Regulators and the financial industry face many challenges in today’s environment, including regaining the confidence and trust of investors, said Ed Waitzer, partner at Stikemen Elliott LLP at the 2012 Advocis Regulatory Affairs Symposium in Toronto on Monday.
Citing recent surveys from July from the University of Chicago, Waitzer said that 79% of investors lacked trust in the financial system. This overall sense of distrust of the financial system could have real effects on the economy. “The real economy needs the financial system to function properly and needs regulators to ensure that it does,” he said speaking as a panelist at the symposium, “so, we can’t put this problem in a box and say that it doesn’t matter because it does.”
To create this new level of trust requires regulators to handle two challenges according to Waitzer. The first challenge is to deal with the fragmented regulatory situation in Canada, he said, this does not necessarily mean a national security regulator but for there to be clear lines of authority, more leadership in policy making, faster response capability, and effective accountability mechanisms. “We operate in a system where regulators,” he said, “really don’t face any accountability on a day-to-day basis.”
To that, Bill Rice, CEO and chairman of the Alberta Securities Commission, said the regulators “feel accountability to a wide range of people every hour of every day,” whether it’s reporting to the regulator’s board, said Rice, or feeling that more work needs to be done because of the daily enforcement proceedings which indicate that something went wrong.
The second challenge, said Waitzer, is to rebuild competencies, meaning that the challenges the industry and regulators face today may require different abilities and tools from those regulators have employed in the past.
Regulators are facing that challenge with the new client relationship model approved by the Canadian Securities Administrators in March.
Paul Riccardi, senior vice president, enforcement, member and policy registration, IIROC, said the new CRM is a combination of revisions, new rules and guidelines that will enhance disclosure requirements regarding services, fees and account performance, clarify the strengths and obligations of advisors and their firms, supplement the existing standards to the disclosure of and management of existing and potential conflicts of interests between client and advisor and focusing the suitability standards on portfolios instead of on a trade-by-trade basis.
“[This] is an attempt to raise the bar of the investment industry professionalism and bolster investor confidence by ensuring that the interests of investors and advisors are all closely aligned,” said Riccardi, “and encouraging member firms and their advisors to shift from a transactional focus to focusing on the development and maintenance of the relationship with the clients”.