IDA chair: SROs provide balance

(June 7, 2005) Despite criticism from distrustful investors and compliance-weary dealers, Canada’s self-regulating organizations (SROs) play a vital role in providing stability and balance in the Canadian financial services industry, according to IDA chair Brian Porter.

“Regulation is becoming increasingly costly, and it needs to be increasingly efficient,” Porter said in a speech on Monday in Toronto, citing the rapidly changing global market and the challenges it poses to regulators.

Porter said the current regime of SROs is the most efficient arrangement possible, as IDA members bring market expertise to their roles as regulators. The self-funding structure of SROs makes them better value for the investor, as well.

He admitted that some investors see the SROs as toothless tigers, while the financial services industry complains it is over-regulated.

Given the fragmented nature of Canada’s provincial regulators, Porter said organizations like the IDA and MFDA play an important role in presenting a cohesive marketplace to global investors.

“When you think about it, SROs are the only national form of securities regulation that we have,” he said. “The IDA offers one rulebook and it applies across the country. It is highly unlikely we would have one set of rules if 13 decision makers set them.”

He also points out that the IDA is older than the provincial and territorial regulators, having been in existence for over 90 years.

Porter reiterated that the IDA would like to see retail-oriented hedge fund products come under the auspices of the regulatory system, a position laid out in the IDA report on the hedge fund industry, issued May 27. He said the proliferation of hedge funds among main street investors deserves concern, but not necessarily alarm.

“The growth rate of the hedge fund sector in this country is a compound 40% a year over the past five years,” he said. “We need to address it — without overreacting to it.

“We need to make sure that sophisticated new products are applicable to retail investors — not out of their reach.”

With an eye to the future, Porter called on regulators to focus more on principles, rather than simply enacting new rules, calling the latter “regulating by numbers.”

“By making regulatory principles clear — and buttressing that with robust enforcement — we can push compliance down to registrants and marketplaces,” he said.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com