The Canadian Securities Administrators’ (CSA) recently completed consultation on reforming the self-regulatory organization (SRO) framework reveals that a full-scale renovation is needed. Simply forcing the Mutual Fund Dealers Association of Canada (MFDA) into an arranged marriage with the Investment Industry Regulatory Organization of Canada (IIROC) won’t cut it.
While the idea of a merger has merits, there are too few benefits — primarily, cost savings for a small group of dual-platform dealers — to justify the work involved. Corporate mergers are tough enough, but bringing together bureaucratic organizations with disparate histories and cultures is even harder.
Creating IIROC by combining the Investment Dealers Association of Canada with Market Regulation Services Inc. back in 2008 was a monumental chore — and their spheres of oversight did not overlap. Merging a pair of rivals that are both engaged in dealer regulation will be much tougher. Most important, a merger will not justify the continued reliance on self-regulation.
As much as the investment industry is frustrated with the overpopulation of SROs, it’s investors who are being poorly served by the current arrangement. IIROC acknowledged this fact by promising to create an investor panel and to explore improving access to restitution. But the consultation process has shown that much more needs to be done to put investors and the public interest more squarely in the sights of the SROs. Tinkering around the edges isn’t enough.
In any other country, the best solution probably would be to scrap self-regulation altogether and return to direct oversight by statutory authorities. But in Canada, giving up the only shred of national regulation seems like a bad bargain too.
What to do, then? Ideally, the CSA would sketch out a vision of optimal self-regulation from the ground up and invite the existing SROs to fulfil that vision. However, achieving that would require exceptional leadership from all sides.
While a comprehensive renovation to the SRO system can be accomplished, an ultimately unsatisfying touch-up is what’s likely in the cards.