By James Hamilton, J.D., LL.M.
Canada is the only industrialized country without a common securities regulator. And the present system of thirteen provincial regulators is seen by many as cumbersome, fragmented, and lacking the proper tools of enforcement. But a bill moving through the Canadian Parliament may change all that. Largely modeled on the Ontario Securities Act, the bill, S-211, calls for the replacement of provincial securities regulators with a single federal regulator administering a new federal securities law.
In testimony before the Senate Banking Committee last December, David Dodge, former governor of the Bank of Canada, said it was difficult to determine the penalty that Canada is now paying for retaining the current multi-level securities regulatory system. A good securities framework, he noted, would enable the markets to function efficiently and with sufficient flexibility to ensure that the system is not overburdened with regulation.
The current passport system is viewed as inadequate in allowing Canada to compete successfully at the international level. For example, with the passport system, investors deal with 13 securities regulators, with 13 sets of laws, however harmonized, and with 13 sets of fees. Further, the passport system does not have a national coordination of enforcement activities, nor does it address the need to improve policy making. It is still necessary to obtain agreement from 13 regulators to make changes to the rules.
Moving on a separate track from the bill is a government plan for a common securities regulator. While the difference between a common and a single regulator may seem semantical, Senator Michael Meighen explained that a single regulator is generally understood to mean one regulator administering one securities act, with responsibility for the regulation of securities throughout the country. Indeed, in 2003, the Wise Persons Committee recommended the establishment of a single regulator under a federal statute.
A common regulator implies the participation of willing governments in establishing a joint organization responsible for the regulation of securities in their respective jurisdictions. In 2006, the Crawford panel recommended just this model. A common regulator emphasizes and, indeed requires, cooperation among all levels of government, rather than the federal government simply going it alone.
The government’s plan is designed to make Canada more competitive in the global market. A common securities regulator would improve market efficiency and ensure the best use of money. A common regulator would also improve enforcement and better protect investors with a common set of sanctions and remedies. And a common regulator would allow Canada to move towards a simpler, more principles-based regulation.
For Finance Minister James Flaherty, the great advantage of a common regulator would be the establishment of a national enforcement strategy. Currently, some provinces lack sufficient expertise to investigate and prosecute complex cases. The Minister also believes that moving to a common securities regulator with a new common securities act would provide a unique opportunity to introduce more principles-based, proportionate regulation. This would help establish a regulatory regime that is more flexible and more responsive.
Moving to a common securities regulator is supported by the Investment Industry Association of Canada, representing investment banks and broker-dealers. The idea of a common regulator is also endorsed formally by the Canadian Coalition for Good Governance, whose members include pension funds and other institutional investors.