A regulator is never going to be loved by the firms it oversees, but with industry-friendly initiatives, regulators can win points from their flock. This year, the Mutual Fund Dealers Association of Canada (MFDA) is enjoying higher ratings from fund dealers, which are applauding its efforts at consultation and bolstering industry cybersecurity.
In this year’s Regulators’ Report Card, the MFDA’s IE rating (the average of all the regulator’s category ratings) rose by almost a full point to 6.8 from from 5.9 last year, thanks to higher ratings in almost every category.
In particular, the MFDA was lauded for its ability to provide useful responses to industry questions, the fairness of its policy decisions, its flexibility in audits and its sensitivity to the concerns of small dealers.
These improved scores for the self-regulatory organization (SRO) saw it push ahead of the Investment Industry Regulatory Organization of Canada (IIROC) – which saw its IE rating tick down to 6.5 this year from 6.8 last year. The MFDA ranks second only to the B.C. Securities Commission in this year’s Report Card overall.
To some extent, the leap in the MFDA’s IE rating may represent reversion to the mean. The SRO’s ratings had dropped notably on last year’s Report Card in many of the same categories where its scores jumped this year.
Yet, comments from dealers in this year’s survey indicate that mean reversion isn’t the whole story. Respondents praised the MFDA for initiatives it has undertaken over the past couple of years.
Firms applauded the SRO’s efforts at helping the industry – particularly smaller fund dealers – beef up its cybersecurity preparations. In 2017, the MFDA hired a consultant to assess firms’ security efforts and to provide them with recommendations for improving their defences. In late 2018, the MFDA announced that it will be offering a similar program in the coming year.
This initiative is the type that wins praise because it aims to guard the industry against external risk. It’s also voluntary. Now, thanks to initiatives such as this, the president and chief compliance officer (CO) of one small dealer reported feeling they were getting value from the MFDA.
The SRO also won points for its outreach to the industry, including its approach of publishing discussion papers on certain policy issues – such as continuing education (CE) requirements, and expanding cost reporting – before coming out with new rule proposals.
“They’re fairly open-minded,” says a compliance manager at an institutionally owned fund dealer, adding that the discussion paper approach demonstrates that “they’re open to looking at other opinions.”
An MFDA representative says that, over “the next couple of months,” the organization will release “some form of communication or request for comment” on accreditation standards for its CE program. The SRO also says it hopes to launch the CE program in 2020.
Dealers also lauded other MFDA initiatives, such as its Seniors Summit, which is intended to provide guidance on the growing challenges of dealing with senior clients. The MFDA will hold the third edition of this conference in fall 2019.
One compliance official at a large independent firm praises the MFDA’s conference for its “forward-looking vision,” while another executive says that the guidance provided at these sessions is “very, very good.”
This approach is extending beyond outreach and policymaking, some dealers said, to include the MFDA’s compliance exam process. The SRO received an improved rating of 6.3 for the category “regulator’s flexibility when performing audits and examinations,” compared to 4.9 in 2018. The CO at a mid-sized independent firm reports that they’ve “noticed a huge difference in terms of collaboration [with the MFDA],” adding that they are “a lot more reasonable than in the past.”
“They are responsive and much more engaged,” another fund dealer executive says.
“They’re active listeners […] they do want to reach practical outcomes, they spend a lot of time to get to the right place,” notes a senior executive at a large fund firm.
These positive reviews were not universal. The MFDA also received criticism, including complaints that it can be too conservative and that it tilts too sharply in the direction of investor protection, at the expense of firms’ business.
Some also complained that the audit process could be further improved. A couple of COs said that the MFDA should be providing more positive feedback as part of its audits, so that firms understand where they are doing well, not just where they need to boost compliance. “If a dealer is doing a good job, they should be acknowledged,” suggests one executive.
This year, it’s the MFDA that has received a rare pat on the back from its dealers.