Why Canada Needs a Single National Securities Regulator
In regulating Canada’s securities markets, provincial governments have defended the indefensible for too long. The current system of 13 regulators hurts Canadian companies as they try to raise money for growth. It reduces the choices open to investors. It leads to inconsistent enforcement of the rules, and undermines Canada’s ability to compete globally. We need a single regulator now.
Until now, provincial governments and regulators have limited themselves to exploring two less desirable approaches: harmonization of securities laws and a so-called passport system that would give companies the simplicity of dealing with one regulator while continuing to pay for 13. Even if implemented by all jurisdictions, a passport system would maintain excessive costs for market participants and perpetuate inconsistent interpretation and enforcement. What is more, neither harmonized rules nor a passport system can handle rapid change. At present, it takes as long as four years to pass even non-controversial rule changes.
In December, the federally appointed Wise Persons’ Committee to Review the Structure of Securities Regulation in Canada made a compelling case for creating a single regulator run jointly by the federal and provincial governments. Jurisdictional issues are no excuse for provincial and territorial governments to reject the idea of a single regulator. The key to fully respecting provincial jurisdiction is the concept of delegated authority, advanced by the provinces themselves. The uniform securities legislation proposal calls for the delegation of specific functions among regulators. The passport model does the same, on a larger scale. Wholesale delegation by provinces to a single regulator would be consistent with this approach.
Replacing 13 regulators with one would benefit investors, issuers and dealers by offering one set of rules; lower costs; consistent interpretation and enforcement; timely response to changing circumstances; and a more effective Canadian presence internationally.
Unanimous provincial support is not necessary to proceed. As is done in the education sector through the Council of Ministers of Education, Canada, interested provinces could agree to form a consortium to develop the concept.
To be effective, the resulting model would require the support of a majority of provinces and territories that also account for a substantial majority of market activity. This would lead to a joint regulator for all provinces willing to participate.
Even if this initially produced a system involving several regulators, it still would be an improvement. And once such a body was launched, market forces would create a strong incentive for the remaining provinces to come on board.
If provincial and territorial governments reject the single-regulator model, the federal government could always proceed unilaterally. This is politically unlikely and would add to complexity, costs and legal uncertainty in the short term. Still, the need to respond to the changes sweeping through capital markets globally is so great, unilateral federal action cannot be ruled out.
But if Canada fails to develop an effective regulatory system of its own, it will by default delegate increasing authority over Canadian issuers to another national regulator, the United States Securities and Exchange Commission.
The best answer is to create a single securities regulator.
Thomas d’Aquino is President and CEO of the Canadian Council of Chief Executives.