Source: IIROC & Accenture Industry Consultation Review, 2018
Uncertainty regarding rule interpretation causing challenges
During our Consultation, incumbents and new entrants alike highlighted uncertainty regarding the interpretation of rules. We heard this theme from two different perspectives.
The first relates to the uncertainty some Dealers have in applying principle-based rules and accompanying guidance to their existing business models. That uncertainty can lead to a more conservative application of a rule than intended by regulators, and potentially, higher compliance costs. Related to innovation, some firms shared that they were uncertain as to how IIROC would interpret rules, which can lead to delays in advancing new ideas and sub-optimal client experiences. Greater clarity on the treatment of new business models would be useful to avoid these issues.
The second relates to a debate over principlebased versus prescriptive requirements. Views on this topic were divided. A number of firms requested that regulators provide more and clearer direction on how to comply. In contrast, a smaller number of firms indicated their preference for a more flexible, principle-based approach.
“Compliance is not an area where we (firms) are trying to differentiate ourselves for competitive advantage. Compliance is an opportunity for all boats to float at the same level and move forward as an industry.”
– Consultation interviewee
We were also encouraged to clarify our expectations where we suspect rules are being interpreted inconsistently, at the expense of investors. A key example given was the practice of some firms accepting digital signatures to open new accounts, and yet requiring wet signatures to transfer accounts out to a different firm.
Regulatory regime perceived as too slow and reactive, and not sufficiently focused on the right things
Perhaps not surprisingly, we heard that the regulatory regime is often too slow and reactive, with greater focus needed on accommodating the industry’s drive to evolve. Responding faster to Dealer questions and industry issues would reduce delays and costs associated with uncertainty.
Many firms, for example, now focus on managing relationships across an increasingly complex continuum, with individual investment clients on the one side, and multi-generational households with holistic financial plans on the other. Yet much of the current regulatory regime focuses on specific account types and trades, rather than needs and goals at the relationship level.
There was universal support for our investor protection mandate and for our collective efforts and successes in raising the professionalism of the industry. However, we were encouraged to enhance our analysis of regulatory changes and programs from the standpoint of cost/ benefit or “return on investment” to ensure that we focus on addressing issues that will drive the greatest value for investors
For example, one interviewee observed that regulators are focused on ensuring that appropriate policies and processes are in place to protect seniors and vulnerable investors from being taken advantage of. Yet, the interviewee commented, as important as that is, lower income seniors in Canada who have little to no access to financial services or advice could be considered a much larger investor protection issue which does not appear to be getting the proper attention. As such, we need to collectively continue to assess if we are appropriately focused on the issues and solutions that will deliver the greatest value for Canadians.