Controversy as IIROC proposes merger with MFDA
June 10th, 2020
In a publication released this month titled Improving Self-Regulation for Canadians, the Investment Industry Regulatory Organization of Canada (“IIROC”) has, among other things, proposed a merger of itself with another self-regulatory organization, the Mutual Fund Dealers’ Association of Canada (“MFDA”) – a measure it promises will offer “one stop shopping” for Canadian investors and a more streamlined investment industry and regulatory regime.
The MFDA was quick to respond. Its President, Mark Gordon, released a statement on June 9th that is sharply critical of this merger proposal and states, among other things:
“In reading IIROC’s position paper, it is clear that their proposal is meant to benefit only industry, not investors or the public. Canadian investors deserve better. Canada deserves better.”
Instead of a merger, the MFDA proposes “a framework for a new SRO [self-regulatory organization] that is built from the ground up to allow for a truly modern SRO with a culture that puts the public interest first. It can be flexible, nimble and developed through a scaled approach—efficiently and cost effectively. With leadership and vision, this new SRO—committed to the public interest—is entirely achievable.”
By way of background, IIROC was formed in June 2008 as a result of the merger of the Investment Dealers Association of Canada (the “IDA”)) and Regulation Services (“RS”). The IDA began early in the 20th Century and it operated through most of its existence as a ‘private club’ of full service investment dealers with optional membership that both regulated its members and acted as a trade organization that advocated for its members. Prior to becoming part of IIROC, RS had enforced rules regarding trading and market conduct on all Canadian marketplaces, including the Toronto Stock Exchange. Membership in IIROC is now mandatory for investment dealers in Canada. Both IIROC and the MFDA are recognized by all securities commissions in Canada as self-regulatory organizations (“SROs”) that are authorized to regulate their members and their members’ registered employees / agents.
The MFDA has a shorter overall history than IIROC. It was formed in 1998 and it did not begin to actively regulate most mutual fund dealers and their representatives until 2002. While mutual fund dealers may superficially appear to have a narrower mandate that investment dealers to sell just mutual funds and limited additional investment products such as GICs, practically speaking many MFDA members have insurance affiliates that also sell life insurance and segregated funds and many MFDA approved persons are also separately licensed to sell such products. MFDA approved persons have a history of offering broad financial planning services that do not appear in the past to have been as common on the IIROC-regulated side of the industry.
It is not a surprise that the MFDA has bristled at the idea of a merger with IIROC, as the IIROC proposal does not appear to contemplate a marriage of equals so much as a take-over of the MFDA as the more junior of the two regulators. It remains to be seen how this will all play out. While the call for reform in regulation of the investment industry did not originate with the current COVID-19 pandemic, it is fair to say that the current pandemic has highlighted the urgency for many industries to become more efficient and receptive to the quickly changing marketplace. It would appear that the investment industry, and its regulatory organizations, are no exception.