Regulators’ policies are becoming more transparent, say chief compliance officers surveyed for this year’s Regulators’ Report Card, citing increased dialogue, greater access to information and the use of clearer language as the main reasons for this shift.
This improvement was reflected in the survey’s results, as all regulatory bodies – the Mutual Fund Dealers Association of Canada, the Investment Industry Regulatory Organization of Canada and the provincial securities commissions – saw their ratings increase in the “transparency of regulators’ policies” category.
The reasons for this across-the-board increase, however, were rooted in varying initiatives carried out by the regulators. For instance, the MFDA received an overall rating of 6.6 in the category, up from a score of 6.2 last year. The reason, according to CCOs, was that the self-regulatory organization makes information about its policies easily available.
“[The MFDA is] open and transparent,” says a CCO with an Ontario-based mutual fund dealer. “Information about [its] policies can be found easily on the web and at seminars.”
The MFDA, says Mark Gordon, executive vice president with the SRO, has assigned significant priority to transparency: “We have better transparency than any other regulator in Canada, full stop, on all of our processes as far as policy development [is concerned]. So, when we propose an initiative, there’s a staff member researching that initiative – why we want to do it, what alternatives we’ve considered, what comments we got from the industry on the initiative. That is all documented. There’s full transparency.”
The other SRO in the survey, IIROC, also saw its rating in the transparency category increase by 0.4 of a point, to 7.3 from 6.9 in 2011. IIROC’s gain can be attributed mostly to its plain-language policy rewrite initiative, which is currently underway.
“[IIROC is] very open and [is] working on a plain-language rule book rewrite,” says a CCO with a securities dealer in Quebec, “which will be much better and clearer.”
The goal of this rewrite is to provide a fresh perspective on IIROC’s policies, says Susan Wolburgh Jenah, president and CEO of the SRO: “What we’re really trying to do is take the existing rule book, which developed over time, and prune it. Take that step back and take a fresh look at what’s there … get rid of some of the provisions that don’t make sense or that we don’t need anymore, and word them properly where the intentions are not as clear as they can be.”
Meanwhile, the provincial regulators also saw an upswing in their ratings for the transparency category. The average rating for the securities commissions was 6.9 vs 6.6 in 2011. Availability of information online and increased communication were big reasons for the improved satisfaction.
In particular, the Ontario Securities Commission was lauded for the availability of information on its website. “You can look up anything,” says a CCO with a securities firm in Ontario. “[The OSC] is completely transparent. [It] has strong websites, and anyone can look things up.”
And in the West, CCOs pointed to the B.C. Securities Commission’s updates on policies, as well as opportunities to discuss them, as reasons for their increased satisfaction. Says a CCO with a MFDA-licensed dealer in B.C.: “They provide notices and bulletins and hold forums to discuss their regulations in depth.”
The biggest gainer among the provincial regulators was the Alberta Securities Commission. Unlike its counterparts in Ontario and British Columbia, which saw their ratings rise by 0.2 of a point, the ASC saw its rating in the category jump to 7.3 from 6.0 year-over-year.
“The ASC is OK and I know where they’re coming from,” says an executive with an Alberta-based mutual fund dealer. “There’s lots of communication and dialogue from them about their policies.”
In fact, the ASC focuses on creating open lines of communication in an effort to be transparent, says Bill Rice, the ASC’s chairman and CEO: “We engage extensively in dialogue with the industry in respect to any rule changes that are proposed or any issues that are in front of us. We publish all of our policy proposals for lengthy periods of time. Our rules are clearly transparent.”
But despite the improved ratings for transparency, CCOs say there are still issues to be addressed. A pervasive theme was inconsistency in how policies are interpreted by the regulators’ staffs.
“[Policies are] based on each examiner’s interpretation,” says a CCO with a Windsor, Ont.-based dealer about the MFDA. “Rule interpretations change quickly, and it’s hard to know what they want.”
However, says Karen McGuinness, vice president of compliance with the MFDA, it’s frequent changes in policy, not changing interpretations, that are resulting in this confusion: “I absolutely think that [members] believe that it’s an interpretation issue. But it’s really a change in MFDA policy.”
Meanwhile, a CCO with an IIROC-licensed firm in Ontario describes policy interpretation as being “incredibly arbitrary,” adding that “the misinterpretation of laws and policies are so bad they’re almost the opposite of what was intended.”
IIROC recognizes this challenge and plans to refocus staff training. Says Wolburgh Jenah: “When the plain-language rewrite is completed, [we will have] to make sure we’re training people appropriately on what the rules say and how [staff] should interpret and apply them.”
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