The industry, regulators and investors alike agree that there’s a need to curb the regulatory burden – yet industry compliance officers (COs) point to the regulatory structure, rather than specific rules, as their top priority for policymakers.
Securities regulators are currently engaging in efforts to uncover ways of cutting regulatory costs. In this year’s Regulators’ Report Card, Investment Executive asked industry compliance executives for their wish lists when it comes to tackling the compliance burden. While these officials are deeply engaged with the day-to-day chores of ensuring regulatory demands are met, it wasn’t among these daily chores where they saw the biggest opportunities to pare down costs.
In fact, almost half of the respondents (42.5%) pointed instead to “rationalizing the regulatory framework” as their recommended top priority.
“In many cases, you’re answering to many different masters and it [would] increase efficiencies to reduce that,” explains the CO of a large, independent investment fund manager.
The multiplicity of regulators applying a vast array of slightly different rules, and taking divergent approaches to compliance and enforcement, remained the top concern for industry compliance officials when it comes to identifying needless regulatory burdens.
Respondents pointed out that each jurisdiction has rules that often differ in their details, even though all regulators generally share the same underlying objectives.
“It’s stupid for the small firms,” notes one compliance executive at a fund manager, who also pointed out that the duplicative regulatory framework makes it too expensive for small firms to function in multiple provinces. If there was one licence to operate in Canada, the executive said, smaller players could operate cost effectively across more territory.
Streamlining the regulatory framework in Canada has long been a topic of conversation, with numerous attempts ultimately floundering. Still, COs have continued to hope that the existing regulatory configuration can be simplified by merging the provincial regulators, and/or by consolidating the industry’s self-regulatory organizations (SROs)-especially since the cost of regulation was listed as the second-greatest threat to firms’ revenue for 2019 (21.3% chose this), after price competition (30%).
Reforming the provincial structure is, of course, the object of an ongoing effort. The joint federal-provincial initiative to create the proposed cooperative Capital Markets Regulatory Authority (CMRA) would roll together the regulators of British Columbia, Ontario, New Brunswick, P.E.I., Saskatchewan and the Yukon. While that project continues to face challenges, it’s a goal some continue to support.
The CO of a fund manager and exempt market dealer says that launching the CMRA would “make things easier” and mean “more predictable fees, especially when registered across all provinces.”
Similarly, the CO of an independent investment dealer, who called himself a “big proponent” of the CMRA, says, “There’s lots of duplication when dealing with clients in different jurisdictions.”
Yet there’s also skepticism within the industry about the CMRA initiative. Some compliance officials said they doubt that a national regulator (the ultimate objective of the policymakers who developed the authority) will ever come to fruition; others said they wouldn’t want it to, unless it took a more principles-based approach to regulation.
While the effort to create the CMRA remains a work in progress, some in the industry talked about reviving the long-standing idea of combining the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC).
“It’s high time to merge the SROs,” says one senior compliance official with a fund manager and dealer. “One SRO and one securities regulator.”
An SRO merger has been considered repeatedly over the years – but, as with the numerous failed efforts to reform the provincial regulatory structure, the hurdles posed by practical and political complexities of pursuing such a combination remain.
For many in compliance, while the regulatory structure was an obvious target for reform, it was the variation in rules that really grated. If the number of regulators must stay the same, COs said, they would at least like to see the rules harmonized.
“That’s a big thing for us,” says the CO of a major financial institution. “We’re on multiple platforms. Every regulator has slightly different rules. When you’re operating different platforms, you are constantly having to adapt to their differences – which adds a significant amount of complexity.”
Dealers sometimes found it difficult to determine which regulator’s requirements should take precedence when those rules conflict with one another, for instance. And they said the various provincial regulators treat firms differently – making a common approach to dealing with regulators impractical and compliance less efficient.
“It’s mission-imperative to have a unified voice,” says one compliance executive at an investment dealer. “When there’s one set of rules, everything falls into place. With fragmented rules, the cost is crippling.”
Another senior compliance official with a fund dealer and investment dealer says they’d like to see “one set of rules for IIROC and [the] MFDA, and national guidelines.”