Canada must merge investment industry regulators, former OSC chairs say

It is time to consolidate.

This is the view of several former chairs of the Ontario Securities Commission and the current head of the province’s modernization task force, on the future of the two self-regulatory organizations (SROs) that oversee Canada’s investment advisory industry.

Both the Investment Industry Regulatory Organization of Canada (IIROC) – which regulates investment advisers – and the Mutual Fund Dealers Association of Canada (MFDA) – which regulates mutual fund dealers – are industry-funded watchdogs that can sanction and fine delinquent member firms and individual advisers. For years, critics have highlighted the many overlapping duties of both organizations, which were created at a time when there were clearer lines between the industries.

“There is a wide consensus that creating efficiencies between these two SROs is critical,” Walied Soliman, the chair of the capital markets modernization task force, said during an industry event on Wednesday.

IIROC oversees more than 170 investment firms while the MFDA supervises about 90 mutual fund dealers. In late 2019, the Canadian Securities Administrators (CSA), an umbrella organization of Canada’s provincial and territorial securities commissions, announced it was reviewing the “regulatory framework” that governs both SROs. The review prompted both the MFDA and IIROC to publish their own proposals for their futures. The CSA is currently reviewing industry comment letters before announcing its own proposal.

Now, Mr. Soliman is encouraging both IIROC and the MFDA to come together and "make some joint recommendations.”

“We want to see the SROs sit down across from each other and help the regulatory community come up with the right answers for the capital markets," Mr. Soliman said. "No agendas. The output of a more efficient SRO framework is clear.”

Former OSC chair David Brown, who led the commission from 1998 to 2005, said regulators, and even governments, need to make the single SRO model a higher priority, a move he says “should have happened years ago for the industry.”

“Those two organizations should be merged,” Mr. Brown said during Wednesday’s regulatory panel discussion at the OSC’s annual Dialogue conference, held virtually. “I think the two organizations agreed they should be merged, but they just can’t agree on the formula."

Former OSC chair Howard Wetston, who led organization from 2010 to 2015, said that the SRO consolidation of the two organizations is long overdue, while David Wilson, also a former OSC chair who led the commission from 2005 to 2010, agreed it was time to move away from having two separate SROs.

Mr. Wilson pointed to the province – and other CSA members – to “use the leverage” they have over the SROs to “make sure that the right thing happens."

Last June, IIROC published a recommendation for both itself and the MFDA to consolidate as a single SRO while maintaining their existing operations. Earlier in the year, the MFDA proposed a different method that would see the creation of a new regulatory body built from scratch and combine oversight of the mutual fund sector with oversight of investment dealers.

Paul Allison, IIROC’s chair, told The Globe and Mail in an e-mail that it is now time for the two organizations' boards to “actively discuss” next steps.

“As those charged with the governance of our respective SROs, we are best positioned to find common ground on the remaining issues which may separate us, thereby resulting in enhanced investor protection and choice,” he said.

MFDA spokesperson Ian Strulovitch said Wednesday the organization “remains focused” on the goal to move toward a single new SRO, and the ability to achieve this promptly is consistent with proposal published earlier this year.

“[We] look forward to working with the capital markets modernization task force, the CSA and all other stakeholders,” he said.

During its research to consolidate, IIROC surveyed both mutual fund dealers and investment advisers for feedback on regulatory concerns, working in conjunction with the Federation of Mutual Fund Dealers, an industry group representing more than 24,000 mutual fund advisers.

In a report set to be released on Thursday, IIROC found that while many advisers were unaware of the CSA merger review, a majority indicated they agree that a single SRO makes sense and is preferable to having two regulatory bodies.

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