CSA’s review of SROs a ‘golden opportunity,’ say investor advocates

By James Langton | February 18, 2020 | Last updated on February 18, 2020
2 min read
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Self-regulation requires a fundamental rethink, not simply a merger of the existing players, says Toronto-based investor advocacy group Kenmar Associates.

Kenmar issued a paper ahead of the Canadian Securities Administrators’ (CSA) planned review of the current self-regulatory organization (SRO) framework.

In the paper, Kenmar argued that the CSA’s review shouldn’t serve to merely rubber-stamp a merger of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).

Kenmar noted that calls for an SRO merger have generally come from industry players seeking consolidation, largely as a way of cutting costs. It argued that the CSA’s planned review should be a comprehensive strategic examination of self-regulation that entertains the idea of eliminating SROs altogether.

“There should not be any sacred cows,” Kenmar said. “The CSA review presents a once-every-20-year golden opportunity to set things right.”

If the CSA decides to preserve self-regulation, Kenmar said any reform of the SRO framework should involve enhanced oversight, greater investor engagement, tougher standards for the provision of advice and greater powers for industry dispute resolution service the Ombudsman for Banking Services and Investments.

To gain the trust of retail investors, Kenmar said a redesigned SRO structure must “adhere to key design principles, meet requisite tests, be overseen by the CSA and be, and [be] perceived to be, fair and trustworthy by the investing public.”

Kenmar’s paper aimed to sketch out some considerations for ensuring investor confidence in self-regulation.

“Investor advocates sincerely hope that any new structure corrects the shortcomings of the current structure (conduct standards, investor engagement, governance, enforcement and complaint handling) and at the same time introduces new elements that promote enhanced retail investor protection,” Kenmar said.

While Kenmar didn’t favour any specific approach to self-regulation, it said, “whatever the SRO structure, SRO governance is critical, investor participation is necessary and the CSA has to be actively engaged with proactive oversight.”

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.