Self-regulatory organizations (SRO)
A self-regulatory organization (SRO) is an entity that is organized for the purpose of regulating the operations and the standards of practice and business conduct of its members and their representatives with a view to promoting the protection of investors and the public interest. SROs:
- set regulatory and investment industry standards
- regulate the business and financial conduct of member firms and their registered representatives
- have a mandate to protect investors and the public interest
Ontario’s Securities Act provides the Ontario Securities Commission (OSC) with the power to recognize SROs and to set out the authority of an SRO to carry out certain regulatory functions. The recognition orders also set out terms and conditions each SRO must comply with in carrying out their regulatory functions. The terms and conditions of recognition require each SRO to operate on a not-for-profit basis and continue to meet set criteria such as:
- ensuring an effective governance structure
- regulating to serve the public interest in protecting (i) investors and (ii) in the case of IIROC, market integrity
- effectively identifying and managing conflicts of interest
- operating on a cost-recovery basis
- maintaining capacity to effectively (i) perform its regulatory functions and (ii) establish and maintain rules and
- complying with ongoing reporting requirements to the applicable recognizing regulators.
As part of the Canadian Securities Administers (CSA), the OSC’s oversight of SROs is coordinated through separate memoranda of understanding (MoUs). Each MoU describes how the CSA will oversee the SRO’s performance of its self-regulatory activities and services, and to ensure it is acting in accordance with its public interest mandate, specifically by complying with the terms and conditions of recognition.