IIROC to scrap fee premium for “risky” firms

After cutting the risk component of its fee methodology to zero due to the pandemic, the Investment Industry Regulatory Organization of Canada (IIROC) is proposing to do away with it for good.

“Historically, the objective of this risk component was to allocate, to high-risk firms, some portion of the costs associated with the additional time spent … to oversee such firms, and to act as an incentive to change their high-risk behaviour,” the self-regulatory organization (SRO) said in a notice.

However, the SRO has found that the added fee doesn’t provide much of an incentive for better behaviour, the risk premiums are relatively small and the added administrative effort isn’t worth it.

IIROC reported that annual risk premiums amount to only about 0.1% of overall fees, having a tiny impact on fee allocations.

Additionally, since the methodology was first adopted in 2012, IIROC has shifted its approach to allocating compliance resources to particular firms, “which is now based not only on their risk but also on the impact to their clients and to the financial system,” it said.

This year, the SRO set the premium charged to “high-risk” firms to zero as part of its pandemic response effort. Now, it’s proposing to eliminate it outright, effective April 1, 2021.

The proposal is out for a 45-day comment period, which ends Feb. 1, 2021.

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.