I am pleased to present IIROC’s 2014-2015 Annual Report. It gives us the opportunity to report to you on the efforts we have undertaken in the public interest over the past year, to highlight the accomplishments of the organization and to note the challenges we see ahead.
The period since I joined IIROC in November 2014 has been marked by continued rapid change in Canada’s capital markets and in the legal and regulatory landscape across the country. Not only is technology drastically transforming the structure of the markets we oversee and the business models that operate within them, it is providing investors with new ways to access those markets and to select the level and type of investment advice that is appropriate for their needs. At the same time, changing demographics and investor expectations are simultaneously creating new opportunities and posing significant challenges for the financial services industry as a whole.
Amid this evolution, IIROC must balance its efforts between a continuing focus on our core work – protecting investors and fostering fair, efficient and competitive capital markets – and preparation for the future. It is only by finding the appropriate balance that we can ensure that Canadian markets have integrity and the confidence of investors.
This past fiscal year marked the final year of IIROC’s three-year strategic plan and significant progress has been made in advancing our key strategic, operational and policy goals.
In April 2015, we published a statement of priorities which signaled key initiatives for the current fiscal year as we embarked on a new and more comprehensive consultation that will lead to a strategic long-term plan.
Given all of the changes that have taken place over the past several years, we concluded that a mere evolution of that plan could not support the needs of our stakeholders over the coming years. As a result, we have launched a robust strategic review to consider the needs and expectations of our diverse stakeholders, and to identify trends in markets and in the structure of securities regulation across Canada. This process will result in a renewed strategic vision for the organization, objectives for the following three years and ways to measure our progress.
In July 2015, we published a request for comment to obtain broad-based input on strategic issues from investors, capital market participants, the investment industry, regulatory partners and other stakeholders. We have asked for comments on three specific questions including what important trends stakeholders see in the industry and regulatory environment that could impact IIROC and our public interest mandate.
As a public interest regulator, among our priorities is strengthening enforcement against those who break the rules. IIROC makes every reasonable effort to collect the penalties imposed on dealers and individual registrants who, through our disciplinary process, have been sanctioned for breaking the rules of good conduct.
We typically collect 100% of fines and other penalties levied against firms across the country, but collecting from individuals is much more challenging – in fiscal 2014-2015, we collected but 13.3% from individuals. However, our collection rates are dramatically higher in the two Canadian provinces where legislation gives IIROC clear authority to seek court certification of our disciplinary decisions and enables us to pursue payments as if the fines were decisions of the court. In 2014-2015, we expanded our efforts on pursuing similar powers in provinces where they currently don’t exist.
Having this uniform ability will send a strong deterrent message, hold registrants accountable for their actions regardless of where they do business – and indeed whether they stayed as registrants – and give investors greater confidence in the strength of the regulatory system.
It also reflects our priority to strengthen our collaboration, coordination and harmonization with our partner regulators, their governments and other relevant stakeholders.
These unifying principles underlie, for example, the work being done across the industry to effectively implement the Client Relationship Model (CRM) which will result in enhanced transparency, disclosure and suitability. CRM raises the bar for industry standards, better informs investors about the fees and performance of their investments and improves communication and understanding between advisors and their clients.
In January 2015, IIROC announced approval of the final set of CRM reforms for implementation over the next couple of years, as approved by the Canadian Securities Administrators (CSA). IIROC’s enhanced disclosure requirements, which are harmonized with the CSA’s rules, are designed to bring greater transparency of account information so that advisors and clients can have more meaningful conversations.
Not only has the relationship among advisors and clients evolved, so has the pace of innovation, competition and complexity of capital markets in Canada and globally. These realities highlight the importance of robust regulatory oversight in enhancing market integrity and investor confidence.
IIROC is in a unique position in that we conduct surveillance of all Canadian equity markets – which provides valuable regulatory data and insights into the markets. The information we derive helps us to better identify patterns and trends including inappropriate trading, and informs both enforcement actions and policy development at IIROC and at the provincial authorities.
Given the debt market’s obvious size and importance to Canada’s economic growth and financial stability, IIROC has also been working with the Bank of Canada and the CSA to improve the timeliness and comprehensiveness of regulatory oversight of debt market activity. We have made significant progress over the past year on our debt transaction reporting initiative and, beginning in November 2015 with firms classified as government securities dealers, all IIROC-regulated firms will be required to report all debt security transactions they execute.
In collecting this new information we will have valuable data to help us determine what regulatory response will best correct any identified unfairness among participants. It will also help to inform other regulators’ efforts – such as the CSA’s complementary initiative to enhance regulation of fixed income markets by increasing transparency, improving market integrity and evaluating access.
The knowledge gained through our investments in IIROC’s surveillance, oversight and analytical work is especially important at a time when the environment is increasingly challenging securities regulators, the investment industry and all market participants. These tools will help us meet the challenges and demands for the future and provide enduring value for all stakeholders and regulatory partners.
At the same time, as a self-regulatory organization IIROC is committed to prudent fiscal management on all fronts. While adapting to the growing needs for information, analysis and insight, and real-time oversight, we will continue to control costs, strengthen our performance management culture and deliver smart, effective and efficient regulation.
I would like to acknowledge the contributions of all of my IIROC colleagues across the country: it is their hard work and commitment that allow us to deliver securities regulation in the public interest.
I am also thankful for the help and support provided to me by the IIROC Board of Directors and my partners on the management team for ensuring a seamless transition during my first months here. With these dedicated and talented colleagues, I am confident that IIROC will continue to ensure that investors have Canadian capital markets they can count on and trust.
Andrew J. Kriegler
President and CEO