Putting the S back into SRO

By Steven Lamb | September 23, 2009 | Last updated on September 23, 2009
3 min read

Canada’s self regulatory organizations could take on a lot more responsibility in the future, bringing regulation closer to actual financial industry participants. The question is, does anyone in the industry want that?

“Self-regulators have become far more robust,” said Paul Bourque, associate partner with the financial advisory practice of Deloitte & Touche, speaking at the Dealer Advisor Forum, jointly hosted by the Investment Funds Institute of Canada and Advocis. “We have a model of self regulation which is basically administered by professional staff.”

He predicts the future of self regulation will hold further consolidation, following the precedent set by the merger of the IDA with Regulation Services in 2007. Meanwhile, the provincially legislated securities commissions should probably focus more on regulating markets and listed companies, and leave the financial advice industry to regulate itself.

“If you are not in the mainline business of dealer regulation, which the commissions generally are not, maybe they should move out of it altogether and leave it to self-regulators,” Bourque suggests. “There could be far more delegation of the registration function to SROs to the MFDA.”

Market surveillance could also be further outsourced to the SROs, as it was on the securities side with RS, and now IIROC.

Whether any of this happens or not is another question.

“Frankly, I think we’re in for more of the status quo; I don’t think the regulators are currently of a mind to delegate any more to SROs,” he said. “I just don’t think the CSA is prepared to give up any more of their regulatory responsibilities for a variety of reasons. One of them is the climate we have now with the national securities regulator proposal being out there.”

Financial planning, which is yet to be legally defined, let alone regulated in most provinces, is fertile ground for the creation of a new SRO. (So far, only Quebec has any real rules about financial planning, limiting who can call themselves a financial planner.)

Bourque, a former staffer at the IDA, said the creation of a new SRO for planning would be a mistake, as it would further fragment the already confusing Canadian regulatory landscape.

IIROC has “volunteered” to regulate planning activities among its members, with compliance being run through the dealer. But this template has been decried as tying planning too closely to product delivery.

Needless to say, not everyone is in favour of more regulation or further complications to the compliance regime.

“We’re at an interesting confluence where we’re going to be so over-regulated that we’re not going to have the ability to do what we need to do, which is convince people to be proactive in their financial planning,” said Dennis Yanke, founder of YourLegacy.ca.

“Compliance has forced a lot of costs into the system that we need to force out of the system. Compliance is a real bone of contention for us as advisors, because it makes it extraordinarily difficult to do what we do.”

When his children were growing up, he placed a plaque on the wall of the kitchen which read: “No.” is a complete sentence.

“Not all of us are bad guys. And yet we all get painted with the same brush, so some bureaucrat thinks it’s a good idea to make up all these rules to control this ‘out of control’ fraudulent stuff. But it’s not out of control, and it’s not fraudulent,” Yanke said. “Its time for [compliance officers] to talk to regulators and say: ‘No. We’re not doing what you want us to do, unless you can prove it is better for clients’,” he said.

Many recent regulatory innovations have been decried as “solutions in search of a problem,” ranging from registration reform to the never-popular point of sale delivery of fund facts documents.

“The most effective way [to say no to regulators] is to not have so many associations. Why don’t we have fewer associations that have a bigger voice?” Yanke asked. He pointed to the Ontario Medical Association as a model, in which all doctors have a voice, regardless of the type of medicine they practice. “We could all work together and have a coordinated effort.”


Steven Lamb