Investment industry in lockstep behind a single SRO – The Globe and Mail

Financial services professionals across Canada are providing their input on proposals to revamp the current structure for the investment industry’s self-regulatory organizations (SROs) and hoping for a new single entity to oversee the broader industry. They expect a single SRO to reduce red tape, lower operating costs and create a more seamless experience for investors.

The Canadian Securities Administrators (CSA), the umbrella organization of Canada’s provincial and territorial securities commissions, is in the midst of a long-awaited review of the regulatory framework for the SROs. That includes the Investment Industry Regulatory Organization of Canada (IIROC), which oversees all investment dealers and their trading activity in Canada’s debt and equity markets, and the Mutual Fund Dealers Association of Canada (MFDA), the national SRO for the distribution side of the Canadian mutual fund industry. The result of the review is expected to be a single SRO, but what it could look like is still unknown.

In February, the MFDA proposed a new SRO that would have responsibility for mutual fund dealers, investment dealers, portfolio managers, exempt-market dealers and scholarship-plan dealers. Meanwhile, IIROC representatives have been speaking with members of the industry about their vision for a combined entity.

The CSA says it plans to publish a consultation paper in the coming months on the pros and cons of the current SRO structure and the impact of an overhaul.

Financial services professionals say the current system is cumbersome and costly to administer. Many argue a single entity would better reflect the changing industry, including digitalization and the onslaught of new products and services alongside the shift to a more holistic wealth planning process. To better compete in this changing industry, many firms are looking to offer various products under one roof and say a single SRO would make the process more accessible and manageable.

“If we are going to enhance the customer experience, having a unified SRO that serves the entire investment industry is going to help the industry move into a digital age, which customers really want,” says Rick Annaert, head of advisory services at Manulife Financial Corp. and president and chief executive officer at Manulife Securities Inc.

Manulife has three sets of governance to work through currently, given that its businesses are overseen by IIROC, the MFDA and the Ontario Securities Commission for its investment-counsellor portfolio manager business, Manulife Private Wealth, Mr. Annaert says.

“We’re looking for one set of regulations that reflects the best practices [of all three business models],” he says. “Whatever we do has to protect those small boutique dealer business models, so there’s an economically viable way for people to get advice in small markets in Canada.”

While some believe a merger of IIROC and MFDA is the best route, Mr. Annaert prefers a model rebuilt from the ground up.

“That way, you aren’t trying to merge existing entities with existing biases and existing models. If you’re going to do something broad and bold, start from scratch,” he says. “That’s how you get one set of rules, one set of practices … and look at getting best practices across the board.”

While that might take longer than a merger of the existing SROs, “I’d be willing to wait,” Mr. Annaert says.

Reggie Alvares, executive vice president at Investment Planning Counsel Inc. in Toronto, the parent company of mutual-fund dealer IPC Investment Corp. and investment dealer IPC Securities Corp., is hoping for a new single SRO that’s more efficient than the dual SRO system in place today.

“If we can get synergy and some regulatory burden lessened without compromising investor security, it will help … bring more efficiency,” he says.

And while the process shouldn’t be rushed, Mr. Alvares believes a new structure needs to be developed sooner rather than later.

“Something has to change. Everything around us is changing,” he says, citing examples such as the rise of robo-advisors and artificial intelligence, which are both changing the investment process. “We need to come to the times to say, ‘What’s the new governance around this?’”

Mark Kent, president and CEO at Portfolio Strategies Corp., a Calgary-based mutual-fund and exempt-market dealer, believes a single SRO “makes a lot of sense,” to save the industry costs and avoid the time and resources required when having to deal with two different regulators on the same set of business.

He also hopes a single entity will result in a stronger and broader understanding of the different investment products being regulated by that entity.

Mr. Kent says he has met with representatives at both IIROC and the MFDA and believes some combination of the two should create “the best of the best” for industry oversight and regulation.

Matthew Latimer, executive director of the Federation of Mutual Fund Dealers, an association that lobbies on behalf of mutual-fund dealers, says many of his members are on board with some combination of the SROs, especially if it means lower fees and less overhead, which can also lower administration costs in the process.

They also want to see a change happen sooner rather than later, even if it means tweaking down the road if any hurdles arise, he says.

Ian Russell, president and CEO at the Investment Industry Association of Canada, also is in favour of seeing the creation of a single SRO.

Yet, he acknowledges that such an initiative will take time, effort and collaboration across the industry, including from provincial regulators.

“However you look at it, it’s a daunting challenge,” Mr. Russell says.

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