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Canadian Bankers Association-Time for a Canadian Securities Commission

Passport System of Regulation Falls Short

Last update: 1:35 p.m. EDT July 15, 2008

TORONTO, ONTARIO, Jul 15, 2008 (MARKET WIRE via COMTEX) -- In its submission to the Expert Panel on Securities Regulation, the Canadian Bankers Association (CBA) today called for the federal government to create a single securities regulator, a Canadian Securities Commission, to enhance Canada's competitive advantage internationally.

"We agree with the federal government that it's time to take a fresh look at securities reform in the broader context of enhancing Canada's ability to compete internationally," said Nancy Hughes Anthony, President and CEO of the Canadian Bankers Association. "A single Canadian Securities Commission that would enhance efficiency, increase confidence in the markets and allow regulators to respond more quickly to market events would improve the productivity of the Canadian economy and our international competitiveness as a result."

In its submission, the CBA notes that Canada can no longer afford to maintain the current system of 13 securities regulators with 13 sets of regulations if it wishes to remain competitive and attract global investment dollars.

"The current impasse on securities reform is simply unacceptable when you consider the key role efficient capital markets play in promoting economic development," said Ms. Hughes Anthony.

According to data from the International Monetary Fund, if Canada were regulated and viewed internationally as a single market, it would rank after the U.S., the U.K, Japan, France and China. But broken down as individual provinces, which is what our current regulatory system does, Ontario's market is smaller than Italy, Alberta's is smaller than the Netherlands, Quebec's is comparable in size to Denmark and B.C. is the equivalent to that of Ireland.

Passport system failing

Moreover, the passport model of securities regulation now in place outside Ontario is not delivering the benefits that a single regulator would, either for Canadians who are seeking opportunities to build their financial future, or for entrepreneurs and businesses seeking capital to grow and create jobs.

"The existing passport model of securities regulation simply doesn't deliver, especially for small- and medium-sized businesses (SMEs) and individual investors, particularly in Quebec and smaller provinces," said Ms. Hughes Anthony. "Over 90 per cent of capital market transactions take place in more than one province or territory so it makes sense that our regulatory structure should reflect this economic reality."

In addition, the CBA's analysis of public company data found that retail investors outside B.C., Alberta and Ontario are limited in their ability to participate in initial public offerings (IPOs). In the year before the passport system was implemented, retail investors in the remaining provinces were able to participate in between 67 per cent and 77 per cent of IPOs. Over the four years of the passport system, retail investors outside of the main jurisdictions, particularly in Quebec and the smaller provinces, have had less and less access to IPOs. However, under a single regulator, retail investors across Canada would have open access to these securities.

The fragmented system in Canada also has a negative impact on Canadian firms' attempts to raise capital by imposing unnecessary costs, and this burden falls disproportionately on SMEs since there are clear economies of scale in developing and filing securities offerings.

Enhancing Canadian Competitiveness

A single securities regulator would make it easier to allow for additional positive reforms including:

  • Making it easier to move towards a principles-based approach to regulation instead of the current system of prescriptive rules - a move that would lead to a more competitive and flexible regulatory system.
     
  • Allowing Canadians more efficient and cost-effective access to foreign securities for their investment portfolios by removing some of the hurdles towards creating mutual recognition agreements that would allow for free trade in securities.

The International Monetary Fund, the Organization for Economic Co-operation and Development and Canada's own Competition Policy Review Panel have all recognized the benefits of a single regulator for Canada since it would eliminate inefficiencies and reduce costs for market participants.

Moreover, Canada is out of step with other countries around the globe which are moving ahead with securities reform. Of the approximately 100 countries that are represented on the International Organization of Securities Commissions, Canada is the only country without a national securities regulator.

The CBA's submission to the Expert Panel on Securities Regulation can be found at the following link: http://www.cba.ca/en/content/reports/080715%20-%20Enhancing%20Canadian%20Competitiveness_FINAL.pdf

The CBA research on the impact that multiple regulators have on the cost of raising capital for small businesses can be found here: www.cba.ca/en/section.asp?fl=4&sl=269&tl=278&docid.

The Canadian Bankers Association works on behalf of 51 domestic chartered banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 257,000 employees to advocate for efficient and effective public policies governing banks and to promote an understanding of the banking industry and its importance to Canadians and the Canadian economy.
 

Contacts:
Canadian Bankers Association
Melanie Minos
(416) 362-6093, ext. 220
Cell: (416) 587-7733
Email: mminos@cba.ca