New year, “New SRO” … new enforcement?

As of January 1, 2023, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA) ceased to exist. These self-regulatory organizations were replaced by an amalgamated SRO named New Self-Regulatory Organization of Canada, or “New SRO”. New SRO is the only pan-Canadian securities regulator, governing the conduct and operations of former IIROC and MFDA registrants across the country. While the integration process is expected to take some time, this bulletin provides some short-term expectations and longer-term trends about enforcement by this new regulator.

What you need to know

• Consolidated rule book. New SRO is currently working on a consolidated rule book (excluding the UMIR Rules, which will continue to exist as they are), which will be published over time. In the short term, enforcement processes for former MFDA and IIROC registrants will continue to follow existing practices.
• Complaint filing. The complaint filing process will remain the same, though former MFDA registrants will shift to the IIROC COMSET system. As with the MFDA and IIROC, we can expect that client complaints will continue to generate the majority of regulatory investigations for New SRO.
• Rules application. A key issue we will be tracking is how New SRO will calibrate its interpretation and application of the rules to the different sizes and profiles of dealers within their jurisdiction. These differences will be more pronounced for the new combined regulator, because MFDA registrants tend to include a greater proportion of dealers which are more entrepreneurial and smaller scale than IIROC registrants.
• District hearing committees. New SRO district hearing committees will replace existing IIROC and MFDA hearing committees and regional councils. In the short term, existing committee members from both SROs will be included as members of the new hearing committees. However, we can expect hearing committee membership to change over time.
• Investor education about complaints. New SRO’s Amalgamated Office of the Investor has a broad investor protection mandate, including to “ensure that the complaints and inquiries process is easily understood to investors”. This emphasis on investor education with respect to complaints will be a catalyst for these complaints continuing to be a primary source of new investigations.
• Selection of matters for prosecution. In 2022, IIROC referred 41% of its investigations to prosecution. The MFDA does not publish similar statistics, but our experience suggests that the percentage is at least similar and likely higher. We expect that New SRO is likely to take a similar approach to its selection of matters that should proceed to prosecution as that followed currently by IIROC. In the future, registrants may anticipate greater focus on enforcement matters that engage important regulatory initiatives that were common to both IIROC and the MFDA (i.e., seniors, conflicts of interest).
• Enforcement. It remains to be seen how New SRO will amalgamate the differing enforcement processes used by IIROC and the MFDA, such as IIROC’s case assessment process and early resolution program. We expect that New SRO will include IIROC’s enforcement process changes as part of its future consolidated process.
• Securities commission oversight. As the Canadian securities commissions had oversight with respect to IIROC and the MFDA, they also oversee New SRO. New SRO figures prominently in the OSC’s latest Statement of Priorities¹, which signals the Commission’s intention to incorporate new registration categories into the SRO which have traditionally been overseen by the securities commissions (e.g., portfolio managers and exempt market dealers) and to implement an enhanced registration process.