National watchdog plan gains support

By Vikram Barhat | May 27, 2010 | Last updated on May 27, 2010
3 min read

The news of Finance Minister Jim Flaherty’s proposed plan for a national securities regulator has received a warm welcome by the financial industry.

Members of the industry are certain that, when passed, the national watchdog will bring in cost effectiveness, improved governance and improved investor confidence.

“I’m quite pleased with a number of aspects of the proposed plan,” says Ian Russell, president and CEO, Investment Industry Association of Canada (IIAC). “The Measures to strengthen the enforcement are very positive.”

Russell says the proposed Canadian Securities Act will improve the powers of evidence gathering for investigators.

“Within the regulatory division of the single regulator, the enforcement department is linked very closely to the police (RCMP) and that is going to streamline criminal investigations.”

He adds that the Act is all encompassing and will plug any loopholes that may exist.

“This legislation encompasses both cash securities and over the counter derivative, so they will be covering off all the securities as well as participants in the market place. And that (makes it) quite comprehensive in addressing potential regulatory gaps.”

Canada, as many know, is the only major industrialized country without a national regulator.

“I don’t know of any other G20 countries with our fragmented model,” says Ellen Lee of Toronto CFA Society, vice-chair external relations & advocacy committee.

That is about to change, paving the way for a whole host of benefits for market participants.

“The potential benefits (of having a national regulator) are increased investor confidence, better international presence, greater efficiency and, most importantly, enhanced cost-effectiveness for our investors and financial markets,” says Lee.

Once passed, introduction of a national regulator will have far-reaching impact on the financial industry and investors.

“I think it will enhance investor confidence because it is going to be a tougher enforcement,” says Russell. “There’s also going to be more resources and expertise that will be brought to bear on the regulatory process.”

All that is expected to improve the level of confidence of the investor in the integrity of the marketplace. Russell says the system will offer cost savings on different levels.

“First, the elimination of 13 regulators (and replacing them by) one means fees and costs will come down.”

“Second, its guiding principals will ensure that compliance costs are proportionate to the regulatory objective. So there will be a conscious effort to develop cost efficient regulations,” adds Russell.

Elimination of rules at the individual commission level future brings down the cost of compliance.

Russell says that the “rule making process will get streamlined” and work more efficiently and that “will have a positive impact on market participants.”

There has been very little criminal law enforcement in Canada in the capital markets and the proposed Act will change that, says Stephen Griggs, executive director of the Canadian Coalition for Good Governance.

“We are very pleased to see in the proposed legislation the beginning of the integration of the administrative and criminal enforcement of laws related to the capital markets.”

Griggs says the Act gives improved tools to enforce the criminal sanctions. “These are tools that police and others involved in capital market matters have been asking for for many years.”

He also expresses satisfaction over the opt-in model built into the new legislation. “Voluntary adoption process (allows) provinces (to) opt in if they feel it is appropriate for their markets.” The legislation recognises legitimate differences and the views of a number of provinces, Alberta and Quebec in particular.

There are, however, those who are not ready to wave the national regulatory flag just yet. Rebecca Cowdery, partner at securities law firm Borden Ladner Gervais is one of them.

“It is way too early to comment on whether the current proposals will be any better,” says Cowdery. “I do sometimes fear that our proposed ‘Canadian way’ of securities regulation will only put a new name on the existing regional regulators and regulatory attitudes.”

She says a decentralized model, with separate regional offices of the Canadian Securities Commission, along with a separate Alberta and Quebec provincial regulators and potentially other separate provincial regulators, will not necessarily be an improvement on the existing model.

“Serious operational changes are required before industry participants will see some benefits. Those serious operational changes will take a lot of work to achieve,” says Cowdery.

Vikram Barhat