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Review of the LDPSF

Significant gains put into question

By Ronald McKenzie

The Chambre de la sécurité financière (CSF) is not the only SRO to be put into question, the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ) is in the same boat. And even if there are many similarities between both organizations in terms of their structure, the solutions proposed by the Finance Minister to reform them are inconsistent and might potentially create inequalities in how the two professional groups are treated.

In his Report presented in the spring of 2015, Finance Minister Carlos Leitão questioned significant gains made for protecting the public. This has been a source of worry for not only the CSF, but other players and observers in the financial services sector in Quebec. Time will tell if the rollbacks announced – and denounced – will be come to fruition in the bill.

From the start, the Report itself was the subject of criticism. For example, Université Laval professors Raymonde Crête and Cinthia Duclos said it “lacked in terms of methodology and substance”, while the CSF stated the document did not contain “policy provisions or specific legal provisions.”

  • I am especially worried about the potential for influence peddling implied by the Report

Daniel Guillemette

Individual advisors were much more emphatic. “I am especially worried about the potential for influence peddling implied by the Report, in the eyes of some observers, when taken into account with the position of the Desjardins Group,” deplored financial security advisor Daniel Guillemette in a brief.

In fact, the Desjardins Group tabled a brief that argues for a “governmental framework” that involves integrating the CSF into the Autorité des marchés financiers (AMF). Other large groups also want ethical supervision to be overseen by either the AMF, or, for the distribution of mutual funds, by the Mutual Fund Dealers Association (MFDA), an organization headquartered in Toronto that does not have any offices in Québec.

Limiting the activities of the OACIQ

The CSF is not the only self-regulatory organization that some lobbies would like to abolish and integrate into the AMF or the government. The OACIQ is also targeted by the Minister who is considering altering its governance. Therefore:

  • The OACIQ could be entirely led by a CEO designated by the government, in line with the AMF model.
  • Currently, the CEO is named by the OACIQ board of directors.
  • Québec would significantly reduce “control from industry professionals” over the OACIQ or outright abolish it. Eventually, brokers could only make up a minority of the board of directors.
  • Committees consisting mainly of real estate brokers would provide the OACIQ with the necessary expertise to adopt regulation and peer-based discipline. What would happen with the discipline committee and post of syndic? The Report is silent on this issue.

Another option would be to limit the activities of the OACIQ in order to simply provide a regulatory framework for brokers and agencies: regulation, issuing permits, discipline, compensation, etc. The OACIQ would no longer provide services to brokers and would no longer advertise.

The OACIQ’s response: “Does the government plan to take over the organization, its structures, assets, financial commitments, as well as its 150 employees? If this is the case, it’s hard to see the reasoning behind this.”

The myth of dual oversight

In fact, integrating SROs into the AMF or a ministry would be a difficult challenge. Nothing guarantees that this process would be easy. The government is very efficient at drawing up regulations and making citizens respect its laws, but would it be able to enforce codes of conducts or ensure professional development? Overseeing the continuous development of the CSF’s 32,000 members is no easy task,” said Donald Riendeau, General Director and Co-Founder of the Institut pour la confiance dans les organisations.

For Raymonde Crête the question of integrating SROs needs to be addressed. As to whether or not it is viable, we must first analyze the pros and cons and measure the costs and benefits, which has not been done.

One thing is for certain, there will be a huge budgetary impact if the government makes the AMF take over the responsibilities of the CSF. In fact, the budget with which the CSF currently operates would not be enough to provide the same services, in view of the structure and wage scales used by a governmental entity.

If this scenario was to be adopted, either industry professionals would have to pay an increase in compliance costs, or the province would have to pay more in financial expenses. In light of this, why is Minister Leitão so adamant about integrating SROs?

Essentially, for these two reasons:

  • Self-regulation is limited when it comes to estate brokerage.
  • In financial services and general insurance, the presence of two SROs would create a costly and complicated “dual oversight” in their respective sectors that would lead to consumer confusion about the role of each regulatory body.
  • Nothing guarantees that this process would be easy. The government is very efficient at drawing up regulations and making citizens respect its laws, but would it be able to enforce codes of conducts or ensure professional development?

Donald Riendeau

The CSF wants to clarify this misconception. In Quebec, only one regulatory body supervises the financial services sector: the AMF. It delegates part of this multidisciplinary oversight regarding ethics and continuous professional development to the CSF. A bit of ambiguity can occur in the industry regarding the role of the various players, but there is no confusion regarding what the Chambre does to accomplish its mission.

For its part, the Chambre de l’assurance de dommages (ChAD) states that dual oversight is a myth. “The AMF and ChAD both have missions to protect the public, but with separate powers defined in various laws that oversee the financial services sector. There is no overlap in jurisdiction.”

The CSF shares the Minister’s objective of easing regulatory burden and improving its efficiency but not at the expense of protecting the public. The measures proposed are not the right ones. The real solution would be to delegate additional responsibilities to the CSF along with the power to supervise the distribution practices of all financial security firms in order to:

  • Leverage the streamlined, flexible, and inexpensive structure of the CSF
  • Maintain the quality of supervision over the distribution of financial products and services by qualified professionals and their firms.

Are you ready to mourn the loss of your profession?

Let’s hope the Minister‘s bill reflects this thinking.

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