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Ian Russell is president of the Investment Industry Association of Canada (IIAC).

A statutory obligation demands that the Ontario Securities Act be reviewed every five years. It’s a sound policy, but unfortunately the last review took place approximately 16 years ago, in 2003.

The apparent neglect stems from anticipation that the Ontario Securities Commission would be replaced by a national or co-operative securities regulator. But, despite continued efforts to create the co-operative regulatory system, the project’s completion remains at best a long-term conjecture and, at worst, uncertain of ever being achieved. The provincial government has recognized that this standoff can no longer be maintained.

Capital markets in Ontario have been dramatically transformed in recent years, notably the extensive integration of the wealth business from a widespread move to holistic planning and provision of more comprehensive financial services to cater to a diversity of clients – millennials, baby boomers and retirees. Capital-raising techniques have also changed, with the increased shift from public to private markets. Further, continued advances in technology have been pervasive across the financial sector, influencing investment behaviour (robo-investing), securities trading, capital-raising, securities distribution and the client-firm interface.

A major policy initiative pledged in the fall Ontario Economic Outlook and Fiscal Review is to establish a Capital Markets Modernization Taskforce. The mandate of the modernization task force is to “provide policy recommendations on critical areas such as driving competitiveness, regulatory structure, efficient regulation and investor protection.” It’s likely to focus on streamlining and simplifying the existing regulatory structure in Ontario.

This is critical work.

The complicated structure of securities registrants and allowable activities, and the intertwined regulatory framework, is outmoded and outdated – incompatible to the increasingly integrated wealth management process. It inconveniences and confuses investors, results in unnecessary costs and inefficiencies from excessive technology and systems, and complicates internal firm processes, creating regulatory barriers that prevent investors from accessing the spectrum of wealth products and services.

The task force will likely consider models and mechanisms to facilitate the consolidation of the system of self-regulatory organizations (SROs) such as the Investment Industry Regulatory Organization of Canada, with whom entities such as investment dealers register, and the Mutual Fund Dealers Association of Canada. However, the task force exercise may be more ambitious, not just gathering SRO registrants under a single SRO platform but building something more all-encompassing to include SRO and non-SRO registrants (such as exempt market dealers and portfolio managers) under a single regulatory platform.

Consolidating the regulatory structure will yield substantial cost savings and efficiencies for firms, from reducing administrative complexity to integrating a wider pool of SRO registrants and advisers, as well as streamlining and eliminating existing technology and systems. The efficiencies, cost savings and economies of scale will benefit more than proportionally large firms, notably the 12 to 15 well-capitalized dealers whose operations now fall under separate SRO platforms that would consequently be subject to a single oversight and rule-making authority. Cost savings would enable dealers to lower fees and charges – clearly to the benefit of their clients. Competitive pressures in retail markets will intensify.

While the remaining small and mid-sized dealers and registrants, some 90 small dealers and a similar number of mutual fund dealers would certainly benefit from the consolidation of SROs, the realized cost savings will be proportionally less than the larger firms. And they would face increased competitive pressures stemming from fee reductions at the large retail firms.

The modernization task force and securities regulators must continue efforts at SRO consolidation to improve competitiveness and efficiency, whatever the competitive dynamics of the marketplace. However, regulators must move beyond lip service and introduce real solutions for achieving proportionate regulation, namely adjusting regulations to fit small business models without jeopardizing investor protection.

The task force and regulators should capitalize on the provisions in the newly completed Client Focused Reforms that have introduced the well-embraced concept of “scalability.” For example, the detailed requirements of the Know Your Client obligation could be modified, simplified and clarified to fit the business model and client base for the dealer. So could the Know Your Product requirements to understand the products consistent with the firm’s stated business approach and the objectives to their clientele.

Scalability is critical. Efforts to alleviate the compliance burden for small dealers could make the difference for viability of small dealers over the next several years as they cope with tougher competitive conditions from the expected SRO consolidation.