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The Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) should merge and take on oversight of the exempt market dealers (EMDs), argues a new paper from the C.D. Howe Institute.

The Toronto-based think tank published a paper from Joanne De Laurentiis, former president and CEO of the Investment Funds Institute of Canada, which calls for an MFDA-IIROC merger, followed by the downloading of additional dealer oversight responsibilities to the combined self-regulatory organizations (SROs) from the provincial regulators.

The paper argued that the evolving industry is no longer a good match with the existing regulatory structure, and that merging the SROs “would create a more finely tailored, fit-for-purpose oversight regime.”

Combining the SROs, the paper said, would reduce “operational complexity and costs for dealers; streamline and bring greater efficiency to the regulatory oversight process.” This reduction in compliance costs would, in turn, enable dealers to provide more cost-effective services to investors.

“These moves will be a clear win for all parties, most particularly for consumers who will benefit from a single regulatory organization focused on ensuring those dealers and advisers are being held to consistent standards requiring them to deliver the products and services that fit the needs of their customers,” De Laurentiis wrote.

The notion of merging the SROs has been explored before, and rejected, for a variety of reasons — including the prospect of consolidating the provincial regulators, and concerns about the impact on smaller fund dealers.

In the paper, De Laurentiis argued that the prospects for reform at the provincial level shouldn’t prevent SRO reform.

“The fate of the common regulator is not clear. Chances are it may sit in limbo for a long time or never happen,” the paper said. “Its unresolved state should not deter pursuit of the creation of a new distribution regulatory agency that a significant part of the industry wants and will have a salutary impact on consumers of advice.”

De Laurentiis also stated that concerns about the impact on small dealers can be addressed if the combined agency adopts rules tailored to different industry players.

“A new merged agency should, in fact, adopt a graded regulatory framework that allows smaller firms to evolve and grow their services without pushing them into a new regulatory category and require potentially costly system and management changes at the dealer,” she wrote. “In the long run, rather than disadvantaging smaller firms, a new agency with a broader mandate could provide a significant advantage to them by bringing them along the growth curve on their own timetable.”

Following an SRO merger, the paper argued that the resulting new agency should also take jurisdiction over other firms, such as EMDs and robo advisors, and over issues such as industry proficiency and title regulation.

Finally, the new SRO should look at rolling in the Chambre de la sécurité financière, the paper suggested, “giving Quebec dealers a more streamlined and simplified set of regulatory requirements.”