Advisors embracing technology section image

Next year will be about surviving, not thriving.

Ian Russell, president and CEO of the Investment Industry Association of Canada, made this prediction while speaking on a panel about the regulatory outlook for financial services at the 2019 Toronto Refinitiv Summit on Monday.

In addition to the U.S.-China trade war, which is impeding growth, Russell noted the challenges of increasing technology and compliance costs, including those related to privacy laws and Canada’s proposed digital charter.

He also cited privacy protections as an example of regulatory fragmentation worldwide, with different jurisdictions moving at different paces. (On privacy, Canada is “somewhere in the middle,” he said.) Greater communication and collaboration among regulators is needed to address fragmentation, he said.

When panellists were asked to answer — in one word — if Canada will ever get a national securities regulator, they said no. When asked if Canada can regulate effectively without one, Russell said yes. Panellist Saskia Goedhart, former chief risk officer at the Investment Management Corporation of Ontario, replied, “Yes, but.” (Panellists were given no time to respond further.)

Both panellists were also asked if regulators can effectively oversee potential entrants to the industry such as tech behemoths Amazon and Facebook. Regulators must “gear up” for the challenge, Goedhart said. Such companies’ sophistication and aggressiveness will likely prove difficult for regulation, Russell said.

They also discussed the impact of climate change on the regulatory environment. Goedhart said that firms must consider how to incorporate climate change into investment decisions and sharing the reasoning behind their decisions.

When asked if Canada is moving toward a definition of green versus social bonds, Russell noted that regulation tends to be evolving on a principles-based approach. Moderator Sherry Madera, chief industry and government affairs officer at Refinitiv, said that a sense of urgency has resulted in environmental factors overshadowing social factors, but she expects that to change.

“There’s a real movement in Europe to talk about a just transition” to sustainability, she said, referring to positive social effects. The coming year will “show us a slightly different pivot, perhaps,” she said, resulting in a distinction among bonds.

IIROC’s regulatory evolution

In a keynote address at the event, Victoria Pinnington, senior vice-president of market regulation at the Investment Industry Regulatory Organization of Canada (IIROC), described the self-regulatory organization’s evolving regulatory role.

The self-regulatory organization monitors trading on all Canadian stock exchanges and alternative trading systems, and provides surveillance of fixed income trading by Canadian dealer firms. Also, as the Canadian Securities Administrators’ information processor for Canadian debt securities, IIROC provides transparency in that market by publishing bond trading data.

Pinnington described IIROC’s upgraded surveillance system, which uses algorithms to watch for anomalies, patterns or outliers in trades. The system integrates machine learning and artificial intelligence, she said.

When asked how Canadian regulators can show they’re serious about fraud, Pinnington said that the upgraded surveillance system is “a good start.” She expects the system will reveal more anomalous market activity, and a data analytics team is also helping to up IIROC’s game on fraud, she said.

Pinnington was also asked how IIROC oversees activity in Canada’s over-the-counter bond markets. Specifically, does IIROC monitor private chat conversations between bond dealers and between dealers and clients?

Pinnington said IIROC receives trade data directly from dealers on a daily basis, which is fed through the new surveillance platform. “We will use every source of information we can to monitor that marketplace,” she said.