As the costs of self-regulation surge, the fees from the Canadian Investment Regulatory Organization (CIRO) are rising too, according to the SRO’s inaugural annual report.
CIRO’s annual report for the year ended March 31 is the first since its creation through the merger of the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC). The new SRO took effect on Jan. 1 this year.
“To accomplish major structural reform in the regulatory sector from start to finish in three years is something to be proud of,” said Andrew Kriegler, president and CEO of CIRO, in a release.
“Within the guardrails of strong investor protection, we want to give firms more flexibility in how to structure themselves to serve their clients, not less, and to make it easier and simpler for Canadians to access financial advice.”
Kriegler said the “real work” of integrating the two regulatory models is just beginning.
For the year ahead (fiscal 2024), the SRO’s accompanying financials indicate that CIRO’s operating expenses are expected to rise by 9% to $149.6 million.
“The increase in expenses reflects compensation increases for merit and added headcounts to support organizational initiatives, one-time moving costs for the Toronto premises, continued increase in travel activity, alignment of education services, and a larger operating project budget to support organizational initiatives,” the report stated.
Against the backdrop of the projected increase in expenses, regulatory fees are also rising.
The report indicated that CIRO is budgeting for revenues of $147 million, up from actual revenues of $141.3 million in fiscal 2023, which would leave it with a budgetary deficit for the year.
“The planned deficit in [fiscal] 2024 is to provide relief and fee stability for the impacts of fluctuating underwriting levies (specific to investment dealer members), for Quebec transition costs (specific to mutual fund dealer members), and one-time moving costs,” the report said.
Nevertheless, it projected that regulatory fees will rise by 5.2% year over year — with most of that increase (4.2%) attributed to the rising cost of ongoing activities, and the rest (1.0%) driven by new initiatives and targeted investments — to generate the added revenues.
For investment dealers, fees will be rising 6.4%, the report noted, while mutual fund dealer fees are to remain flat.
Fees from equity market regulation will take the hardest hit, rising 10% year over year, while debt market regulation fees are to go up 4.0%.
Additionally, the report said that fees to recover integration costs have been set at 6% for fiscal 2024.
“Given that final integration costs and the timeline for recovery are not known for [fiscal] 2024 fee setting, a commitment was made in the fee model to keep them at or below 8% of annual membership fees for the first year,” the report noted.
While dealer fees and equity market regulation fees are the SRO’s chief sources of revenue, another key contributor — underwriting levies — was relatively weak in fiscal 2023. These revenues came in at $7.9 million, down by 32% from the previous year, amid a decline in new issue activity as economic uncertainty rose and market volatility spiked. They’re projected to remain close to that level ($7.5 million) for fiscal 2024.