National Post (National Edition)
Beefing up Bay St.'s self regulation
TORON TO • Six months ago, Andrew J. Kriegler rode down three floors in his office tower in the heart of Toronto’s financial district to a new suite in what some would consider an entirely different world.
Up on the 23rd floor, he had been deputy superintendent of the Office of the Superintendent of Financial Institutions (OSFI), a decades-old regulator well regarded around the world for its role in keeping Canada’s financial system functioning with few hiccups during and in the aftermath of the financial crisis of 2008. But the short elevator trip took him to a new job as head of the Investment Industry Regulatory Organization of Canada (IIROC), a self-regulatory agency.
IIROC was created the same year that the financial crisis took hold, and Kriegler, 50, is only the second person to occupy the chief executive’s office on the 20th floor. IIROC was born out of a merger that shook off the advocacy branch of the investment dealers’ trade association and added market regulation functions. The goal was to improve both the “quality and effectiveness” of the industry’s policy-setting and conduct agency.
Kriegler acknowledges the differences between the two organizations, but says he was pleasantly surprised to find a crucial element they have in common.
“One of the things that I really liked about arriving here at IIROC was finding that the culture was very similar to that of OSFI,” he said in an interview this week, his first since taking the job. There’s a sense within both organizations that people there are doing important work on behalf of the public, he said.
Yet the reputation of selfregulatory organizations like IIROC is that they’re thought of as a lighter touch than public watchdogs.
Neil Gross, executive director of the Foundation for the Advancement of Investor Rights, for example, says IIROC penalties levied against transgressing investment advisers “sometimes appear to reflect a surprising degree of tolerance for wrongdoing,” even though he concedes that the overall approach to enforcement is an “evolutionary improvement” over the Investment Dealers Association, one of the two industry self-regulatory bodies that merged to become IIROC (the other was Market Regulation Services Inc.).
But Kriegler is quick to point out — repeatedly — that IIROC is guided by recognition orders from provincial securities commissions that compel it “to act in the public interest,” which goes far beyond industry concerns or preferences.
His resumé is reflected in a collection of mugs in his office bearing the names of two of Canada’s largest banks as well as debt-rating agency Moody’s Investors Service. So perhaps it is not surprising that he also views IIROC’s close ties to the industry as a point of strength rather than weakness.
“We’re closer to what goes on in the industry and what goes on in the markets, and that can help inform the policy-making process,” says Kriegler, an avid runner who completed a full marathon in 2013, just shy of two years after undergoing surgery for prostate cancer.
He’s not standing still at IIROC. Among his top priorities is to improve a dismal record for collecting fines from individuals caused by a loophole in some provinces, including Ontario and British Columbia, that makes collection very difficult once someone has left the industry.
While IIROC was able to collect 100 per cent of fines and penalties from firms last year, it only managed to collect 17 per cent of the financial sanctions meted out against individuals.
Kriegler said he plans to work with provincial governments and securities regulators to ramp that up by getting the courts involved. There is a precedent for this: The law was changed in Quebec in 2013 to allow IIROC disciplinary decisions to be filed with the courts. In that province last year, IIROC collected 59 per cent of fines and penalties levied against individuals.
In Alberta, where similar powers have existed for a number of years, 26 per cent of fines and penalties were collected from individuals between 2008 and last year. Although that’s lower than the Quebec figure, the rate still beat the national average, Kriegler points out.
“One of my priorities is to try to get that put in the other provinces of Canada,” he said.
The sprinkling of statistics into the discussion touches on what is to be a major theme of Kriegler’s tenure: policy decisions driven by the collection and analysis of hard data.
In that vein, IIROC is measuring the impact of rules imposed in 2012 for trading in “dark pools” — venues removed from more transparent “lit” markets to allow large trades to take place without triggering big price movements. The regulator wants to know if the rules restricting dark trading are having the desired effect on price discovery.
Kriegler is also preparing to helm a major project with the Bank of Canada to collect and analyze debt-trading data from IIROC-regulated dealers. The domestic bond-trading market has been fairly opaque because most trades takes place “over the counter,” rather than on an exchange — yet the market’s value in 2014 was about $10.8 trillion, nearly five times the value of equity market trading.
“It’s clear that the debt markets are worthy of a regulatory investment commensurate with their importance to the economy, to investors [and] to financial stability,” says Kriegler, whose education includes a degree in computer science and economics, as well as an MBA.
The data won’t be made public but will be shared with the country’s central bank.
“The Bank of Canada has an interest in the health and functioning of the Canadian debt markets for a whole bunch of reasons,” Kriegler says. “Debt markets are a transmission mechanism for monetary policy, and debt capital is an important source of fuel, if you will, for the economy, and so they want to know how debt markets are functioning.”
The partnership with the Bank of Canada is an example of how IIROC can increasingly “plug into the Canadian regulatory framework” while advancing its own mandate, he says.
Julie Dickson, the former superintendent of OSFI who was Kriegler’s boss for about a year when he worked there, says his knowledge of how regulators work and experience in the financial industry would have made him attractive to IIROC, whose inaugural CEO — Susan Wolburgh Jenah — came from a long career as a regulator.
“Every leader brings something different to the job,” Dickson said when reached Tuesday in Frankfurt. “It was easy to understand why he was chosen to lead IIROC.”
She described Kriegler, who was viewed at one time as a dark-horse candidate to replace her at OSFI, as energetic and a “very fast learner.”
She also praised the Ottawa-raised Kriegler for working to improve his French, a skill he plans to put to the test Thursday when delivering his first public address as CEO of IIROC at the International Finance Club of Montreal.
Though he was fighting a lingering cold this week, he was eager to push his limits with the language, and enthusiastic about the breadth of experience he feels he can bring to bear through the next phase of IIROC’s evolution.
“Sitting at the financial services table, I’ve sat at a lot of the seats,” said Kriegler, who started his career at Goldman Sachs in the United States in the late 1980s.
These days, at IIROC, he says he feels like he is sitting at the intersection of public policy and financial services, with a heavy dose of exposure to what drives human behaviour.
“IIROC is in the centre of those three…. It gives me a chance to use just about everything I’d ever learned in one place.”
It’s clear that the debt markets are worthy of a regulatory investment commensurate with their importance to the economy, to investors [and] to financial stability.
— Andrew Kriegler, chief executive of the Investment Industry Regulatory Organization of Canada (IIROC).