Report finds SRO merger would lead to significant savings

A merger between the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) could result in up to half a billion dollars being redirected to client service, innovation and economic growth, according to a new report.

The report, completed by Deloitte LLP on behalf of IIROC, examines IIROC’s June proposal to merge with the MFDA, which was released weeks before the Canadian Securities Administrators launched a consultation reviewing the current self-regulatory organization (SRO) framework.

According to the report, consolidating IIROC and the MFDA would reduce operating costs to the tune of $380–$490 million over the next 10 years by eliminating expenses associated with systems and technology, corporate expenditures and staffing. An SRO merger would also give investors access to a wider range of products, such as ETFs, the report found.

The report suggested an SRO merger could create more flexible business models. Savings on operating costs could lead to investment in new technology and service offerings for clients. Furthermore, under a consolidated SRO, new entrants to the industry would not have to decide which regulator to operate under, “which, in turn, would make Canada a more attractive market for new firms and support greater competition and innovation,” the report said.

The report did note that there would be some initial costs to a merger. For example, the cost of migrating client holdings to a single book of record could require changes and upgrades to technology systems. As well, firms might need to seek government approvals to merge separate registered plans. The report also noted that firms are concerned that a “re-papering” of client accounts could be time-consuming and “administratively burdensome.”

Deloitte said some of these concerns could be mitigated if dealer firms organized a staggered transition of accounts. It also noted that firms might not have to re-paper accounts immediately, as MFDA members would continue to follow their current set of regulatory rules in the near term under IIROC’s proposal.

“Eliminating duplicative and overlapping regulation will generate significant savings for reinvestment as well as simplify and improve the overall client service experience,” said Irene Winel, IIROC’s senior vice president, member registration, in a release.

Deloitte’s report was based on interviews and data from IIROC-regulated firms and dual-platform firms regulated by both IIROC and the MFDA.