The Investment Industry Regulatory Organization of Canada (IIROC) is not going ahead with a proposal that would have adopted lower minimum capital requirements for Type 1 and Type 2 introducing brokers because of lack of support for the idea among the investment industry.
IIROC proposed the idea in a concept paper issued in March 2014 as a way to align the capital requirements for introducing brokers more closely with exempt-market dealers and certain types of mutual fund dealers. At the time, IIROC suggested that these firms represent a lower risk of client losses as they don’t typically have access to client assets.
However, the self-regulatory organization published a notice on Thursday indicating that it has decided not to proceed with the proposal after receiving relatively little support for the idea. In fact, IIROC reports that it received just two submissions to its concept paper: a short submission supporting the proposal and a more detailed comment that strongly opposed lowering the capital requirements for various reasons. These include that the current requirements for these firms don’t represent an undue regulatory burden, or a barrier to entry, and that introducing firms can still be risky, even if they don’t handle client assets.
“We did not receive overwhelming support for making the change identified in the concept paper and received several reasons for not making the change,” IIROC says in its notice, explaining the decision not to revise the requirements.
The SRO stresses that it remains committed to risk-based oversight and to minimizing undue regulatory burdens. So, it intends to undertake “a complete review of the risk models used to determine compliance examination frequency and scope; and implementation of mechanisms to ensure that all new rules are appropriately principles-based, with guidance provided to illustrate various ways for different business models and sizes to comply.”