The B.C. Securities Commission surely is right to hear a fund dealer’s complaint about proposed governance bylaw changes at the Mutual Fund Dealers Association of Canada — but it is hard to see how this will end well.

A BCSC panel has decided to hear an application from Regina-based Partners in Planning Financial Services Ltd. objecting to bylaw changes proposed by the MFDA earlier this fall. Those changes (which were approved by the membership of the self-regulatory organization but still need the securities commissions’ approval) reflect the MFDA’s efforts to resolve complaints about the SRO’s governance structure that were raised at its annual meeting in 2008.

But PIP, along with a number of other small dealers, have voiced concerns about the proposed bylaw reforms, the process the MFDA followed in arriving at those changes and the circumstances surrounding the vote by MFDA members.

The BCSC hearing will determine whether there is any merit to the dealer’s complaints; but, regardless of what the commission panel decides, the outcome is unlikely to be pleasant.

If the BCSC panel sides with the MFDA, the latter’s detractors surely will conclude that regulators are just looking after their own. These detractors aren’t likely to be convinced that the governance arrangements are just fine after all.

Alternatively, if the panel sides with the dealers, the authority and credibility of the MFDA will be undermined. As will the credibility of the provincial commissions that approved its governance structure in the first place.

Neither result is particularly appealing.

All of this has its roots in the creation of the MFDA, which was not done at the dealers’ initiative.

Rather, the securities commissions, recognizing that they weren’t able to regulate the dealers properly themselves, forced the MFDA into being, creating a lot of unhappy dealers in the process.

The commissions got what they wanted — much closer oversight of the sector, improved compliance and more active enforcement — and investors surely are better off for it.

But the sketchy circumstances of the SRO’s birth continue to reverberate in this latest scuffle, and it’s tough to imagine how anyone comes out of this situation looking good.