In a world of economic and political volatility, regulators may need to act but their approach matters.
“We [as regulators] shouldn’t sit in an ivory tower,” said Stan Magidson, chairman of the Canadian Securities Administrators, and CEO of the Alberta Securities Commission, during a fireside chat in Toronto for the 2023 Investment Funds Institute of Canada’s annual leadership conference.
“We’re so much better when we’re actually talking to the people in the business [and] the investors,” he said. “It’s not to say that we necessarily adopt everything we hear, but we need to get the right information in front of us so we can make proper judgments.”
Magidson was optimistic about the successful on-schedule merging in 2023 of Canada’s self-regulatory organizations to create the Canadian Investment Regulatory Organization (CIRO). However, he said, “The tough work really begins on the integration.”
Stitching together different rulebooks and cultures requires “a very thorough process” that is underway, he said, plus there’s the challenge of helping firms become dually registered. One key element is being “very thoughtful of the smaller dealers, to make sure they just [aren’t] going to get swallowed up here and lost in the shuffle.”
Simultaneously, there are myriad other regulatory initiatives in the works.
The client-focused reforms (CFRs), the effects of which are now being measured, and the new total cost reporting (TCR) requirements were major discussion points. Magidson pointed to the recent review of how 172 firms across the industry were meeting conflict-of-interest provisions under the CFRs, out of which only a few dozen firms received “gold stars.”
The issues found were “largely articulated” in the August 2023 notice, he said, noting the intention wasn’t to take “a heavy hammer approach; to say, ‘We got you.'” Rather, regulators wanted to address where firms aren’t properly identifying and dealing with conflicts, after the long implementation process that was followed.
There will be an upcoming review of how well firms are meeting CFR know-your-product and suitability requirements, Magidson confirmed.
The same kind of careful pre-planning, support and review process will be followed for the TCR requirements. First, there is an implementation committee that’s dedicated to helping with TCR changes ahead of 2026, said Magidson.
“We realize there is lead time required to get to [a final] place, and we’re not looking for bumpy landings here. We’re trying to get the transition [right].”
As for how the effectiveness and impact of the TCR changes will be measured, there’s no clarity yet. “I’d love to be able to tell you that we’ve thought it all through. But in reality, I think in many ways we’re just so focused on getting TCR implementation [completed] in a fashion that works for all,” Magidson said.
“Closer to implementation, we’ll start to focus more on how are we going to do a lookback post-mortem,” he added.
Regulators’ agendas also include key additional priorities: how big data and artificial intelligence can be used more efficiently; the continued prevalence of technology tools being used; the surveillance of systemic risk by industry watchdogs, for which there’s a committee and upcoming research; and what type of guidance can be offered for ESG marketing by firms and advisors.
“There seems to be a lot that’s coming out of the regulator that industry has to deal with, and I want you to know unequivocally that we understand that that’s the case,” said Magidson.
Regulators know that change is “not as simple as — when we put out a new proposal or rule — [the] flip of a switch to serve up a solution.” Rewiring systems or policies could be involved. “I want to assure people that, in that context, we are going to be thoughtful,” said Magidson.