Wrong time for OSC fee hike: IIAC

Since the “industry is losing money as a result of difficult business conditions and increased regulatory obligations”, now isn’t the time for significant regulatory fee increases, says the Investment Industry Association of Canada (IIAC).

Read: OSC plans to raise fees

And Ian Russell, the IIAC’s president and CEO, says the industry’s negative response doesn’t reflect unwillingness on the part of execs to pay their fair share.

However, after ten years of fee increases and with current weak market conditions, he says the additional hikes proposed ncrease the burden on dealer firms in difficult times.

Since the OSC has operating as a self-funded agency, IIAC expected it to generate sufficient revenues to meet its regulatory responsibilities. This has not occurred, though, as the OSC’s responsibilities and budget have expanded significantly, resulting in successive fee increases over the past decade.

Read: Passing the buck: Reflecting on the cost of regulation

“Our primary recommendation is that, as an independent agency that sets its own fees, the OSC should be subject to greater transparency and accountability,” Russell says.

He adds, “The Commission should make public its annual business plan and budget and other documents it is required to submit to Ontario’s Minister of Finance. Further, the Commission should be required to justify its regulatory initiatives, budgets and fees, and its performance before a Standing Committee of the Ontario Legislature that conducts annual or biannual reviews of its activities.”

Russell—whose association represents 175 small, medium and large member firms across Canada—says that in setting this fee structure, the OSC has not adequately taken account that all costs of regulating the securities market are borne by industry members and reporting issuers.

In its response, the IIAC provided the following recommendations:

1. The OSC’s participation fees for the next three years should not be based on a market participant’s performance in a single year (a “reference fiscal year”), but on a three-year rolling average of revenues or market capitalization. This approach will enable fees to reflect to some degree actual performance, and still enhance the Commission’s ability to predict its annual revenues.

2. The OSC should not prohibit registrants from treating participation fees as business expenses that can be factored into their fee models.

3. If the OSC decides to prohibit registrants from passing on participation fees, the prohibition should not be adopted in a policy, but should be adopted as a rule and clearly explained.

4. The OSC should consider increasing the proportion of activity fees in its fee model; the IIAC suggests specific alternatives, such as fees to achieve regulatory goals and lowering the threshold to charge variable fees to the stock exchanges and clearing agencies.

5. The OSC should charge fees for hearing applications made by parties to a takeover bid or proxy contest, such as poison pill hearings.

Also read:

When compliance comes calling

A case for looser regulation

Financial market infrastructure can collapse

IIROC rolls out new fees model