Dare we hope that regulatory rationalization is an idea whose time has come? The stars might well be aligning in such a direction.

The latest initiative to introduce some sense to the Canadian regulatory mosaic has been kick-started by Joe Oliver, president and CEO of the Investment Dealers Association of Canada. Oliver is endeavouring to persuade IDA members that it is time to spin off the IDA’s trade association functions into a separate entity. (See page 50.)

The IDA’s dual role as a self-regulator and an industry lobbyist has long been criticized as resulting in innate, irreconcilable conflicts of interest that should not be permitted to continue.

Oliver bristles at the criticism, saying conflicts are a matter of perception rather than reality. However, he acknowledges it is time to deal with that perception, and that the separation of the functions should pave the way for rationalizing and simplifying regulation. The result should be a more effective and efficient regulatory regime that will benefit both investors and the industry.

Before we get there, however, there are hurdles to overcome. The first is to obtain IDA member approval for the separation. Oliver plans to ask for a member vote on the matter before yearend.

The second hurdle is to persuade other self-regulatory organizations — the Canadian Investor Protection Fund, the Mutual Fund Dealers Association and Regulation Services Inc. — to merge. Those organizations have been less than enthusiastic in welcoming a merger with the IDA, citing concerns about the “culture of the IDA” and fears it will remain despite the spinoff of the trade association function.

It is important to recognize that no one is seriously questioning the desirability of consolidating regulation in a single self-regulatory organization. However, they don’t want this to occur through a merger with the IDA. The IDA needs to respect the concerns of the SROs, even if it considers them groundless.

The solution is to establish a new SRO with a new mandate that centres regulation around today’s marketplace realities. Such realities include: the collapse of the four pillars around which current regulation still centres; the fusion of product and advice; and the “retailization” of the marketplace. They all call into question the appropriateness of having one set of laws for the “insiders” — the institutions — and another set of laws for the individual investors who are at the mercy of the institutions.

The third, and perhaps most challenging, hurdle to achieving regulatory rationalization, effectiveness and efficiency is to convince governments, the Canadian Securities Administrators and other financial services regulators that it is time to step back and take a close look at who is, or should be, doing what. What overlap is there? What gaps exist? What duplication exists? What value is being added by the respective participants in the regulatory process? How could the regulatory system be made more effective to protect investors and ensure that the capital markets operate fairly and with integrity?

For example, a major frustration of the SROs is that the CSA delays its approval of the rules the SROs develop for regulating members or market conduct while it starts from scratch to get up to speed on issues about which it often lacks expertise. How can the oversight process be made more effective? What efficiencies could be built into it? Is there even a need for CSA approval of self-regulating rules in a new structure?

The IDA initiative has presented a unique opportunity to start with a “blank page” to design an effective regulatory system for Canada — one that starts from a “zero base” and is designed to address today’s marketplace realities while utilizing the best blend of self-regulation and independent oversight.

Everyone in the industry has a critical interest in working to overcome the hurdles. Now is not the time to sit back and leave it to others to decide.

Get out and make sure that regulatory rationalization becomes the reality. Your well-being and productivity depend upon it. IE