A brand new self-regulatory organization for the Canadian investment business could be up and running in 18 months, according to a blueprint laid down by the Mutual Fund Dealers Association of Canada (MFDA).
The self-regulatory organization (SRO) for fund dealers published its roadmap for developing a new national SRO from the ground up. The proposal envisions an 18-month process to design and launch a new regulator, rather than simply merging the MFDA and the Investment Industry Regulatory Organization of Canada (IIROC).
Last year, the Canadian Securities Administrators (CSA) launched a consultation on reforming self regulation.
In advance of that consultation, the MFDA and IIROC offered their competing visions. IIROC advocated a straightforward merger of the two SROs, whereas the MFDA has called for designing a wholly new SRO for all registered firms, while hiving off market regulation.
The CSA has indicated that it will outline its proposed vision for self regulation in the summer.
In the meantime, the MFDA released its proposed “roadmap,” which sets out the principles that it believes should guide the development of a new SRO.
“The immediate purpose of this roadmap is to assist the CSA in its current SRO framework review,” the MFDA said. “This roadmap is flexible and adaptable to accommodate whatever SRO design features and elements the CSA ultimately determines are in the public interest.”
The roadmap projects that it would take 18 months to develop a new SRO from start to finish, beginning with the appointment of an independent steering committee to lead the project (phase one), followed by the development of a formal implementation plan and creation of a new SRO entity with new leadership (phase two).
“The regulatory functions currently performed by the MFDA and IIROC must not be disrupted by the decision and process to create the new SRO,” the paper said. “By housing the developing SRO in a new entity — rather than MFDA and IIROC attempting to self-integrate structural change ‘on the fly’ while concurrently performing regulatory operations — continuity of regulation will be maintained.”
The first two phases would be completed within nine months. Phase three — designing and developing the new SRO in consultation with industry players, investors, external advisors and others — would start within six months and taking an estimated 11 months.
The final phase involves formally launching the new SRO, admitting firms, and completing the transfer of staff and resources from the existing SROs to the new agency.
“The overarching objective is to get the change right and, while it must be recognized that perfection is unattainable, strategic focus must guard against unnecessary sacrifices for the sake of expedience,” the paper said, describing the 18-month timelines as “realistic.”
In its proposal, IIROC said that a simple merger with the MFDA could be executed in three months “from the date that the CSA approves our proposal” and that the combined SRO “could begin delivering real, tangible benefits to Canadians within a year.”
“It is time for real change that benefits all stakeholders, and creating a new single SRO capable of regulating all advisory firms in Canada is the best solution,” said MFDA president and CEO Mark Gordon, in a statement.
“The establishment of a new SRO provides the greatest opportunity for a successful implementation process that will be the least disruptive to industry participants and most expedient to achieve in a timely and cost effective manner. It is also most likely to result in a modern effective SRO with a positive and cohesive culture,” he added.