Advocis standing firm on behalf of financial advisors and planners
The Ontario Securities Commission (OSC) has been garnering a lot of attention in the financial press lately, much of which is not particularly complimentary. And the recent request by the Ontario Legislative Assembly's Standing Committee on Government Agencies for submissions on how to improve services means that the level of buzz is climbing fast.
You can be sure that many submissions focus on introducing better policing power to deal with securities crime, including stronger methods of both detecting and deterring fraud. Indeed, the concept of expanded investigative and enforcement powers has been strongly advocated for at the national level, with much op-ed commentary calling for the introduction of a properly funded and independent Canadian securities crime regime, to tackle both the occasional rogue individual as well as systemic, larger-scale investment fraud.
What's behind this drive for a stricter regulatory regime? Many high-profile observers and analysts have concluded that self-regulatory organizations (SROs) like the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) cannot adequately monitor for illegal activities, much less provide either the OSC or the police with the information they need in order to act effectively.
Another body of critical comment asserts that the OSC and SROs like IIROC and the MFDA—both of which fall under the aegis of the OSC—are guilty of unilaterally introducing rules and regulations which wrongly penalize your typical financial advisor or planner.
That's why, in its submission to the Standing Committee on Government Agencies, Advocis recommended that the OSC and SROs adopt a uniform and consistent procedure before introducing new regulation, to better understand and lessen the impact of their actions on compliant individual advisors and planners:
We recommend the government impose requirements on the OSC and the SROs to ensure that before implementing any new major regulatory requirement that it develop a clearly articulated statement of the problem that the regulation is meant to address... Failure to identify problems that clearly require intervention, and failure to assess the impact on market participants and consumers in relation to the likely benefits, has led to ill-conceived regulatory initiatives.
In regard to IIROC's implementation of the financial planning rule, Advocis submitted that:
The proposed IIROC rule is an example of SRO regulation that is skewed in favour of large dealers with an employer–employee business model and is severely prejudicial to smaller, professional financial planners. This is also an example of an inadequate consultation process. The proposed rule was issued for comment in the summer of 2008 with a very short response turnaround timeline and without prior consultation with financial advisors.
At a time when consumers of financial services so obviously require the widest possible range of choice in selecting qualified financial advice, the OSC, the MFDA and IIROC are moving ahead with tighter and tighter rules-based regulatory initiatives. Their commitment to prescriptive, rules-based regulation tends to favour larger organizations which have the deep pockets needed to comply with such regulations. However, it is the consumer-responsive and fully compliant but smaller advisory practices which will increasingly pay the price for this style of regulation.
The paradox is that such a regulatory approach ignores or even conflicts with the basic principles which underwrite the mandates of organizations like the MFDA and the OSC. In specific, some of these basic principles which are now in harm's way include foundational concepts such as ease and security of consumer access to necessary services and the ability of the individual to freely choose from the widest range of competent service providers. What's more, in their broadest sense, these principles inform not just the raison d'êtreof our financial regulatory regimes, but also underpin the very basis of our system of political economy. At time when the ability of these organizations to enforce rules and ensure compliance are being called into question by experts near and far, it seems both impolitic and even short-sighted to introduce yet more rules and regulations until enough of the stakeholders arrive at a consensus of what's broken, what needs to be fixed—and, most important of all—what we are certain that we can and should fix.