SRO may adopt new regulatory oversight model

Provincial securities regulators could have a rotating system of joint lead regulatory responsibility under the new self-regulatory organization, while a consolidated rule book could be available within two years.

Mutual Fund Dealers Association of Canada (MFDA) and Investment Industry Regulatory Organization of Canada (IIROC) members voted last week to merge. A new, yet-to-be-named SRO is expected to be up and running on Jan. 1, assuming it’s approved by the Canadian Securities Administrators (CSA).

Under the current system, the British Columbia Securities Commission is the principal regulator for the MFDA and the Ontario Securities Commission is the principal regulator for IIROC.

At the Investment Funds Institute of Canada’s annual leadership conference in Toronto on Monday, Andrew Kriegler, who will lead the new SRO, said that is likely to change.

“The model that is being hashed out is a couple of CSA jurisdictions at a time, for a period of years, taking sort of joint oversight responsibility, and then one will roll off and be replaced by another jurisdiction a few years later,” said Kriegler, who is currently IIROC’s president and CEO.

As for a consolidated rule book for the new organization, Kriegler said his “best guess” is that it will be available before the end of the SRO’s second year.

“There has to be public input on all these things, so [the consolidated rule book is] not going to be something we can do overnight,” he said. “The goal we have is to bring the rules together on a priority or impact basis.”

The new SRO does not have a name yet, and Kriegler said that process would wait until January. “We are going to have to talk to you [the industry] about it, too, so there will be some consultations,” he said.

The new SRO will also combine MFDA and IIROC risk models.

“There is a model for business conduct, financial conduct and trading conduct on the IIROC side. They have to come together but it’s not taking one and replacing the other. It’s bringing them together,” Kriegler said.

Bringing together the people from the two organizations will also involve a balancing act.

“We need to start bringing the cultures together, while at the same time, continuing to do what we do today to a certain extent,” Kriegler said. “Although there are a number of firms in the industry that are quite eagerly awaiting the closing of the deal — the ability to become dual registered, etc. — it’s going to take them time to start making changes. We need to continue regulation according to the existing rule book. You can’t throw that out the window and start integrating the regulatory delivery and get the cart ahead of the horse.”