Dealers lambasted regulators with low scores for transparency and communication.
Scores ranged from tens all the way down to ones and twos, which suggests that if a dealer has had a poor experience with a regulator, it makes a deep negative impression.
And the stakes are high for misunderstandings. A regulatory ruling changes business plans; legal work is expensive and eats into operational productivity. At worst, enforcement action can damage the dealer’s reputation.
So, Investment Executive asked member firms of the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada to rate their self-regulatory organization and their primary provincial securities commission on the “transparency of the regulator’s policies” and “the ability of the regulator to communicate its priorities in a timely and effective manner.”
Dealers told IE they are looking for guidance from the regulators as to how to conduct their businesses. They want to know the rules, how they are made and how decisions about the rules are made.
It’s not surprising that most of the comments were directed toward the Ontario Securities Commission, as it serves as the regulator for most of the dealers in the country. Dealers are seeking increased openness with the OSC as to how and why decisions are made.
“I think the OSC has a hidden agenda,” says a chief compliance officer with an Ontario-based firm.
“It has improved,” adds the president of another dealer in the province. “But the OSC can still be a bit cloak-and-dagger.”
Several comments were directed at the movement toward “principles-based” regulation — as differentiated from “rules-based” regulation, which leans on detailed rules. Principles-based regulation has also been called “light-touch regulation,” as it counts on market participants, in effect, to make decisions that benefit consumers and, therefore, the industry.
One chief compliance officer in Central Canada says his dealer supports the principles-based strategy, but adds: “It all comes down to interpretation anyway.”
One CEO from a Prairies-based fund dealer says his province’s securities regulation is not principles-based. “It’s rule-based,” he says, “as much as they don’t want to admit it. And each rule is like an octopus with a single head and 1,000 arms.”
The general sentiment behind the statements on this subject seems to be: principles-based regulation is nice; but when dealers’ compliance departments are making decisions, there’s too much “grey area” — as the head of compliance for one Ontario-based firm puts it.
And then, direct questions to clarify matters go unanswered. “The OSC has a hard time delivering firm answers to queries,” he adds.
The way in which regulators have made use of the Internet can be used as a yardstick for transparency, and several of the dealers’ responses made reference to website communication.
Dealers looking for a place to stay abreast of discussion, rules, decisions and enforcement activity can always turn to their regulators’ websites. But anyone who has ever used internal search engines knows they’re not all created equally.
“I’m happy to follow rules — if I knew what they were,” quips a dealer in British Columbia, complaining that IIROC’s website search engine isn’t efficient.
A specific example of the negative is the Canadian Securities Administrators‘ System for Electronic Document Analysis and Retrieval (SEDAR), in which all company prospectuses and amendments are filed. The search engine doesn’t operate with the same functionality as your average Web browser, nor does it work with the old Boolean terms.
The chief compliance officer for a dealer based in the West praised the members-only portion of IIROC’s websites; he is looking forward to the same functionality on the MFDA’s site.
As member firms know, spending money on technology increases efficiency in many areas of the business — from trading and back office to client support and service. Dealers have spent millions on technology; they say it should be a consideration for the regulators, too.
Regulators have made some efforts at transparency. In 2007, the OSC started publishing and distributing a quarterly newsletter, entitled The Investment Funds Practitioner, to apprise market participants of sticky points on various legal and regulatory issues. It was supposed to concentrate on regulatory discussions and decisions, as opposed to enforcement. But the newsletter has disappeared altogether. IE