Not only do the vast majority of executives at financial services dealers surveyed for this year’s Regulators’ Report Card support the creation of a national securities regulator, some would like to see regulatory consolidation go even further, including merging the industry’s two self-regulatory groups.
Although Ottawa has recently made more progress than ever in establishing a national regulator, many dealers are unconvinced that these efforts will succeed.
“It’s at least the tenth iteration in the past 20 years,” says a compliance officer with a dealer in Nova Scotia regulated by the Toronto-based Investment Industry Regulatory Organization of Canada. “I’m very supportive, but it’s not very likely to happen.”
In total, 87% of executives surveyed at the dealers say they support the prospect of a single regulator overseeing securities nationwide. These supporters cite the need for more regulatory consistency across the country, particularly as the securities industry becomes more globalized.
“It would harmonize rules and lead to an improvement of access to capital markets,” says a compliance officer with an IIROC-regulated dealer in Manitoba. “It will make things easier.”
Adds a compliance officer with a British Columbia-based dealer regulated by the Toronto-based Mutual Fund Dealers Association of Canada: “It would make the industry much more competitive, especially those firms that want to do business in several provinces.”
The 13% of survey respondents who oppose a national regulator express concerns that the new organization would simply add another layer of regulation to an industry that’s already heavily regulated. “I am only for it if every province agrees to join in,” says a compliance officer with a Quebec-based IIROC member firm. “I don’t want to have another regulator.”
Other naysayers worry that region-specific considerations would be overlooked by a single regulator. Says a compliance officer with an MFDA-regulated dealer in Manitoba: “I feel that it would only be the [Ontario Securities Commission] and [B.C. Securities Commission] in power. The same set of rules for everyone is not going to work.”
This type of resistance also has been vocalized by some of the provincial securities regulators. Those in Quebec, Alberta, Manitoba and New Brunswick have indicated they aren’t willing to surrender their regulatory powers to a national body. Other provincial regulators oppose certain aspects of the legislation that has been drafted by the Canadian Securities Transition Office, which the federal government appointed in June 2009 to lead the transition to a single securities regulator.
Although the Conservative government had continued to move toward establishing a national regulator, the upcoming federal election and possibility of another party in government could alter that. Meanwhile, the CSTO has laid out a plan to move toward its goal — and has begun developing rules that would apply under the proposed Canadian Securities Act.
The Supreme Court of Canada is set to hold hearings in mid-April to consider whether Ottawa has the constitutional ability to implement this legislation.@page_break@Executives at many dealers surveyed say they expect provincial resistance to prevent the national regulator from becoming a reality.
“Talks have been going on for 20 years. Nothing has changed,” says a compliance officer with an Ontario-based investment dealer. “Provinces are too interested in maintaining their status quo.”
Other dealers believe that there is enough momentum for the current effort to succeed — but not right away. Says a compliance officer with an Ontario-based MFDA-regulated dealer: “I think it won’t be put into place at least for another five to 10 years.”
In the meantime, several dealers are calling for consolidation on the SRO side of the industry’s regulatory framework. They complain about too many layers of regulation and a lack of consistency among the rules set out by the SROs and the provincial regulators.
“The MFDA should have more harmony with IIROC’s rules and more flexibility. It should be a part of IIROC,” says a compliance officer with an Ontario-based, MFDA-member firm. “I would like to see one regulator.”
IIROC and the MFDA have considered merging in the past, and top executives at the two SROs say that they are likely to revisit this possibility in the years ahead.
“Further consolidation is definitely an issue that could happen. It could be in the cards,” says IIROC president and CEO Susan Wolburgh Jenah. “It’s a matter probably more of timing than if it will happen.”
In order for an IIROC/MFDA merger to occur, both SROs would need the support of two-thirds of their respective memberships.
When the Investment Dealers Association of Canada merged with Market Regulation Services Inc. to form IIROC in 2008, there were discussions about including the MFDA, Wol-burgh Jenah says.
However, MFDA president and CEO Larry Waite says, a survey of MFDA members conducted four years ago indicated that there wasn’t enough support. One-third of members said they wouldn’t support a merger; another third said they didn’t have enough information. But it may be time to reassess member support for a merger, Waite says: “That’s something we’ve been looking at consistently for 10 years. The issue comes up every two or three years.”
Wolburgh Jenah suggests that an IIROC/MFDA merger could produce benefits and synergies, particularly for the 30 or so firms that are members of both SROs.
However, some dealers suggest that rather than merging, the SROs should be abolished altogether in order to eliminate regulatory overlap. Says a compliance officer with an Ontario-based dealer: “I don’t see the value of the MFDA. It should be part of a larger, national regulator.”
But executives at both SROs say they believe self-regulation is critical. “We believe it’s important for the industry — separate from the statutory regulator — to support high standards of regulation,” says Wolburgh Jenah. “There is no better message for that passion or commitment than through an SRO whose job it is to set — and enforce — those standards.” IE