The regulatory responsibilities of firms versus those of financial advisors could change meaningfully as the industry increasingly implements AI, the CEO of the Canadian Investment Regulatory Organization (CIRO) suggested on Monday.
As firms seize AI and other technology to scale and serve more clients, “what I think we are going to see … is a continuing shift in the way in which the regulatory framework assigns responsibility and accountability,” Andrew Kriegler said in opening remarks at the annual conference of the Federation of Independent Dealers in Toronto.
Securities regulation has historically “leaned heavily on individual responsibility,” Kriegler said, referring to advisors. As the industry now increasingly relies on tech, “the only logical reality is that accountability and responsibility has to, on a gradual basis, transfer more and more to the sponsoring organization, rather than the individual,” he said. “That’s potentially a very big shift in the way in which we think about how regulation works.”
Kriegler made clear that his remarks on Monday weren’t foreshadowing impending policy or rule changes. Instead, “what I am sharing with you is some thoughts and some observations” as the world changes, he said.
He also shared with the dealer audience his thoughts on regulatory consistency, such as in the advice and do-it-yourself (DIY) channels.
Canadians don’t fall into “simple silos” anymore, Kriegler said, as they increasingly seek both advice and DIY options. “Those aren’t separated so much anymore, the way they used to be.”
As a result, the question is, “How do we generate a regulatory model or a service delivery model that allows people to pick and choose in the moment … and how do they want to pay for it?” he said. “I think the biggest challenge we have is ensuring a degree of consistency.”
Another area of potential regulatory inconsistency relates to emerging investing trends. For example, DIY investors have access to such things as crypto and to prediction markets; meanwhile, the advisor who puts in the work to recommend a small-cap public stock must meet enhanced suitability, know-your-client and know-your-product requirements (and may face compliance pushback).
Such regulatory inconsistency was highlighted in the media recently, Kriegler noted, and he asked, “What are the expectations the system should have for the delivery of advice versus the expectations we have for people being able to make their own decisions in the do-it-yourself space?”
When it comes to evolving regulation, he suggested that in addition to a cost-benefit analysis, how costs and benefits are distributed should be considered, given that costs fall disproportionately to “folks in the middle.”
Overall, “it’s incumbent on us as financial services community — industry, regulators, service providers, everybody — to think about what the right balance is,” regarding the evolving regulatory model, Kriegler said.