Time to Unify

Is it time to call for a unified body to regulate Canadian securities?

Currently Canada is the only major, developed economy without a centralized, national body regulating securities. Instead it’s fragmented, with regulation administered provincially.

This leads to all thirteen provincial and territorial jurisdictions having their own independent set of rules governing the public offering and sale of securities.

Not only is their disparity across the country in the regulations themselves, but also in enforcement powers, tribunal mechanisms, priorities and sanctions.

 

Number of security firms in Canada

Consequences

The consequences of this incongruity are numerous:

• Dilution of regulatory resources
• Less transparency and confusion regarding accountability
• Decrease in the efficiency of information flow, which can lead to costly delays
• Act as an impediment to effective enforcement
• Disparities in enforcement experience and capability across jurisdictions
• Frustration for small and mid-sized firms trying to expand beyond their home jurisdiction
• Deterrence to foreign investors who may simply not want to deal with such a circuitous system when they could simply go elsewhere

Change is in the Air

There have been calls to modernize the regulation scheme.

In 2005 a panel was created, headed by prominent Toronto lawyer Purdy Crawford, to review the current regulation scheme.

The result reached by the panel was that a unified Canadian Securities Commission should be created whereby each jurisdiction would have equal say in the new regulator to ensure that the larger provinces do not dominate the agenda of such a commission.

Recently, Canadian Finance Minister Jim Flaherty called for the creation of a national securities regulator stating that Canadian companies currently have to jump through too many hurdles and that the development of a unified watchdog would foster business in Canada.

Flaherty warned that the current framework could delay financing and impede businesses that are trying to grow and could cause these enterprises to turn to private investment or choose markets outside of Canada.

Provincial Initiatives

All this is not to say that these issues are not being addressed by the current provincial regulators.

Commissions in 9 of the provinces and all 3 territories are proposing a system, whereby a company or investment dealer can register securities in one jurisdiction that will be recognized by the other jurisdictions in the country once approved.

This would allow a party to register with only one jurisdiction and deal with one set of regulations.

The only opposition to the planned scheme is the Ontario Securities Commission who contends that the system, although adding efficiency to the current regime, does not fully address all the shortcomings of the current patchwork of organizations. The OSC feels the only solution is a unified, national commission.

Previous Attempts

This is not a new issue; there have been calls for a national regulatory commission for years. Any attempt at the creation of such a body has been plagued with disputes between existing jurisdictions.

Amidst the current turbulence caused in international markets resulting from exposure to the sub-prime mortgage market in the United States, greater attention should be brought to our securities regulation.

Although a unified commission in Canada would not have changed the current financial landscape in this country, it should, however, highlight the importance of providing the most efficient and effective regulatory body possible for the benefit of both companies and investors.

A single commission could arguably more aptly and expediently reform its provisions to prevent a similar situation from occurring in the future.

See the Crawford Panel for more information.