IIROC enforcement fund approved for SRO integration costs

The Investment Industry Regulatory Organization of Canada (IIROC) has received regulatory approval to tap its restricted fund to help pay the costs of merging with the Mutual Fund Dealers Association of Canada (MFDA).

The Ontario Securities Commission (OSC) approved a request from IIROC to draw up to $4.29 million from its restricted fund — which is funded by enforcement penalties and settlements — to finance the administrative costs of merging with the MFDA and creating a new SRO.

IIROC’s restricted fund can’t ordinarily be used to fund the SRO’s operations; it’s required to be spent on initiatives that enhance investor protection, such as education efforts and financing investor advocacy groups.

In this case, the provincial regulator gave IIROC permission to use the fund to help pay external costs related to the merger, such as legal and consulting expenses, executive search costs, and for advice on integrating the SROs’ compensation and benefits systems.

Regulators had already approved a similar request from the MFDA and determined that creating a new SRO with a public interest mandate will enhance investor protection.

The financing from the existing SROs’ enforcement war chests will only cover the initial costs of the integration. The full costs are expected to run between $25 million and $38 million depending on the final cost of retention and severance payouts to SRO employees and executives. The final bill isn’t expected to be known until March 2024.

The balance of the costs are to be recouped from the industry — specifically, the dual-platform dealers that are expected to benefit most from the SRO reform. They will be charged a new fee over a three-to-five-year period until the merger costs are paid back.

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.