Regulators could be more “fair”

The dissatisfaction centred on the perception that these self-regulatory organizations were too rigid and not collaborative enough. In contrast, the provincial regulators fared better because they were more flexible and communicative.

When it came to the fairness of policy decisions, the MFDA, which received an average overall rating of 5.9 in this category, was criticized for not being more consistent and helpful.

“The problem is that they write policies and, a lot of times, end up changing them along the way,” says a CCO in Ontario with an MFDA-licensed firm. “It’s like trying to hit a moving target.”

It’s a concern that hasn’t escaped the MFDA’s notice, says Karen McGuinness, the SRO’s vice president of compliance: “Most of our members are experiencing policy fatigue. Just as they comply with one set of requirements, a new set of requirements would come out. [It makes them] feel like they are under attack, almost.”

As a result, McGuinness says, the MFDA is trying to minimize such changes and provide additional guidance when new policies come out.

Several dealers who were not satisfied with the MFDA’s approach compared it with their more favourable experiences with the provincial regulators, noting that the latter were more accommodating.

For example, a CCO with a Saskatchewan-based dealer says the Saskatchewan Financial Services Commission is “willing to talk about rules and the objectives of rules, and if [a new one] needs to be adopted. They adapt instead of being rigid.”

The importance of communication and flexibility also applies to the fairness of the regulators’ investigation processes. Although both SROs received a rating of 6.3 in this category, the provincial regulators had a combined rating of 6.9 – a significant increase from 6.3 in last year’s Report Card. That improvement appears to stem from the two-way dynamic between dealers and the provincial regulators.

“If you’re open and transparent, you have a fair experience. The Ontario Securities Commission will work with you to get it fixed,” says a CCO with an Ontario-based dealer. In contrast, he says, “[The MFDA’s] allegations are not based on facts; they’re based on what they want to pursue.”

Meanwhile, a CCO with an MFDA-licensed firm in Manitoba says the MFDA isn’t fair to its members because the SRO’s investigators aren’t giving enough guidance: “They fall short on things such as [providing] expert advice.”

That concern may be alleviated as the MFDA embarks on a new strategic plan this year, says Mark Gordon, the MFDA’s executive vice president: “We will be consulting more with our stakeholders. And we will be developing more ways to provide training for our members and building on what we already have in place, in terms of member regulation forums and notices, workshops and webcasting.”

As for IIROC, the CCOs surveyed also thought its investigators’ performance needs improvement; in particular, they feel there’s a “guilty until proven innocent” approach to IIROC investigations.

“They pay attention to facts that suit them,” says a CCO with an Ontario-based dealer of IIROC’s staff. “They’ve made up their minds early in the process.”

But Paul Riccardi, senior vice president of enforcement, policy and registration with IIROC, says the SRO’s investigators are usually available for a discussion before deciding whether a case should advance to disciplinary proceedings. “[That gives the dealer] an opportunity to present its version of events,” he says. “That’s very important to us. It’s part of any fair process. We are certainly not out to jump to conclusions.”

The lowest rating in all the categories involving “fairness” was reserved for fairness of fees. Says a CCO with an MFDA-licensed firm in Ontario: “It’s very high for small dealers. There’s no value.”

The MFDA’s maximum fee for a small dealer is $3,000, Gordon says, which is “way below our regulatory cost. We also provide guidance and educational tools, which cost a lot more than $3,000.”

Dealers, however, felt they get more value for their fees from the provincial regulators. Again, being helpful and communicative made the difference, resulting in a rating of 6.2 for fairness of fees for the provincial regulators vs a 5.4 rating for the MFDA and 5.8 for IIROC.

Says a CCO with an MFDA-licensed firm in British Columbia: “The B.C. Securities Commission‘s fees are fairly expensive, but it is pretty supportive.”

The value of the BCSC’s fees comes from being “interactive and hands-on” with members, such as reviewing a new registrant’s business plan and giving consultations when needed, says Sandy Jakab, the BCSC’s director of capital markets regulation: “We’re lucky we’re able to do that. In a province such as Ontario, in which the number of registered firms far outweighs what we have here, it would be impossible to do what we do.”

© 2012 Investment Executive. All rights reserved.