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Originally published: December 9, 2016
This article is part of the Investor Office series of discussions with key figures in Canada’s financial services industry whose work impacts investors. The views expressed in this article are entirely those of Mark Gordon and are not intended to represent the views of the Investor Office or the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster confidence in fair and efficient capital markets.+ read full definition.
Mark Gordon is the President and Chief Executive Officer of the Mutual FundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the funds goals for risk and return. You can redeem your fund units at any time.+ read full definition Dealers Association of Canada (MFDA). The Investor Office recently sat down with Mark to discuss his background, the MFDA, and the MFDA’s investor-focused work.
I joined the MFDA as its second employee in 1998. Prior to being appointed President and CEO in 2012, I was the Executive Vice-President in charge of member regulation, including enforcement, compliance and policy.
Before I joined the MFDA, I spent eight years in the enforcement branch at the Ontario Securities Commission (OSCOSC See Ontario Securities Commission.+ read full definition). During my time at the OSC I had the opportunity to do a secondment with the New York Office of the U.S. Securities and Exchange Commission in the enforcement division, focused on penny stockPenny stock Low-priced stocks that typically sell for less than one dollar per share. Usually offered by companies with good growth prospects but limited assets and a short operating history.+ read full definition dealers. If you recall, back in those days penny stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition dealers were a major problem in Canada as well as the United States. We spent a lot of time prosecuting those cases at the OSC and I took that expertise down to the United States. Prior to joining the OSC, I practiced securities law with a national law firm for five years.
On the MFDA’s role…
Our mandate, like that of the Canadian Securities Administrators and the OSC, is to protect investors. MFDA members are mutual fund dealers, and what makes them unique is that they interact with average retail investors in Canada more than any other type of firm. We regulate not just our members but also the 83,000 advisors located in every province and territory across Canada.
We do this through what we like to call “front-line boots on the ground” regulation that directly impacts retail investors across the country. We carry out our mandate in three key ways. The first is through regular compliance examinations to verify that our members and their advisors are meeting the standards that we have set for them. Second, our financial compliance team ensures that our members are financially solvent and do regular in-the-field audits of their operations as well as monthly reviews of their financial statementsFinancial statements Reports that sum up a companys financial data and tell you how it is doing. The four basic statements are: the statement of financial position (balance sheet, statement of profit or loss (income statement), cash flow statement, and statement of changes in equity.+ read full definition. And the third is our enforcement process, where we ensure that any dealers or advisors who break the rules are subject to disciplinary measures which can include a permanent ban from the industry.
On the role of a self-regulatory organization…
Self-regulatory organizations (SROs) are defined in the securities statute, and we have been recognized by provincial and territorial jurisdictions as an SRO to regulate the operations and the standards of business practices of our members with a view to promoting the protection of investors and the public. As an SRO, we operate under strict terms and conditions of recognition that are applied by the statutory securities regulators. This means that we are accountable to the statutory securities regulators across this country and they maintain extensive and robust oversight over all of our operations. Our mandate and regulatory functions supports their work, and ultimately we view ourselves as partners in regulation.
On the MFDA’s investor-focused initiatives…
First and foremost, our number one priority is investor protection. To achieve this we focus on performing our core regulatory functions in our compliance and enforcement departments. We also focus on improving investor confidence by enhancing the investor experience. One of the ways we do this is by providing investors with key information to make informed decisions so that they are well protected.
We have an investor education section on our website that includes various investor guides and bulletins. For example, we recently published a guide for investors on selecting an advisor. That guide helps investors to find an advisor that is right for them and explains the different fees that advisors can charge for their services. We will also be publishing a guide for investors on the enhanced performance and compensation reports that investors will soon receive as part of the Client Relationship Model (CRM2) initiative.
Another area of focus which relates to both investor confidence and protection is our focus on complaint resolution for investors. We have specific rules that require our members to handle complaints promptly and fairly. We focus a lot of our resources in enforcement to ensure that both of those requirements are followed.
On the importance of the investor perspective…
Investors are key stakeholders for the MFDA and their input is critical in everything that we do. I think that there are three primary ways that we use to get investor input.
First, we have a dedicated staff person, our Director of Public Affairs, whose role is to reach out to investors to seek their input and carry out investor education initiatives on behalf of the MFDA.
The second thing we do is have regular meetings with investor advocates and other organizations that speak on behalf of investors. I view these meetings as a chance for us to have an open dialogue with the investor community regarding investor protection issues and other matters of concern to investors.
The third way we engage with investors is by holding regular public consultations. Many informed investor advocates submit comments on a regular basis. Whenever we propose a regulatory change it’s published for comment on the MFDA website, and that gives investors and investor advocates a chance to provide their input.
Some of the comments we hear from investors are that they desire enhanced regulatory protections but are concerned that the cost of these enhancements will be passed on to them, and may negatively impact the ability of the average Canadian investor to continue to receive access to advice. I think that’s a legitimate concern. So, as a regulator, we need to make sure we find a balance that ensures that clients receive all necessary regulatory protections, but at the same time continue to have a choice about with whom and how they investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.
We also meet regularly with the OSC Investor Office and have made presentations to the Investor Advisory Panel. We recently participated in the Investor Office’s November teletownhall for financial literacy month. We believe it’s important to put our resources together with the OSC Investor Office whenever possible to help improve outcomes for investors.
I think that all of us as regulators realize that we need to focus on collaborating and working together to see if we can do more of these joint initiatives, because ultimately the net beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition is the retail investor.
Any final thoughts?
One of the questions we get asked often is, “What is the value of self-regulation versus statutory regulation?” Firstly, the MFDA is a very specialized regulator. We regulate the sale of mutual funds, which are the most commonly held investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition product by retail investors in Canada. Because of this, our activities are focused on the mass and mid-market investors that own this product, which is 92 per cent of Canadian households. This is our singular focus. The job we do everyday touches most retail investors in Canada.
Additionally, our work differs from that of a statutory regulator in the sense that, as an SRO, we have on-going direct contact with the industry and we have specialized in-depth knowledge and expertise that we can employ. We have specific expertise in our members’ operations, products and business models. We are also able to provide more timely regulations in many instances. It’s a lot easier for an SRO like the MFDA to pass a rule than it is, for example, for the Canadian Securities Administrators, where they have 13 jurisdictions trying to get consensus. We operate on a national basis, so no matter where the retail investor is located they can be satisfied that the same levels of standards are applied in their jurisdiction.