We first sat down with Susan in 2016 to talk about her work and the role of the Market Regulation Branch in regulating market infrastructure entities (such as the Toronto Stock Exchange and the Investment Industry Regulatory Organization of Canada) and developing policy relating to market structure and clearing and settlement. Read the 2016 interview
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Originally published: October 5, 2020
On the self-regulatory organization (SRO) framework consultation …
The Canadian Securities Administrators (CSA), the council of the securities regulators of Canada’s provinces and territories which includes the Ontario Securities Commission (OSC), is reviewing the current framework for self-regulatory organizations, or SROs.
An SRO is an entity organized for the purpose of regulating its members and their representatives. They have rules and they enforce compliance with those rules. In Canada, we currently have two recognized SROs: the Investment Industry Regulatory Organization of Canada (IIROC) is the SRO for investment dealers and the Mutual Fund Dealers Association of Canada (MFDA) is the SRO for mutual fund dealers.
The SROs operate under the CSA’s oversight and supervision.
The current SRO framework has been in place for almost 20 years and during that time, there has been an evolution of financial services and products. In response, the CSA agreed that it was time to review the framework and seek comments from all stakeholders.
The OSC and the British Columbia Securities Commission (BCSC) are co-leading the consultation process through a CSA working group with active participation from most provincial securities regulators. The OSC is the principal regulator for IIROC, and the BCSC is the principal regulator for the MFDA. And what that means is the principal jurisdiction coordinates CSA oversight for that SRO.
The review began in December 2019 and at that time, we published a news release stating that we were examining the initial policy reasons for the current framework, as well as its strengths and challenges. We would also consult with stakeholders and publish a consultation paper by mid-2020, which we did in June.
The timeline has been very fast as we initiated the review and put out the release in December, having worked with all the CSA jurisdictions to get the paper published in June.
We encourage all stakeholders to review the consultation paper on the SRO framework and provide comments.
On some of the key issues the CSA is examining …
The consultation paper outlines the specific issues but in general terms, we’re looking at how innovation and the evolution of the financial services industry has impacted the current framework.
We are focused on some of the structural issues of the current framework with firms that have members in both SROs. We’ve also heard of differences in compliance regimes and how rules are interpreted.
On investor protection issues, we’ve highlighted that stakeholders have said that the current framework is complex and fragmented. There is an inability to access similar investment products and services from a single source. There may also be confusion around each SRO’s complaint process, investor protection fund coverage, and multiple registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition categories and titles.
We’re eager to hear back from stakeholders on these and other issues, and to get more detailed feedback on how to improve the efficiency and effectiveness of the framework.
On stakeholders’ reaction so far …
There seems to be a desire for change based on the informal discussions we had before publishing the consultation paper. We met with investor advocacy groups, industry groups and associations, the investor protection funds, the SROs and other stakeholders. And, across the board, there was acknowledgement that the current framework should be reviewed.
I also note that both SROs have publicly shared their thoughts on the framework going forward.
That said, I’d like to emphasize that the comment period is still open, and we’ll be reviewing all submissions. Comments are due October 23, 2020.
On what stakeholders can expect over the coming months …
This is definitely a high priority project for us. The CSA working group continues to meet regularly, and our work is progressing.
As I’ve mentioned, the comment period ends on October 23, 2020. We, along with members of the CSA working group, will review and analyze all comments submitted as well as any other relevant information. We’re also reviewing statistical data, academic papers and other information on similar issues raised in the consultation to help inform our analysis. We’re aiming to develop a proposed option to move forward with, and then seek further comment from stakeholders on that proposal.
Any final thoughts?
One last thing to mention is the overall approach to the consultation is not to propose solutions at this point. This consultation paper is the first step in our initiative to review the SRO framework. The CSA has an opportunity now to do a “first principles” review, summarize the issues and common themes based on stakeholder feedback, identify outcomes, and develop questions so that we have broad consultation before advancing a specific proposal.