Isn’t the SRO system vulnerable to self-interest?

Some people say that self-regulation is a bit like the fox guarding the henhouse. However, all regulatory responsibilities are carried out under the watchful eye of provincial regulators. Every by-law and rule created by an SRO and every single complaint is reviewed by the securities administrators. This ensures that the public interest is paramount. In addition, public governors sit on the Boards of all the SROs to monitor the public interest.

The Canadian securities industry, as with most professional bodies, highly values its self-regulatory status. Being able to regulate yourself is a privilege that must be earned every day. If the industry did not take this responsibility seriously, the privilege would be quickly lost. The industry understands that creating a system to serve only its own interests could not survive. Governments would step in. Serving the public interest is, in fact, in the best long-term interest of the industry.

Self-regulation also has real advantages for the public at large. For one, it is much less costly than a government bureaucracy. Right now the industry shoulders the very high cost of regulation and compliance. If it didn’t pay the bill, the taxpayer would have to. Secondly, it works better. Those who know the markets are more able to make practical rules and are more aware of potential loopholes and compliance problems. In turn, the industry is more likely to comply with rules of its own making.

Some people will always be suspicious of self-regulation. Yet it has worked remarkably well in providing sound and cost-effective regulation in the Canadian securities markets.

Ready to become a DIY trader?

Take control of your investing with a partner that values the same things you do.

Open an account