National regulator would be decentralized: CSTO

By Steven Lamb | July 13, 2010 | Last updated on July 13, 2010
3 min read

For a national securities regulator, the proposed Canadian Securities Regulatory Authority (CSRA) bears an uncanny resemblance to the current system of Balkanized regulation.

The Canadian Securities Transition Office (CSTO) has issued its transition plan for the creation of the contentious regulator, and decentralization appears to be the key. Intended to provide consistent protection to investors, the CSRA roadmap makes frequent promises to remain “sensitive” to regional differences.

“The CSRA will be an integrated national body with local service delivery and distributed decision-making,” the CSTO report says. “The CSRA will have an office in each participating province and will provide regulatory services in each participating territory either through its own local office or through an existing government agency.”

The Canadian Securities Regulatory Authority is envisioned as a Crown Corporation, but would include several innovations in its governance structure. Appointments to the Authority would be made by a council of ministers responsible for securities regulation — including the federal Minister of Finance — rather than strictly by the federal government.

While the CSRA is intended to provide consistent protection to investors, the roadmap makes frequent promises to remain “sensitive” to regional differences.

“Managers and staff in local offices will have delegated authority to make decisions,” CSTO says. “This authority will be balanced by national standards.”

The CSRA would be limited to policy-making and would include an Investor Advisory Panel. An independent Canadian Securities Tribunal would be in charge of enforcement.

The new regulator would provide “strong enforcement through cooperation and coordination among police and regulatory and prosecution authorities.”

The inclusion of the police is interesting, as one of the primary criticisms of the current regulatory system is that it has no teeth, making Canada a playground for fraud.

CSTO points out that the national regulator would give Canada a stronger voice in negotiations toward new international standards.

“The CSRA will be dedicated to seeking the best outcomes for all of Canada, by establishing national standards and applying them at the local level, within an accountability framework that will ensure appropriate local decision-making authority,” CSTO said in its release.

The next steps toward such regulation reform will see CSTO ask the provinces to sign on to this basic structure, ratifying the development agreements by September 2010. Additional agreements will be negotiated in 2011, and would provide for the actual commitments to proceed with the CSRA.

The CSRA is expected to commence operation in July 2012.

“It is extremely important that the implementation of a Canadian securities regulator will be seamless for financial system professionals and investors alike,” said Federal Minister of Finance Jim Flaherty. “The transition plan released today lays out a path to that end and represents a key milestone in the establishment of an effective Canadian securities regulator that will improve securities regulation in Canada, strengthen protection for investors and enhance enforcement.”

One of the fears of the hold-out provinces is that a national regulator would result in a concentration of expertise in Toronto — effectively creating a brain-drain for the rest of the country.

Rather than allaying that fear, the Toronto Financial Services Alliance has promptly issued a press release pointing out that a Toronto headquarters would be the logical choice.

“We recognize the political sensitivities of this, but our members believe this should be a pragmatic business decision, not a political one,” said Janet Ecker, president of the Toronto Financial Services Alliance. “Toronto is Canada’s financial capital. Most securities transactions take place here.

“While regional offices and local decision-making are important, we remain convinced that the organization needs a head office and it should be located here.”

To read the full report, click here.


Steven Lamb