IAP calls on regulators to eliminate embedded compensation

The Investment Industry Regulatory Organization of Canada (IIROC) propose to reform its approach to the minimum fee component of its annual feed model.

The proposal would do away with the current minimum fee categories, introduce a single $22,500 minimum fee and eliminate the total allocated cost aspect of the minimum fee, according to an IIROC notice published Thursday.

The current approach to calculating a minimum fee is “unnecessarily complex,” the notice says. It also suggests that the existing methodology can result in firms bouncing between the two minimum fee categories, which makes it tougher for dealers to budget for their annual fees. As well, there’s the risk of unfairness because, under the present model, a small change in allocated costs could mean the difference between paying $15,000 or $27,500 in minimum fees.

IIROC’s analysis indicates that most dealers that pay minimum fees will see a drop in their fees under the proposed new approach, and it will not necessarily increase fees on the lowest-revenue dealers. Overall, however, based on fiscal 2017, adopting the new approach would have resulted in an overall increase in fees of $200,000.

IIROC considered eliminating the minimum fee altogether, but concluded that this would result in a “significant decrease” in annual fees paid by certain dealers, which would have shifted the financial burden to other firms.

“This alternative would go counter to IIROC’s guiding principles of fairness, which requires [dealers] to pay their share of regulatory resources consumed,” the IIROC notice says.

The proposal is out for comment until Feb. 5, 2018. IIROC says it plans to adopt the new model as of April 1, 2018.

Key deadline: Feb. 5, 2018

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