Sparks fly between SRO leaders at IFIC conference

Kriegler maintained that both IIROC and the MFDA “work pretty darn well,” while acknowledging they could work better together. He said SROs should still play a role under a national regulatory system, warning that “if you burn [the system] down, nothing gets done.” He said industry stakeholders should help determine the future of SROs.

In response, Gordon said that Kriegler’s view was “too narrow” and suggested that “maybe today’s model isn’t best for five years from now. We can’t be constrained by the status quo, and have to be nimble enough to serve Canadians.”

Gordon predicted the fate of SROs would be “top of mind” for the Canadian Securities Administrators (CSA) as they weigh issues such as product and title regulation, and how to implement a national oversight approach.

One question, in Gordon’s view, is whether Canada wants and needs SROs. He noted that not all financial professionals — such as portfolio managers and exempt market dealers — are governed by SROs. He added, “we need to look at our missions, what we can do and who can [regulate the industry] best.”

Meeting investor demands by leveraging data

Another topic discussed during the panel was how the rapidly changing demands of investors are shaping the industry.

Kriegler noted that clients’ needs are becoming “more complex,” and said it was important that regulation not stand in the way of the technological advancements. “[Regulation] can’t limit the ability of the industry to innovate,” he said.

Gordon said the MFDA is looking at how quickly the industry is changing, how the MFDA can keep up with that change to “strike the right balance between investors and advisors,” and whether SROs have the capability to service today’s industry.

Gordon noted it’s become increasingly clear that “we need to update our approach.” One way to do that, he said, is to leverage data.

The MFDA, Gordon said, serves upward of 9 million households, 83% of which have $100,000 in assets or less. The MFDA can pull data that shows the age, product breakdowns, risk tolerance and the fee structure of the investors it serves—data that Gordon called “invaluable.”

By analyzing this data, regulators can gain insight into how to help advisors, how to design new policies and how to assess the impact of current policies, Gordon said.

Kriegler said the industry needs to move toward analyzing “large volumes [of data] in an efficient way,” so the insights can be put to work quickly. “That’s where we need to go.”

Both SROs currently use data to scan for suitability issues by looking for red flags and outliers such as advisors with multiple high-risk portfolios. This can lead to identifying areas to audit, Gordon said.