For compliance officers (COs) and company executives with investment firms across Canada, the regulatory burden they’re facing is not just a nuisance or an obstacle in their path. It’s a significant added expense that’s affecting how they do business – and pushing smaller shops further and further toward the edge of operational oblivion.

Specifically, some COs and company executives took their regulators to task in rating them in the “regulator’s awareness of the dealers’ regulatory burden and concern about keeping it to a minimum” category. That’s because the increasing regulatory burden that firms – both big and small – face is outpacing their capacity to address compliance issues in a timely manner.

“I don’t think [regulators] truly have a real appreciation for the operational challenges, pressures and costs to registrants,” says a chief CO (CCO) with an investment-management firm in Ontario.

“[Regulators] think all we have to do is deal with them,” adds a CO with a mutual fund dealer in Quebec. “The reality is that we have to deal with them on top of running a business.”

This burden is being felt more acutely by smaller firms, as many of their COs and company executives said fewer resources or smaller compliance departments are making the burden even more onerous. As a result, some firms have had to bite the bullet and take on the added expense of increasing their compliance departments.

Says a CO with a mutual fund dealer in Ontario: “We’ve expanded compliance more than any other department. It’s very burdensome.”

Some executives pointed to these rising costs as a big reason why dealer membership in the self-regulatory organizations (SROs) has declined steadily over the past few years, as “boutique firms have closed down [or merged] and the regulatory burden has been a huge factor,” says an executive with a securities dealer in Ontario.

This trend could continue, as increased regulatory compliance is especially challenging for smaller dealers that have to deal with both the SROs and other sources.

“It’s not just the [Mutual Fund Dealers Association of Canada (MFDA)] that we have to deal with; it’s all the additional regulators and regulations, such as the [Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)] and Canada’s anti-spam legislation,” says a CCO with an MFDA-licensed dealer in Alberta.

“There are regulations beyond those imposed by the regulators,” adds a CCO with a securities dealer in Ontario. “[FINTRAC’s] anti-money laundering [regulation] is a huge issue.”

The Investment Industry Regulatory Organization of Canada (IIROC) acknowledged in an email to Investment Executive that the mounting burden that member firms face from other regulatory bodies is a concern: “We recognize that those we regulate may also be subject to regulation by others. It is our responsibility to harmonize with such other regulations where possible to avoid duplication, overlap and excess costs while maintaining or increasing investor protection.”

Although many survey participants noted that regulators are aware of the increasing burden that dealers face, these executives pointed out that regulators are not making enough of an effort to keep it to a minimum.

“They are aware, but not responsive to relieve this burden,” says a company executive with a securities dealer in Quebec. “They are not doing anything about it.”

“They keep bringing all these new rules in while people are working on previous rules,” adds a CO with a securities dealer in Ontario. “Who has time to read all this? We have full-time jobs.”

However, a CCO with a dual-platform dealer was quick to point out that even though the SROs are aware of the burden, there’s not much they can do because they follow the mandates that the provincial regulators set: “[SROs] are very aware [of the regulatory burden], but they can’t be responsive to it. They’re answering to higher powers.”

Shaun Devlin, senior vice president of member regulation, enforcement, with the MFDA, confirms that is the case, noting that the second phase of the client relationship model “rules that went into place this year were really just conforming rules with the [Canadian Securities Administrators’] standards. There weren’t any new MFDA rules; it wasn’t like there was additional rule burden put on by the MFDA.”

That said, Devlin points out that the MFDA is making a concerted effort to reduce the regulatory burden its member dealers face and to enhance collaboration with them by focusing on its education and outreach goals.

“Member education and outreach are core goals of the MFDA to achieve that collaboration and to help minimize that burden,” he says. “We’ve increased our education department to three full-time staff. That department alone has done 40 direct presentations to member firms – their advisors and their supervisory staff – this year on various issues.”

In fact, the surveyed COs and company executives acknowledged that their regulators have grown and improved with experience. For example, a CCO with a mutual fund dealer in Ontario says: “The MFDA has become more open-minded. Its approach now is ‘As long as we can get you there, we are willing to look at different ways.’ It’s getting better.”

Meanwhile, some COs and executives have noticed improvements at IIROC as well. For example, an executive with an investment dealer in Quebec says: “Three years ago, I would’ve said [IIROC] didn’t care [about the regulatory burden we face]. They’re becoming more aware of it now.”

“IIROC is very aware of the regulatory burden we face,” adds a CCO with a securities dealer in Ontario. “They are very reasonable.”

© 2016 Investment Executive. All rights reserved.