Stacked white books on rules and regulations

The Investment Industry Regulatory Organization of Canada (IIROC) published its annual report on Tuesday, indicating that dealer regulation fees will increase by about 3% for fiscal 2020 (the year ended March 31, 2020). Market regulation fees expected to decline by 1% year over year.

In its report, IIROC also disclosed that some firms have been underpaying their membership fees as a result of not accurately reporting revenues to the self-regulatory organization (SRO) from 2015 to 2019.

“This arose as a result of IIROC identifying and confirming that some member firms had not been reporting certain revenue information on the basis required by the organization’s membership fee billing model,” the report said.

The SRO noted that the issue has been resolved and won’t have a net impact on its revenues or future operations. But, the reassessment of dealers’ fees “will result in amounts both collectible from and owing to member firms,” it said.

In the meantime, the rise in dealer fees comes as IIROC projects that total operating expenses will increase by $2.8 million in the coming year to $101.2 million in fiscal 2020.

“The increase in expenses is driven by compensation and benefits expenses due to base salary increases, and increased headcount in areas such as finance and market surveillance,” it reported.

For fiscal 2019, IIROC recorded a deficit of just over $300,000 in its unrestricted fund, as its operating expenses rose by about 3%, but total operating revenues were essentially unchanged from the previous year.

The operating deficit was offset by a surplus in the restricted fund (which includes revenues from fines and penalties), leaving IIROC with an overall surplus of $48,000; down from $2.15 million in fiscal 2018.

Overall, dealer regulation revenue declined by 2% in 2019, as revenues from underwriting levies dropped by 17% year over year due to a decrease in both equity and debt issuance activity. This decline offset a 1% rise in membership fees, and increases in other regulation revenues.

Market regulation revenues rose by 1% year over year.

IIROC reported that dealer regulation expenses rose by 3% in fiscal 2019, and market reg expenses increased by 4% from the previous year.

Looking ahead, IIROC is bracing for the continued evolution of the investment industry and the regulatory environment.

“There is a significant transformation underway across our industry, driven by the changing needs and expectations of Canadians and the ways in which technological advances allow them to be met,” the SRO said in the report.

“Much of our focus over the next three years will involve responding and adapting to new industry and market realities, as well as ensuring organizational readiness for future change as we deliver on our public mandate,” it added.

This will include initiatives such as developing a “safe-harbour rule” to help dealers protect vulnerable investors, improving IIROC’s analytic capabilities and crafting a regulatory framework for the emerging crypto asset market.

Last week, IIROC issued guidance setting the parameters for online firms to automate account opening.

IIROC is also dealing with assorted ongoing reform efforts. For instance, it said it continues to work with the Canadian Securities Administrators (CSA) on their proposed client-focused reforms, and “will continue toward harmonizing our conflict-of-interest requirements across regulatory platforms.”

It also noted that “Discussions with the CSA continue regarding embedded commissions.”

Adapting to the industry’s ongoing evolution alongside existing reform efforts “will be a major undertaking,” noted IIROC president and CEO Andrew Kriegler in the report.