Compliance officers (COs) and company executives at smaller firms have complained about regulators’ lack of sensitivity to their unique circumstances ever since Investment Executive (IE) published our first Regulators’ Report Card in 2009. But while that trend continued this year, there are signs some regulators are making an effort to address the issues affecting smaller firms.
Most COs and company executives weren’t happy with the self-regulatory organizations (SROs) – i.e., the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Funds Dealers Association of Canada (MFDA) – and the Autorité des marchés financiers (AMF), which is one of the Big Four provincial regulators rated in the survey. These three regulators received lower ratings year-over-year in “the regulator’s sensitivity to the concerns and issues of small firms” category.
However, survey participants did have far more positive things to say about the other three provincial regulators.
Specifically, survey participants rated the Ontario Securities Commission (OSC), the Alberta Securities Commission (ASC) and the B.C. Securities Commission (BCSC) significantly higher (by half a point to more) in the category because they’ve developed a more nuanced understanding of the issues affecting smaller firms.
“There is a much better appreciation of the challenges affecting small firms today than there was seven or 10 years ago,” says a chief CO (CCO) at a portfolio-management firm in Ontario regarding the OSC. (That regulator’s rating rose to 5.3 from 4.5 year-over-year.)
This greater appreciation has led to greater engagement and advice from the OSC, the ASC and the BCSC on issues that concern small firms.
“The [OSC] is sensitive to [issues affecting small firms]; it’s interested and concerned,” says a senior CO at a portfolio-management firm in Ontario. “The [OSC] issued a notice last year about compliance deficiencies at smaller firms and gave some guidance on this.”
Adds a CCO with an IIROC-licensed dealer in Alberta regarding the ASC, the rating for which rose to 6.4 from 5.8 year-over-year: “The [ASC] took an active interest in how the [Canadian Securities Administrators’] new [targeted reforms] proposal would affect smaller firms.”
The BCSC received significant praise in this category, receiving the highest rating of 7.6 – up considerably from a relatively strong rating of 6.5 in last year’s Report Card.
“The [BCSC] understands the concerns and the unique burden small firms [face],” says a CO at an exempt-market dealer in Alberta.
The BCSC is able to get to know its registrants because it has a smaller registrant community than some of the other regulators, says Mark Wang, director, capital markets regulation, with the BCSC: “This affords us the opportunity to have more points of contact with our [registrant] firms and understand the issues they’re facing.”
Specifically, Wang adds, each firm that’s registered with the BCSC is assigned a dedicated relationship manager at the regulator who is expected to understand how the firm operates. In turn, he says, registrant firms have told the BCSC how valuable having a specific contact who can address questions about compliance is.
Although the BCSC implemented the relationship manager approach in 2013, Wang surmises that as relationships evolve, the communication and support that registrants receive from their relationship managers has improved.
In contrast to the OSC, ASC and BCSC, COs’ and company executives’ sentiments regarding the AMF were quite the opposite: that regulator received a rating of 4.9 in the category, down from 5.5 year-over-year.
In particular, the consensus among survey participants is that the AMF is far too rigid when dealing with smaller firms.
“The [AMF is] not flexible on timelines and isn’t open to reconsidering, even if you appeal to them with the unique needs of being a smaller firm,” says a CO at a mutual fund dealer in Ontario.
Adds a company executive at a full-service firm in Quebec: “There’s no sensitivity whatsoever [to the issues affecting smaller firms]. I’ve never dealt with such a fascist organization in my life. [The AMF’s attitude] is ‘Take it or leave it’ – like a military.”
Survey participants also had much to complain about the SROs’ approach to smaller dealers. IIROC and the MFDA received ratings of 5.4 and 5.3, respectively, in the category, down from 5.8 and 5.5 in 2017. The main complaint is that the SROs devise rules based on what works best for larger firms – requirements that often are too difficult for smaller firms to meet.
“The [MFDA] imposes the structure of what works for the big banks on smaller dealers,” says a company executive with a mutual fund dealer in Alberta.
Adds a CO at an IIROC-licensed dealer in Ontario: “Policies favour big firms and penalize small firms.”
IIROC, for its part, stressed in a statement emailed to Investment Executive that “members of our executive management team are committed to meeting with smaller, independent firms to better understand the challenges they face.”