Dealers want a national SRO

As a CCO with an Alberta-based securities dealer puts it: “The [fewer] agencies there are, the better. A merger would make things more efficient; there would be less fees and there would be a single point of contact.”

A CCO with an Ontario-based, mutual fund dealer agrees: “There are too many regulations, and everyone has their own rules. We have to check their websites to keep up. [A merger] would make things easier for clients and for dealers.”

If the ultimate mandate of both IIROC and the MFDA is to protect clients, then the majority of CCOs who support the concept of a national SRO thought having multiple regulatory bodies continues to lead regulation astray from this mission.

“It makes no sense, given the scale of the financial services industry in Canada, to have multiple regulatory bodies for what looks like the same entities to the public,” says a CCO with an Ontario-based securities dealer. “[One SRO] would make things more simple and straightforward for members of the public seeking help.”

Although executives with both IIROC and the MFDA empathize with CCOs who are in favour of regulatory consolidation, the regulators maintain that merger discussions will remain on the back burner.

More MFDA members will be in support of a national SRO once they get a better handle on the Supreme Court of Canada’s decision to reject the federal government’s attempt to create a national securities regulator, says Larry Waite, president and CEO of the MFDA: “There is still so much time until we have some clarity. Members want to see what the federal landscape looks like down the road.”

CCOs who do not favour a merger cited several problems with the idea. For instance, some MFDA-licensed dealers fear that IIROC auditors wouldn’t be able to understand and adjust to the various business models that MFDA members follow.

“I’m not interested in being regulated by someone who has no interest in my business,” says a CCO with an MFDA-licensed dealer in Manitoba. “IIROC covers a different type of business. I don’t want them to guide my business because they have a different set of intentions.”

Meanwhile, other MFDA members fear a merger will lead to a greater number of audits and rules. Says a CCO with an Ontario-based dealer: “It seems like this may increase audits, which will create more stress and annoyance.”

This concern was especially problematic for smaller dealers at which the lead financial advisor is also the CCO and thus is forced to grapple with balancing the demands of clients and regulators. Larger dealers can afford to employ a person or team to focus solely on compliance.

As a CCO with a small mutual fund dealer in British Columbia says: “It’s harder to compete on a larger level. Right now, the MFDA is able to maintain a level playing field. I don’t know that this playing field can be maintained if [IIROC merges with the MFDA].”

In the meantime, the MFDA and IIROC have been collaborating with each other to create more harmonized processes. In fact, IIROC recently moved its headquarters into the same building as the MFDA’s headquarters in downtown Toronto.

“Our staff work very closely together,” says Waite, “[to] make sure that [our members] are not getting two sets of rules.”

However, harmonizing isn’t an alternative to merging. But it is a necessary part of being an effective regulator, says Susan Wolburgh Jenah, IIROC’s president and CEO: “[Harmonizing] our policies is what we should do in any event, where the outcomes of what we are trying to achieve is similar, which is strengthening market integrity and protecting investors.”

Merger talks between IIROC and the MFDA were publicly announced at the onset of 2011. The two SROs then began surveying the attitudes of their members regarding a merger over the summer months. At the same time, the SCC was formulating its ruling regarding the federal government’s push to create a national securities regulator.

Although 63% of IIROC members supported a merger last summer, MFDA members were lukewarm. Of the respondents that participated in the MFDA’s 2011 membership survey, about 25% supported the idea of a merger – although many felt that a national SRO should be discussed after the SCC handed down its decision on the national securities regulator.

For any two SROs to merge, they need to be “willing partners,” says Wolburgh Jenah, which is why the merger talks ceased when it was clear that the MFDA members and its board members were not supportive. “It takes two to tango,” she adds.

Although the SCC had turned down the federal government’s push for a national securities regulator in December, Waite believes that there remains room for a national body of some sort to oversee the SROs.

“I would love to see [a national regulator of some type] take over IIROC and the MFDA and have one regulator, period,” Waite says. “Let’s wait and see what the federal landscape will look like.”

© 2012 Investment Executive. All rights reserved.