Canada’s mutual fund regulator is expanding its proposal to build a merged regulatory body for the investment industry and has promised a clearer timeline as it battles critics who say a complete overhaul is too cumbersome.
The Mutual Fund Dealers Association of Canada (MFDA) – a self-regulatory organization (SRO) that oversees 90 mutual fund dealers – announced this week that it has begun to develop an implementation plan that will provide greater detail on its contentious proposal to create a single self-regulatory organization for Canada.
Currently, the Investment Industry Regulatory Organization of Canada (IIROC) supervises securities dealers, while the MFDA handles mutual fund dealers. The Canadian Securities Administrators (CSA), an umbrella group of provincial and territorial securities commissions, has launched a review of both self-regulators to consider whether to combine them and reduce regulatory overlap for companies that are registered with both.
The MFDA’s more detailed plan for a new regulator will be released some time in the next several weeks, president and chief executive officer Mark Gordon said in an interview. It will coincide with the final stages of the CSA’s review.
IIROC and the MFDA have been criticized for overlapping areas of oversight as more wealth managers serve customers who buy both mutual funds and individual securities.
In late 2019, the CSA announced it was reviewing the regulatory framework that governs the organizations, prompting the MFDA and IIROC to publish their own proposals.
Walied Soliman, the chair of the Capital Markets Modernization Taskforce – a group created by the Ontario government to review and modernize the province’s capital markets regulatory framework – said the idea of combining the two SROs is no longer “the elephant in the room” but an inevitability.
“Our view is that [the consolidation of IIROC and MFDA] is going to happen. ... It is just a question of time,” Mr. Soliman said during an industry fireside chat on Tuesday. “I don’t think there is much argument in the market on consolidation and [there is] wide regulatory support. My hope is that it is not a process that is going to be bogged down for a long time.”
The MFDA has proposed a broad revamp of regulations that would combine the operations of IIROC and the MFDA and restructure other aspects of financial regulation. However, some industry players say it would take too long to bring the two organizations together.
While the MFDA recommends building a new organization from scratch, IIROC’s model would have the organizations work together as one entity but each branch would continue to operate without changes to their regulatory rules, business models or regulatory fee structures. Under IIROC’s plan, merging the two regulators would take only three months, and provide wealth managers with a significant reduction in overlapping regulatory costs.
IIROC chief executive officer Andrew Kriegler said in June that a solution must be timely, and that while building a new SRO with a “clean sheet of paper” is attractive, a complete overhaul is not feasible.
Mr. Gordon said the MFDA’s proposed model can be implemented quickly. His organization’s new “road map” will include a timeline of the steps required to build a new organization rather than merging the two SROs.
“People have trouble visualizing the path forward to the new single SRO that we are recommending, so we are trying to help show how that change can be achieved,” Mr. Gordon said. “We want to provide tangible steps and realistic timelines to getting it done and de-mystify the how.”
In its proposal unveiled last February, the MFDA also suggested the new SRO assume the regulation of exempt market dealers, scholarship plan dealers and portfolio managers, which are currently the responsibility of the provincial securities commissions.
At the same time, the MFDA recommended securities regulators should take over stock market surveillance and regulation of trading from IIROC.
Mr. Gordon said once the plan is complete, the MFDA will provide the timeline to the CSA and all interested stakeholders to “assist and further inform” the CSA’s review of its national framework for securities self-regulation.
The CSA is reviewing more than 70 industry comment letters and the task force’s final report before publishing its own recommendations later this year. In a report last week, the task force recommended “a new single SRO” that would oversee investment and mutual fund dealers. As well, it advised that the new organization would conduct national market surveillance.
“The CSA is moving quickly but deliberately and should be congratulated,” Mr. Kriegler said in an e-mail to The Globe. “IIROC supports the CSA’s thoughtful and comprehensive process; the taskforce report and Walied’s comments echo the broad consensus of responses that emerged from the CSA consultation.”
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Clare O’Hara