Compliance officers (COs) and company executives in the investment industry have lambasted their provincial securities commissions and self-regulatory organizations (SROs) in “the regulator’s awareness of dealers’ regulatory burden and concern about keeping it to a minimum” category since the inception of the Regulators’ Report Card in 2009. That trend continued yet again this year, as survey participants indicated that they feel overwhelmed by the volume and complexity of the various regulations coming into effect.
In particular, the significant shift toward providing greater disclosure to clients through Fund Facts documents and, most notably, the second phase of the client relationship model (CRM2) has COs and company executives feeling the regulatory burden more than ever before.
In fact, the opinion of many survey participants can be summed up by an executive with a Quebec-based investment dealer: “The regulatory burden we face is outrageous. Any awareness regulators express is just lip service. They’re not paying attention.”
This attitude is reflected in the ratings that COs and company executives bestowed upon their regulators in this category, the lowest ratings among all categories for all but one of the regulators in the Report Card. And for that regulator, the B.C. Securities Commission (BCSC), this category garnered the second-lowest rating that the BCSC received.
In fact, the highest rating in this category went to the Mutual Fund Dealers Association of Canada (MFDA), which received a still paltry 5.1 – vs its 5.5 rating in 2014.
The other SRO in the Report Card, the Investment Industry Regulatory Organization of Canada (IIROC), got the second-highest rating in the category, at 4.8, which dropped by the same margin as the MFDA’s rating; IIROC’s rating was down from 5.2 last year.
A closer look at the survey reveals that COs and company executives share similar concerns about the MFDA and IIROC – that is, is either SRO aware of the regulatory burden its member dealers are facing?
This is particularly the case among smaller dealers, which are finding that meeting the requirements needed to be compliant with the constant stream of regulatory initiatives coming down the pipeline is increasingly difficult.
“There’s no sensitivity,” says a chief CO (CCO) with a Quebec-based, IIROC-licensed firm. “My perception is that IIROC is a bank-owned organization. What the banks want or can handle, the banks get.”
Adds a CCO with a mutual fund dealer on the Prairies: “In my experience, there’s no cost consideration when bringing out rules, especially for a small business.”
Apropos these concerns, the MFDA has set a goal to form a small-dealer working group this year to understand the “pressure points” that such firms are facing, says Mark Gordon, the MFDA’s president and CEO.
“We want to make sure that we apply our rules in a fair and balanced manner,” he says. “We recognize that our rules are not ‘one size fits all’ and we realize that some of the rules may need to be applied differently, depending on the operation.”
However, some COs and company executives with larger firms said that the regulatory burden that smaller dealers face is not exclusive to those businesses.
“The challenge with [IIROC], as an SRO, is that it takes rules in the Securities Act and gives out very specific guidance for its members, which is great if a small company has only one regulator,” says an executive with an Ontario-based asset-management firm. “But we are in every sector, so we have a bunch of different regulations to follow across all of our businesses.”
Regardless of size, there’s one concern that unites firms of all stripes: the pace at which regulations are coming into effect.
“As soon as you get something done, the next rule is already coming down the pipeline,” says a CO with an Ontario-based investment dealer.
“Slow down the pace of change, especially with multiple regulatory changes happening at the same time. Give us a chance to catch our breaths,” says a company executive with an Ontario-based firm operating on both IIROC’s and the MFDA’s platforms.
In addition, that executive pointed out that it’s not just the rules set by the SROs and the provincial regulators that are weighing upon firms: “I know [Canada’s anti-spam legislation] is a government initiative, but it’s getting in the way, too.”
Still, provincial regulators suffered the biggest blow in this category, as all three provincial securities commissions in the survey were rated lower than the SROs in this category.
The BCSC was rated at 4.7, up from 3.2 in 2014, followed by the Alberta Securities Commission, at 3.6 (which is down from 4.1 last year) and the Ontario Securities Commission (OSC), at 2.8 – the lowest rating of any regulator in the survey. In fact, the OSC’s rating also had the biggest year-over-year decline, having dropped from 4.3 in 2014.
A big reason for the provincial regulators’ lower ratings is that COs and company executives compared their experiences with the SROs, which appear to offer better understanding of dealers’ plight. Says an executive with an Ontario-based investment dealer: “IIROC scores better here than the OSC because [IIROC] has more interaction with dealers. They see our financial statements, so they know we’re not crying wolf.”
Still, many survey participants said that regulators of all stripes have to be more realistic about how much dealers can handle.
“The level of administration takes up so much time that it’s hard to develop meaningful compliance activities,” says a CCO of an investment dealer based in Atlantic Canada.
“[Regulators] are oblivious to the impact of regulatory change on firms and how quickly we can adapt to become compliant,” says a CCO with an Alberta-based portfolio management firm. “For example, their decision on time-weighted vs money-weighted [rates of return] reporting [as required under CRM2] shows their complete lack of understanding of how this business works.”
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