scales-regulation-legal

The financial services industry helps millions of investors. While there’s much to be proud of, structural problems persist. Here are three.

1. Regulatory documents are too complicated

I follow compliance news closely, which includes scouring releases from the CSA, IIROC and MFDA. I enjoy the topic, but reading those documents isn’t fun. I assumed my frustrations stemmed from the fact that I’m not a securities lawyer; surely the pros whiz through those filings.

Or do they? I asked around, and the consensus was regulators would do well to make themselves easier to understand. Shortly after, I attended a conference where high-level OSC reps were taking questions. Audience members peppered them with queries like, “What on earth does this line on page such-and-such mean?”

Read: How to build an effective compliance system

Think of it this way: Fund Facts and CRM2 are meant to make advisors disclose fees and risks in simple, plain language. Shouldn’t the regulators’ own communications be equally straightforward?

Lawyers and compliance officers refer to such clarity as “bright-line guidance,” and argue that it ensures people who want to follow the rules can do so more effectively. And, it eliminates excuses for those who don’t. If you can’t draw up step-by-step instructions, at least use plain language.

Read: 10 reasons Canada needs a single regulator

2. KYC a recurring problem

“We continue to identify significant deficiencies by some registrants with regards to their KYC and suitability obligations.” I can’t count how many times I’ve read this statement in regulatory reports, but I do remember the first time I read it. I had just started covering compliance, and thought I’d happened upon a bombshell. I called industry experts for commentary, and they were surprised I thought it newsworthy. “That’s in the report every year,” they said.

The world of investments is complex, so even the brightest and best-intentioned make mistakes. But something as foundational as KYC should be a slam dunk. Unless the client’s flat-out lying, there’s no excuse for failure.

Read: 5 ways to make compliance an advantage

3. You do the crime…but no time

Regulatory fines in the U.S. are getting incomprehensibly large.

But how can someone be guilty of an offence warranting billions of dollars in penalties and not deserve jail time? How is it possible for people to send the global economy into crisis without seeing their mug shots splashed all over the papers? While the problem isn’t quite as visible in Canada, even here we’re far too soft on financial crime.

It’s time lawmakers up the stakes of smartly dressed thievery with meaningful jail terms. That means sharing cells with drug dealers and car thieves, not friends in Club Fed.

Read: Polishing your practice in 2015

Agree? Disagree? Respond in the comments or write to Dean.DiSpalatro@advisor.rogers.com.

Dean DiSpalatro is senior editor of Advisor Group.

Originally published in Advisor's Edge

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See all commentsRecent Comments

PLKCMA

So the points are clearer language, more accurate KYC’s and jail time for thieves.

Agree with clearer language, don’t see KYC’s as an issue at all and jail time not really a big issue nor is it within regulators’ control.

Try to focus on the unfairly negative view of regulators and the press, the implications for advisors now doing 30% unpaid Admin work because of regulation for very small benefit and the cost of this that ultimately ends up with consumers.

Let’s have the regulators address that.

Tuesday, September 22 @ 11:40 am //////

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