried out daily by IIROC’s committed staff, position us well to meet future challenges in a rapidly changing environment,” Kreigler says in a statement.