Merging regulators could result in savings over 10 years: Deloitte LLP

By The IJ Staff | August 25 2020 02:53PM

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The Investment Industry Regulatory Organization of Canada (IIROC) released an assessment of benefits and costs which suggest that consolidation of IIROC and the Mutual Fund Dealers Association of Canada (MFDA) into one entity would result in significant savings for the industry.

Conducted by Deloitte LLP, the assessment suggests between $380-million and $490-million might be saved over a 10-year period if the two regulators were to consolidate – potential savings that could be reinvested by regulated firms, they say.

Deloitte collected data for the assessment from a range of small, mid and large-sized firms, conducted interviews with firms and used their own research and third-party data to provide its estimate. Surveyed firms included those that are regulated by IIROC only and those operating a dual-platform, regulated by the MFDA and IIROC both. The consolidation scenario did not consider the impact on MFDA-only dealers, nor does it consider the Autorité des marchés financiers or the Chambre de la sécurité financière – benefits and costs were evaluated for mutual fund activities carried on outside Quebec only.

“Most of the benefits outlined in this report are expected to accrue over time, depending on a number of factors,” they write. “Our estimate of the net present value of the cost savings achieved by dual-platform investment firms over a 10-year time period ranges between approximately $380-million and $490-million CAD. These estimates primarily reflect savings in systems and technology, staffing costs and corporate costs.”

That said, they add that there would be some one-time transition costs some investment firms would likely need to incur, including the migration of client holdings to a single book of record (a large-scale endeavor requiring IT systems upgrades, government approvals and more), the cost to repaper client accounts and costs to re-register client name accounts to nominee name.

IIROC’s announcement comes during a consultation period about whether the current self-regulatory environment best serves investors of the industry: The Canadian Securities Administrators is currently requesting feedback on its consultation paper on the framework for self-regulatory organizations in Canada. Written submissions regarding the paper are due October 23, 2020.

IIROC first proposed that the two entities – IIROC and the MFDA – merge operations in a proposal entitled Improving Self-Regulation for Canadians, back in June 2020, a suggestion that the MFDA quickly rebuffed. The MFDA’s own report, entitled A Proposal for a Modern SRO, released in February 2020, proposes that regulators instead employ a “blank page approach” to create a completely new SRO.

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