By James Langton
industry players agree on one thing: there is widespread dissatisfaction
with the current system of securities regulation. Both sides have proposed
changes, but the sheer volume of initiatives, conflicting agendas and lack
of convincing leadership is threatening to thwart effective reform.
In no particular
order, there is a federal push, a co-ordinated provincial effort,
individual provincial initiatives, joint reform projects by regulators and
individual provincial regulators’ reforms. Unfortunately, they are
duplicative, unco-ordinated and leave market players wholly uncertain.
Take Ontario, for
example, arguably the most important capital market in the country. It
faces reform proposals on several fronts: the federal Finance Ministry’s
wise persons’ committee; provincial finance ministers’ efforts to
produce a passport system; the Canadian Securities Administrators’
uniform securities law project; and three separate efforts to bring about
fundamental structural changes.
Both the WPC
report and the CSA’s final version of the USL were expected to be
released before Christmas. Regardless of what they produce, their efforts
remain subject to the whim of various legislatures. But with the current
level of political turmoil at both the federal and provincial levels, it
seems unlikely any bold reform will move forward.
reform effort will stir up controversy with the provinces, which have
always claimed jurisdiction over securities regulation. That means a
federally driven initiative is almost certainly off the agenda until after
a federal election, when the new minister would win a long-term mandate.
CSA’s own efforts to produce uniform rules will require the assent of
the various provincial legislatures. Even then, the legislatures will have
to resist the temptation to tinker at the local level. All the regulators
can do is draft the reforms and leave it up to the politicians.
provinces have pledged to pursue a passport system, although elections in
several provinces may have dissipated some of the momentum behind the
proposal. Provincial initiatives seem far more realistic than anything
federally driven, but still the ultimate implementation remains uncertain.
has initiated a trio of reform efforts. The five-year review committee
delivered its report this past summer, offering a broad range of
recommendations. The report has yet to be acted upon. Meanwhile, the
Ontario Securities Commission’s
Osborne committee, which is exploring
the need for structural reform, was expected to deliver its findings by
Jan. 1. It is considering a broad range of possibilities, including
spinning off either enforcement or the adjudicative function in an effort
to shore up the commission’s image of objectivity.
The OSC has also
finally released the recommendations of the regulatory burden task force,
struck in 2001 to advise the commission on how it could do a better job of
serving investors and the industry. Among its list of 107 recommendations:
legal delegation in the absence of the ideal of a national regulator;
dividing the Investment Dealers Association of Canada’s regulatory and
lobby group functions; overhauling the registration system; reforming the
IDA’s governance and disciplinary panels; and considering whether it
makes sense to merge the self-regulatory organizations into a single body.
The report also recommends ways to improve the commission’s
communications, service and organizational culture.
Some of the task
force’s recommendations are so old, however, they had already been
enacted. As for the others, the OSC has promised to review the proposals
and respond by the end of March.
were quick to criticize the report for going beyond its mandate in making
recommendations about the SRO system, among other things. However, this
doesn’t diminish the fact that the task force — made up of former OSC
vice chairman Morley Carscallen; Keith Gray, retired vice chairman of TD
Securities Inc.; and Gar Pink, a corporate consultant and a former senior
partner of Tory Tory DesLauriers & Binnington — were so moved by the
volume of criticism they heard, they put the recommendations in their
report. This may well reflect the feelings of the industry and investors,
but the recommendations don’t appear to have a champion among the
Commenting on the
WPC project, OSC general counsel Susan Wolburgh Jenah sums up the basic
problem facing all reforms: “There are so many different possibilities,
the real issue is always the follow-through. If nothing happens, it
becomes just another report. The issue is the will to follow through. That
will determine whether we get anywhere, and that’s impossible to
This is to say
nothing of mere policy projects that promise radical industry reform, such
as the OSC’s long-awaited fair-dealing model. That is another project
that has been promised and delayed several times. The FDM concept paper
was due out by the end of 2003, and it was reportedly on the press as
recently as this fall and pulled off again. While it doesn’t quite deal
with the fundamental regulatory structure as do the other big projects, it
is an initiative that could radically alter the operating environment for
financial industry firms.
have the market in speculative reform initiatives entirely cornered. The
B.C. Securities Commission is still moving forward with its proposal to
bring in sweeping reform. It wants to wean the system away from rules and
toward principles-based regulation, overhaul the market access disclosure
and registration systems, and bring in more private market enforcement.
The BCSC recently
released a study that found, based on interviews with market players and
simulations, its proposed new model would improve investor protection
without adding regulatory costs. It also expects to have its new
legislation ready in time for the spring legislative session.
The BCSC and OSC
have been at odds over British Columbia’s plan to go its own way, but it’s
notable that the OSC regulatory burden task force recommends many of the
ideas that are being pursued by B.C.
chairman Doug Hyndman: “I was particularly pleased to see that the OSC’s
task force endorsed themes that we at the BCSC have been pushing:
streamlining and simplifying rules and relying less on detailed,
prescriptive regulation; moving to a system of firm-only registration; and
eliminating the prospectus for companies after their IPOs and relying on
continuous disclosure as the basis for public offerings.”
is following through on plans to build a provincial super-regulator that
handles all of its financial industry regulation. Saskatchewan has already
integrated its securities, pension and insurance regulation. Ontario was
supposed to do the same, but the idea currently stands as one of those
important, fundamental reforms that legislators forgot. IE