Female tax inspector looking at corporate financial documents with magnifying glass

The Canadian Securities Administrators (CSA) have issued their hotly anticipated consultation paper examining self-regulatory organizations (SROs).

In the paper, the CSA notes that the current framework has been around for about 20 years, and that the industry has evolved significantly during that time.

As a result, “the CSA believes that it is appropriate to revisit the current structure of the SRO regulatory framework and to seek comments from all stakeholders,” the paper said.

The paper identifies issues with the existing system such as structural inefficiencies, particularly for dual platform dealers; regulatory duplication; barriers to innovation and the availability of advice; and the risk of regulatory arbitrage.

It also points to investor confidence issues, including confusion about multiple regulators, concerns over access to dispute resolution, the threat of regulatory capture, and concerns over the adequacy of CSA oversight of the SROs.

The paper also examines whether separating market surveillance from the provincial regulators would create regulatory gaps or conflicts.

“In publishing this consultation paper, the CSA is looking for broad input on the strengths, benefits and challenges of the current SRO framework, as well as feedback on the targeted regulatory outcomes set out in our paper,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF).

“Feedback from all stakeholders is critically important and will be used to identify a proposed policy response and a path forward,” Morisset added.

The consultation, which was announced last year, has already prompted both SROs to put forward their ideas for reform.

Earlier this month, the Investment Industry Regulatory Organization of Canada (IIROC) issued a paper advocating a merger with the Mutual Fund Dealers Association of Canada (MFDA). The merger, IIROC said, would produce “hundreds of millions” of dollars in benefits over the next 10 years.

Back in February, the MFDA proposed a more dramatic restructuring by creating an entirely new SRO to oversee all registered firms, while spinning off market regulation into a separate entity.

The SROs welcomed CSA’s own fundamental review.

“The CSA’s approach has resulted in a comprehensive and thoughtful paper that clearly identifies many key questions and issues important to Canadians and the industry that serves them in this evolving environment,” said IIROC president and CEO, Andrew Kriegler, in a statement.

“IIROC will continue to support the CSA in its efforts to make the regulatory system more effective and efficient for all market participants — while ensuring investors are protected and the public interest is served at all times,” he added.

The MFDA also expressed its support for the CSA’s review.

MFDA president and CEO Mark Gordon said in a statement that his SRO’s paper aimed to help develop “a truly public interestfocused SRO.”

“With the CSA consultation process now officially underway, we look forward to continuing to work with the CSA toward developing a modern SRO framework for Canada that will benefit all stakeholders,” Gordon said.

The consultation paper is out for comment until Oct. 23.

Once the consultation is complete, the CSA intends to “publish a proposal regarding the SRO regulatory framework.”