This editorial appears in the September 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The process for adopting investor protection reforms is broken. Reform efforts routinely take years as regulators and the industry haggle over details and implementation deadlines. Proposals to require total cost reporting for investment and segregated funds are the latest example of this dysfunction. Industry firms insist they can’t adopt these measures before the end of 2026; proponents of enhanced disclosure say they could be in place within a year.
The brewing kerfuffle has industry trade groups suggesting that regulators set up expert committees — comprising both regulatory and industry personnel — to bridge the gap between policy and reality.
Policymakers have a vision for improving the investor experience, but front-line industry personnel and back-office and IT staff have to follow the orders. A group with the operational expertise to create workable industry practices out of regulators’ public policy goals, while inflicting the least regulatory burden and minimizing unintended consequences, is appealing — at least in theory. In practice, this approach would invite its own problems.
Fairly representing investor interests in the public comment process already is challenging. Giving industry an even greater voice in policy implementation would further tilt that balance in their favour.
Also, the industry is not a monolith. Any mechanism that cedes more policy control to the industry risks allowing regulation to be used as a competitive weapon that disadvantages firms with less clout.
There’s also a more basic flaw: a reform implementation committee that focuses only on operational details and avoids policy debates ignores the fact that these considerations are inextricably bound together. When it comes to investor protection, the details often are the policy.
The specifics of the content, format and design of disclosure, for example, are essential to determining if policy objectives are met — that is, whether investors end up better informed.
A committee charged with determining the details of policy implementation could end up as the most powerful voice.
The process for implementing investor protection reforms is broken, but abdicating responsibility to powerful new committees is not the solution. More assertive, independent regulators that demand, and can drive, change in the first place are what’s needed.
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