Regulators are showing greater awareness of the regulatory burden that is placed on dealer firms, but they have taken few real steps to simplify regulatory regimes or otherwise mitigate the toll on firms, say the chief compliance officers surveyed for Investment Executive’s 2012 Regulators’ Report Card.
“Nothing leads me to believe that [regulatory burden] is a priority,” says a CCO at an Ontario-based, Investment Industry Regulatory Organization of Canada-licensed firm. “They speak the words, but the reality is that more and more demands are placed on dealer firms year after year.”
CCOs did give their watchdogs higher ratings, compared with last year, in the category of “the regulators’ awareness of dealers’ regulatory burden and concern about keeping it to a minimum.” However, this category remains very low compared with other categories in the survey.
Although CCOs understand that regulators must keep investor safety and market integrity as their paramount regulatory priorities, CCOs say they feel that regulators are not appreciating the unintended effect of what is perceived to be overregulation on dealer firms.
“Some of their rules get to a point at which we’re spending more time doing paperwork than we’re spending with clients,” says a CCO at an Ontario-based, Mutual Fund Dealers Association of Canada-licensed dealer firm.
Among the three regulatory groups, the Toronto-based MFDA received the lowest rating in the category with a 4.1, which nevertheless represents a rise of 0.3 of a point from last year.
CCOs say they feel swamped by the regulations coming from the MFDA, with new rules requiring periodic rewrites of company policy manuals – and reams of extra paperwork.
“They’re not trying to minimize; they’re piling on and on,” says CCO with a Saskatchewan-based, MFDA-licensed dealer. “Clients are inundated with stuff they don’t want to look at.”
CCOs at smaller firms complain that they bear a disproportionate share of the burden, with some even suggesting that regulatory burden is contributing to the trend of smaller players merging with larger firms.
“The MFDA expects us to do the same things the big banks do,” says a CCO with an Ontario-based mutual fund dealer. “They don’t care about the degree of compliance relative to the business’s size.”
For its part, the MFDA says it is very aware of the regulatory burden faced by firms – and it is addressing the issue as part of its overall strategic plan for 2012-14. In fact, the self-regulatory organization says it is bolstering its ongoing efforts to engage its members at all stages of policy development and reaching out to dealers to educate and help them be compliant.
Says Mark Gordon, executive vice president at the MFDA: “We will ensure our rules achieve the desired regulatory objective while minimizing cost and disruption to members.”
Some MFDA-licensed dealers say they’ve noticed a positive change at that SRO in terms of awareness of their concerns. “The MFDA is more open to questions and concerns,” says a CCO at an Ontario-based mutual fund dealer.
Much like the MFDA, Toronto-based IIROC received an improved rating in the category regarding awareness of regulatory burden this year of 5.4, up by 0.7 of a point from last year.
Some IIROC-licensed dealers praise that SRO for focusing on areas in which there is the potential for problems, as opposed to just creating additional paperwork. There also was praise for a more principles-based approach from the regulator.
“IIROC tends to be moving toward a risk-based approach,” says a CCO with an Alberta-based securities firm. “It is taking stances on [issues such as] shorting stocks, ways of addressing dark pools and making sure investors are getting access to the best markets. There is a lot of regulation, but IIROC seems to be moving in the right direction in terms of policies.”
Still, there seems to be no shortage of complaints regarding the perceived regulatory burden imposed by IIROC – and of frustration in dealing with what seems to some to be an inflexible bureaucracy.
“I think they understand that they create a burden, but do they minimize it? They do not,” says a CCO with an Ontario-based dealer. “They’re piling on regulation after regulation and issuing reports that are meaningless.”
IIROC defends its approach, saying that not only is it cognizant of the burden that regulation places on firms, but it has been – and continues to be – open to ways to simplify regulations and make things easier on firms.
“If we make things easier for [dealers], they’ll be in a better position to comply,” says Susan Wolburgh Jenah, IIROC’s president and CEO. “Complexity doesn’t help anybody in that regard.”
Meanwhile, the various provincial regulators enjoyed the biggest jump in ratings regarding awareness of the dealers’ regulatory burden, scoring an average of 5.9, up by a full point vs last year.
Many CCOs say they felt that the provincial regulators were listening to their concerns, although not always happy with the result.
“The Ontario Securities Commission is aware and concerned,” says a CCO with an Ontario-based mutual fund dealer. “When we have a conversation with them, we get to a resolution.”
Adds a CCO with a British Columbia-based mutual fund dealer: “The B.C. Securities Commission is more aware. It’s not willing to implement a bunch of unnecessary things.”
Nevertheless, many CCOs at dealer firms say that while there might be more awareness of the burden of overregulation among the provincial regulators, there was not enough in the way of relief or communication.
Provincial regulators defend their approach, saying they are proactive in reaching out to dealers as well as in making sure they’re asking themselves if the level of regulation is appropriate given the circumstances of each dealer and case.
“The awareness is here,” says Sandy Jakab, director of capital markets regulation at the BCSC. “At each and every level.”
© 2012 Investment Executive. All rights reserved.