The Investment Industry Regulatory Organization of Canada is proposing a new fee model for securities dealers that is geared to revenue and builds in a risk-based component.

In a notice published Wednesday, IIROC says the new model is based on the current model, but with rates that vary by a dealer’s revenue including a “minor” risk based element.

It would also raise the minimum fee from $25,000 to $27,500. The proposed new model would mean higher fees for smaller firms, and lower fees for the large, integrated dealers.

Under the current fee model, smaller dealers are favoured. According to the notice announcing the new model, they represent approximately 45% of the regulator’s membership, but only pay fees that cover approximately 40% of the regulatory costs that these dealers consume. Whereas the large dealers represent approximately 20% of membership and pay approximately 75% of total revenues collected from dealers. The recommended new model preserves a fee disparity that favours the smaller firms, but the amount of the disparity has been reduced, it says.

IIROC says that the rationale for recommending the proposed alternative is:

• it recognizes public interest in fostering industry competition; the minimum fees charged are still less than regulatory costs consumed;

• it reduces the level of fee disparity thereby helping achieve a fair fee model; there is full cost recovery;

• it uses a revenue tier approach where the revenue tiers are the same and the rates are similar to those charged under the Ontario Securities Commission model; and,

• the introduction of a risk premium enhances fairness.

Several alternative models were considered, and they are outlined in the notice. However, an industry committee that was established to consider a new dealer fee model is supporting the proposed new model, and it was presented to both the Finance & Audit Committee and IIROC board on January 26, where it was approved for publication for comment. Comments are due by June 28.

IIROC is now at work on a new fee model for market regulation activities, too.