Investment industry regulators are sensitive to the challenges that industry firms face in complying with the growing regulatory burden, and are trying hard to keep costs down, representatives from the regulators said on Thursday.
At the Investment Industry Association of Canada’s (IIAC) annual conference in Toronto, Jim Turner, vice chairman of the Ontario Securities Commission (OSC), acknowledged that regulatory fees are on the rise for industry firms.
“Unfortunately, we’re seeing a significant increase in fees, just at the time when the industry is least receptive to it,” Turner said.
The rise in fees is the result of a multitude of new initiatives currently underway at the OSC, which are driving up costs. For instance, the implementation of new regulations pertaining to over-the-counter derivatives and the newly established investor secretariat have been sources of new costs for the OSC.
“There’s a lot of pressure on what we’re spending,” Turner said. “There’s no question that our costs are going up significantly.”
The recent boost in fees likely seemed sudden to firms, Turner added, since the OSC kept fees relatively stable in recent years by applying its surplus against new costs. “We’re now in a position where we’ve got to go back and impose fees that on an ongoing basis are going to fund our activities,” he said.
Nonetheless, Turner said the regulator is aiming to keep fee increases under control. “We are working hard…to try and keep our costs as low as possible.”
Susan Wolburgh Jenah, president and CEO of the Investment Industry Regulatory Organization of Canada (IIROC), said IIROC is similarly focused on keeping costs down.
“We understand that this is not a good time for significant fee increases,” she said. “If you look year-over-year, our fee increases has been modest.”
Wolburgh Jenah pointed out that IIROC’s market regulation fees have not increased, while dealer regulation fees have increased modestly.
Nonetheless, regulatory and compliance costs are a reality of doing business in the investment industry, Wolburgh Jenah said.
“The need for compliance, oversight and good regulation is not going to go away,” she said. “It costs money, effort, resources to do this effectively.”
One source of higher costs at IIROC in the past few years has been its investment in a new multimarket surveillance system – Surveillance Technology Enhancement Platform (STEP) – which cost about $8 million to develop, and will cost approximately $5 million to operate on an annual basis, according to Wolburgh Jenah.
However, such costs do not always get passed on to dealers in the form of higher fees. The capital costs associated with the STEP system, for instance, were funded through IIROC’s Restricted Fund, which is comprised primarily of revenue from fines and penalties.