The board of directors of the Investment Dealers Association (IDA) has approved a proposal to separate the group into a trade association and a separate regulatory body. The idea still requires support from a majority of the brokerage services firms that make up the corporate membership of the IDA. But change is possible.

The association has been responsible for self-regulation in policing and punishing brokers and their employers for improper sales practices. Under the proposal, the new oversight organization would, however, remain entirely industry-funded. It would be guided by a separate board of directors of which half the members would be brokerage industry representatives.

Questions have been raised over time about the group’s ability to play this role while representing dealers’ interests. Directors of IDA have acknowledged that, despite belief that the it regulates the brokerage industry well, there is a public concern about a trade organization being responsible for policing its members.

Executive Office, Joe Oliver is quoted as saying, “Times are changing...There is more focus than ever before on issues of independence and issues of conflict. And there are a variety of bodies that are looking at these issues right now.”

In fact the role of self-regulatory organizations (SROs) in the financial services sector is being reviewed by key government organizations:
- The Federal Senate banking committee;
- Canadian Securities Administrators, involving provincial securities commissions.
- A Legislative committee in the Province of Ontario;

Mr. Oliver suggests that, “Perception...is vitally important that we maintain investor confidence in the self-regulatory regime.”

The second dimension of the move by the IDO involves a power shift in the financial services sector.  Current discussion involves the possibility that the IDA take over responsibility for—or merge with—two other self-regulated organizations operating in the industry:

1) Market Regulation Services Inc. (RS), responsible for policing trading activity on Canada’s exchanges;

2) Mutual Fund Dealers Association of Canada (MFDA), regulates and represents mutual fund companies and their dealers.

The argument for the combination is that it would improve efficiencies and regulatory effectiveness with a system more readily accessible by members of the public.  An argument against the combination of groups has been that the IDA represents members of a trade different from the other two organizations.

No formal proposals have been made by the IDA.  But the proposed separation of responsibilities and authorities within the group, will clear way for making a more effective proposal.

To date, the board of the MFDA has rejected any suggestion of group merger or takeover. The group has yet to outline its rationale for its own members.