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Mark Gordon, president and CEO of the Mutual Fund Dealers Association of Canada.

Fred Lum/The Globe and Mail

Canada’s mutual fund regulator says a single self-regulatory body for the country’s securities industry could be implemented within 18 months.

Currently, the Investment Industry Regulatory Organization of Canada (IIROC) supervises securities dealers, while the Mutual Fund Dealers Association of Canada handles 90 mutual fund dealers. The two self-regulatory organizations (SROs) have been criticized for overlapping areas of oversight as more wealth managers serve customers who buy both mutual funds and individual securities.

The MFDA released a more detailed timeline Tuesday for its proposal to create a single SRO for Canada.

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The Canadian Securities Administrators (CSA), an umbrella group of provincial and territorial securities commissions, launched a review in late 2019 of both regulators to consider combining them and reducing regulatory overlap for companies that are registered with both. The CSA is expected to release its recommendations in June.

In response to the review, the two SROs have published conflicting proposals on how to join forces.

The MFDA proposed building a new entity from scratch that would also take over the regulation of exempt market dealers, scholarship plan dealers and portfolio managers, which are currently handled by provincial securities commissions. Under IIROC’s plan, the two regulators could merge in just three months by continuing to perform the same functions with little change in their regulatory design, cutting overlap and providing wealth managers with a significant reduction in regulatory costs.

Last month, Walied Soliman, the chair of the Capital Markets Modernization Taskforce – a group created by the Ontario government to review and modernize the province’s capital markets regulatory framework – said combining the two SROs was an inevitability, but he hoped the process would not be “bogged down for a long time.”

Now the MFDA is pushing back against critics who say building a new organization would be too cumbersome. The MFDA says starting anew would be more successful than attempting to merge or adapt different “legacy experiences, cultures, processes and expectations with the inevitable compromises and design concessions that result from such attempts.”

“The establishment of a new SRO provides the greatest opportunity for a successful implementation process that will be the least disruptive to industry participants and most expedient to achieve in a timely and cost effective manner,” MFDA president and chief executive officer Mark Gordon said in a statement.

The MFDA is proposing a four-stage process that would begin with the CSA appointing a designated steering committee, which would spend 18 months planning and building the new organization. The planning stages would include establishing funding plans and initiating a CEO search for the new SRO.

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“For public confidence and trust to be ensured, the creation of the new single SRO must not be viewed as a simple continuation of MFDA and IIROC in a consolidated entity,” the MFDA said in its report. “Rather, a fundamentally different and new organization must be created with a new culture and new strategic regulatory partnership between the CSA, industry and the public. This will include redefining the ‘self’ in SRO to better reflect the overarching public interest objective.”

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