There’s no question that the regulatory landscape in Canada could use some streamlining – but the Investment Industry Regulatory Organization of Canada’s (IIROC) unsolicited takeover bid for the Mutual Fund Dealers Association of Canada (MFDA), disguised as a policy debate, is a poor way to go about it.
The notion that there should be one self-regulatory organization (SRO) for both mutual fund dealers and brokerage firms has been in the air almost since the MFDA was created – back when IIROC’s predecessor, the Investment Dealers Association of Canada (IDA), served as both SRO and trade association to the brokerage business.
The appeal of a single SRO is similar to that of a corporate consolidation – reduced costs and administrative duplication, and enhanced efficiency. But corporate mergers often don’t go as planned. And that risk is heightened when a merger involves regulators – which come to the table with their own culture, institutional memory and way of doing things.
That’s why IIROC’s white paper – which proposes rule changes that logically lead to SRO consolidation – comes across as an odd way to go about relaunching the merger debate.
To start, IIROC’s proposal does not have the blessing of the Canadian Securities Administrators (CSA). And, given that the CSA has the ultimate say in these matters, having that body on board would make sense. Otherwise, this project – a project that’s premised on enhancing efficiency – could turn out to be a colossal waste of time and resources.
Moreover, IIROC’s proposal risks tainting the policy process in the eyes of the investment industry and investors. If regulators appear to be using policy to serve their own interests or those of certain dealers rather than to advance investor protection or market quality, confidence in the process could be undermined.
Finally, the timing is awkward. The industry is already grappling with the second phase of the client relationship model and the possibility of further fundamental regulatory reforms. In principle, regulatory rationalization is a good idea. In practice, this effort by IIROC is not.
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