Securities Regulation: Opportunities Exist for IIROC to Regulate Responsively

Abstract

This article examines the applicability of responsive regulation within an inter-agency framework in the financial sector. To do so, the article uses the self-regulatory organization that is responsible for governing Canada’s investment dealers and brokerage firms—the Investment Industry Regulatory Organization of Canada (IIROC)—as a prototype example to illustrate how responsive regulation may be encouraged within an inter-agency framework. While the theory aspires to general applicability, particular consideration is given to its ability to govern multiple agencies. In particular, the article pays attention to jurisdictional boundaries to ensure that inter-agency relationships have some legitimacy in market regulation.

Theorizing Financial Crimes as Moral Actions

“…The routinisation of compliance is consistent with research towards the more general trend in accounting standards and financialisation in which the logic of assessment is applied in a formulaic way (Davis & Pesch, 2013 ;Gabbioneta et al, 2013;Sikka, 2010). Within this imputed form of naturalness and normality, and in line with the critical accounting literature on the individual's choice to offend (Greve et al, 2010;Power et al, 2013;Cooper et al 2013;Choo & Tan, 2007;Power et al, 2013), people's crime propensities are triggered into action by interacting with moral rules and levels of sanctions that exacerbate their moral vulnerability (Ashforth & Anand, 2003;Lokanan, 2015b, Murphy & Free, 2016Ramamoorti, 2008). As was highlighted in various testimonies to the PCBS, circumventing these rules becomes part of the game (Braithwaite, 2013), in that they do not appear to be complex (Neu et al, 2013b), and, as such, the rule violation occurs on a routine basis (Ashforth & Anand, 2013) and their enforcement becomes so taken-for-granted that they do not merit any serious attention (Williams, 2013;Sikka, 2015).…”

“…It is hoped that, by charting this course, the paper not only provides a more nuanced understanding of financial crimes, but answers previous calls for more research in this direction (Braithwaite, 2013;Donegon & Gagon, 2008;Lokanan, 2015b;Morales, Gendron, & Guénin-Paracini, 2014). …”

“…This task is better left to interdisciplinary researchers who are encouraged to "sweep across the disciplines" (Braithwaite, 2000, p. 235) and incorporate insights from the sociology, criminology, legal studies, accounting and finance literature to the study of financial crimes (Williams, 2008, p. 493). Researchers must take stock of this theoretical stance with its distinctly interdisciplinary character and step outside the ontological box of one dimensional explanation that has long shaped the analysis of financial crime causation (see Cooper et al, 2013;Donegan & Ganon, 2008;Lokanan, 2015b;Williams, 2013).…”

Self-regulation and compliance enforcement practices by the Investment Dealers Association in Canada

“…There is also the argument that a single regulator will have supervisors for various sectors who can be captured by the very industry they are trying to regulate (Veltrop & de Haan, 2014). Hence, some sectors may have adequate safeguards, while others may be exposed to industry capture (Calomiris & Haber, 2014;Lokanan, 2015;Yackee, 2013). In the next section, the argument that fragmentation leads to poor regulation is further elaborated upon in the Canadian case.…”

“…Stigler's (1971) main premise is that powerful industry players coalesced with government to develop laws governing the financial market to further their interests. In so doing, the industry set these laws to benefit its members at the expense of the public interest (see den Hertog, 2010;Hedberg, 2015;Lokanan, 2015). Posner's (1974) work on the economic theory of regulation, in many ways, expanded Stigler's (1971) hypothesis that regulation strongly benefits interest groups.…”