Regulators are doing a fair job in keeping up with international regulatory changes and taking a balanced approach toward adapting domestic regulations in light of the changing global regulatory environment, say the compliance officers (COs) and company executives surveyed for this year’s Regulators’ Report Card. That said, survey respondents would like to see the regulators move more quickly and be more proactive in addressing issues in the financial services industry.
“My impression is there are some [regulatory changes in foreign jurisdictions] that would be useful to adapt in Canada,” says a CO with a Quebec-based investment dealer on Toronto-based Investment Industry Regulatory Organization of Canada’s (IIROC’s) platform. “But it takes ages for [Canadian] regulators to make the changes.”
Adds a CO with a Quebec-based mutual fund dealer about the Toronto-based Mutual Fund Dealers Association of Canada (MFDA): “[It] could be faster to react to [global regulatory] developments.”
COs and company executives gave the four regulators in the survey ratings ranging from 6.4 to 6.9 in “the regulator’s effectiveness in keeping up its policies with evolving international regulatory developments” category.
Survey respondents then gave the very same regulators ratings that range from 5.9 to 6.5 in “the regulator’s effectiveness in balancing evolving international regulatory developments with the regulatory needs of the Canadian marketplace” – one of three new categories added to this year’s Report Card.
To be sure, the survey respondents praised Canadian regulators overall for taking a careful approach to monitoring regulatory changes in other jurisdictions, then taking the best of what works elsewhere and incorporating those changes in a way that suits the Canadian marketplace. The regulators also received kudos for trying to alleviate the regulatory burden on dealers that do business in other jurisdictions, particularly the U.S., to meet their compliance requirements at home.
“[IIROC is] making it easier for clients and dealers to do business across multiple jurisdictions,” says a CO with an Ontario-based investment dealer. “[IIROC is] harmonizing standards to reduce the burden.”
In turn, regulators say, because of Canada’s relatively modest size and influence around the world, they always have had to monitor regulatory changes made elsewhere. But keeping tabs and reacting to developments in other countries has become more important only in the past several years -in the aftermath of the global financial crisis, when many jurisdictions made significant changes to their regulatory regimes in an effort to prevent future financial crises.
The MFDA says that when it identifies the need for new or revised regulation, it determines if other jurisdictions have identified a similar need and introduced their own regulations.
As Ken Woodard, the MFDA’s director of membership services and communications, wrote in an email response to Investment Executive (IE):”Where we have proposed regulation and there are no comparable requirements in other jurisdictions – for example, when we developed improvements to our suitability and know-your-client requirements – we monitor the regulatory developments of other regulators to determine whether they eventually implement similar changes and assess any difference in our respective requirements.”
Furthermore, Canada’s regulators say that they are often in the advantageous position of being able to learn from how other jurisdictions address certain issues and thus avoid the mistakes made by others.
“We’ve been very active on following through on that approach,” says Susan Wolburgh Jenah, IIROC’s president and CEO, “and taking the best of what others are doing and applying [those policies] in the Canadian context.”
In fact, Wolburgh Jenah points to recently introduced IIROC regulations on high-frequency trading as an example of how the regulator tackled an issue in a way that was appropriate for the Canadian marketplace: in order to recover the technology costs related to the increase in order traffic, IIROC decided not to introduce order-to-trade thresholds above which dealers would pay a tax or penalty; instead, IIROC elected to treat all orders in the same way. Other jurisdictions have chosen to implement such thresholds.
“Participants calibrate their own models to ensure it makes sense for them, in terms of what they’re having to pay,” Wolburgh Jenah says. “So, we pass those costs along to the firms, and the firms pass those along to their clients. That’s an area in which we’ve been leaders.”
Both the Ontario Securities Commission (OSC) and the British Columbia Securities Commission also pointed out a number of areas in which they are working in concert with regulators in other jurisdictions, including implementing G20-related commitments to issues relating to over-the-counter derivatives. At the same time, both regulators work with their peers in other provinces – as well as with other Canadian regulatory agencies – to ensure that any new rules are tailored for the domestic marketplace.
“Our responses in certain areas, such as money market funds and securitization, although consistent with international developments, reflect differences in our Canadian market, experiences and regulatory needs,” noted Debra Foubert, the OSC’s director of compliance and registrant regulation, in a written response to IE.
Still, Canadian regulators say that they’ve been deliberate in trying to take a cautious approach when they introduce new or revised regulation – particularly when so many other jurisdictions are seeing a flood of changes. At IIROC, for example, new rules are reviewed after one year to see if they are working as intended.
“It isn’t possible to get everything 100% right,” says Wolburgh Jenah, “not if you want to act with any degree of reasonable dispatch. So, we are sensitive and willing to rethink those issues.”
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