Andrew Kriegler says the new self-regulatory organization has made significant progress on dual registration. The harmonization of directed commissions is another big one on its hit list.CHAD HIPOLITO/The Canadian Press
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Months after the merger of Canada’s two major investment industry regulators, the new entity has not only put forth a proposed new name, the Canadian Investment Regulatory Organization (CIRO), but is getting down to the business of what the consolidation was meant to accomplish – improving efficiencies and harmonizing rules for member dealers and advisors.
Priority number one for the new self-regulatory organization (SRO) is dual registration, which will allow a dealer firm to hold both securities and mutual fund licences and employ both types of advisors under one legal entity. That differs from the previous arrangement in which firms required separate entities to be registered under the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada.
Globe Advisor reporter Deanne Gage sat down with CIRO’s chief executive officer, Andrew Kriegler, to discuss the new SRO’s most pressing initiatives.
What is CIRO’s immediate priority this year?
We have a series of discreet items that are really important.
The first is the whole concept of dual registration. Now, in the regime that existed prior to our creation, you couldn’t have an organization that owned both a mutual fund dealer and an investment dealer operate out of the same legal entity. That imposed some structural inefficiencies in the system that didn’t benefit anybody. It didn’t benefit the public, it didn’t benefit the industry. And frankly, it was more costly to oversee as a regulatory system as well.
We’re just finalizing the first of the dual registration applications and there’s a pipeline of others that will follow shortly thereafter. Hopefully, we’ll see announcements in the next little while.
We also delivered on the ability for mutual fund firms to be carried by investment dealers ... because mutual fund firms weren’t market participants. As such, they couldn’t access the equity markets directly, which is where exchange-traded funds trade. They need a pipe to connect them and we need to do it in a way that actually is efficient and effective. So, we opened that up.
The harmonization of directed commissions, a model of practice that was and is permitted for mutual fund representatives [to run their businesses through a personal corporation], is another big one on our list. One of our priorities is to come up with a harmonized solution so there’s a level playing field.
You’ve recently announced your intent to grant the “financial advisor” title as a credentialing body. Why?
When you look at the population of people who do financial advisory work in a general sense, a significant majority are part of our SRO.
It’s in the best interest of the system and the people of Ontario for us to be part of that framework and to be able to contribute to that framework as it develops further.
My goal was to work closely with our colleagues at the Ontario Securities Commission to figure out the way we can contribute to the best possible outcomes for the people of Ontario in the context of this legislation. I think we’ve done that.
Part of the confusion is no one can define what it means to be a financial advisor.
I’m more concerned with an outcome that has us part of a consistent program in the province that recognizes that the people who are members of the SRO and involved in the retail distribution of investments are regulated, licensed to a high standard, and part of the same system as everybody else.
Granting credentials is one thing but there’s also the matter of enforcing the rules. Is there more that can be done with enforcement?
I’m very comfortable with the regime we have in place. We have a comprehensive and robust disciplinary model with strong enforcement. Ontario was one of the first provinces in 2017 to give [IIROC] the ability to enforce our fines through the courts. There’s always more that can be done, but with the types of issues we’re dealing with, you’re never going to be able to get rid of flaws in human behaviour, unfortunately.
That’s true in the civil justice system, the criminal justice system and is obviously true in our world as well. What we’re trying to do is make sure the industry has the most effective oversight models, policies and procedures in place to limit those sorts of things and limit the damage if something does happen. Nobody likes the bad apples. No one likes to see innocent people get hurt. And we’re all working to be better at that every day.
Some dealers have concerns about significant fee increases when the dealer fee schedule runs out. How will you manage those?
For at least the next couple of years, we lowered the minimum fee requirements on both the investment dealers and the smallest tier of mutual fund firms. That was an important thing to do because there’s a reality that costs are important for everybody, and we want to make this as seamless a transition as possible.
I certainly comprehend the uncertainty going forward. But what I would say is, take a look back at the history of the two predecessor SROs and how carefully they both tried to manage costs because there’s always a balance. We’re acting in the public interest. We do need to recover our costs and do our job properly, but we need to do it efficiently and effectively at the same time.
So, about the new name. CIRO doesn’t sound that far off from IIROC.
At the end of the day, we’re regulators. I’m not sure that the industry is expecting the next Apple. We wanted to come up with something that would say what we are, which it does. Most important, we wanted a name that would have the same acronym – or at least the same letters in the acronym – in French. CIRO is Organisme canadien de reglementation des investissements (OCRI) in French.
Both of the former entities’ names were not good when turned into French acronyms. They were not easy to pronounce. So, now, we have a simple and clean to-the-point name and acronym.
This interview has been edited and condensed.
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Deanne Gage